Legislature(2003 - 2004)

04/24/2003 01:31 PM L&C

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                    ALASKA STATE LEGISLATURE                                                                                  
          SENATE LABOR AND COMMERCE STANDING COMMITTEE                                                                        
                         April 24, 2003                                                                                         
                           1:31 p.m.                                                                                            
MEMBERS PRESENT                                                                                                               
Senator Con Bunde, Chair                                                                                                        
Senator Ralph Seekins, Vice Chair                                                                                               
Senator Gary Stevens                                                                                                            
Senator Bettye Davis                                                                                                            
Senator Hollis French                                                                                                           
MEMBERS ABSENT                                                                                                                
All members present                                                                                                             
COMMITTEE CALENDAR                                                                                                            
SENATE BILL NO. 180                                                                                                             
"An Act  establishing the Safety  Code Task Force;  and providing                                                               
for an effective date."                                                                                                         
     MOVED CSSB 180(L&C) OUT OF COMMITTEE                                                                                       
SENATE BILL NO. 114                                                                                                             
"An  Act increasing  the fee  for a  state business  license; and                                                               
providing for an effective date."                                                                                               
     HEARD AND HELD                                                                                                             
SENATE BILL NO. 168                                                                                                             
"An Act relating  to issuance and revocation of  licenses for the                                                               
importation,  sale, distribution,  or  manufacture of  cigarettes                                                               
and  tobacco products;  relating to  a tax  refund or  credit for                                                               
unsaleable, returned, or destroyed  tobacco products; relating to                                                               
restrictions on shipping or  transporting cigarettes; relating to                                                               
records concerning  the sale of  cigarettes; amending  and adding                                                               
definitions relating to cigarette  taxes; relating to the payment                                                               
of  cigarette   taxes;  relating   to  penalties   applicable  to                                                               
cigarette  taxes; relating  to the  definition  of the  wholesale                                                               
price  of  tobacco products;  relating  to  payment of  cigarette                                                               
taxes  through  the use  of  cigarette  tax stamps;  relating  to                                                               
provisions making  certain cigarettes  contraband and  subject to                                                               
seizure and  forfeiture; relating  to certain  crimes, penalties,                                                               
and interest  concerning tobacco  taxes and sales;  and providing                                                               
for an effective date."                                                                                                         
     MOVED CSSB 168(L&C) OUT OF COMMITTEE                                                                                       
SENATE BILL NO. 102                                                                                                             
"An Act increasing the amount of revenue received by the state                                                                  
from charitable gaming activities; and providing for an                                                                         
effective date."                                                                                                                
     HEARD AND HELD                                                                                                             
PREVIOUS ACTION                                                                                                               
SB 180 - See Labor and Commerce minutes dated 4/15/03.                                                                          
SB 114 - See Labor and Commerce minutes dated 3/18/03, 4/10/03                                                                  
and 4/15/03.                                                                                                                    
SB 168 - See Labor and Commerce minutes dated 4/15/03.                                                                          
SB 102 - See Labor and Commerce minutes dated 3/13/03.                                                                          
WITNESS REGISTER                                                                                                              
Mr. Zach Warwick                                                                                                                
Staff to Senator Therriault                                                                                                     
Alaska State Capitol                                                                                                            
Juneau, AK  99801-1182                                                                                                          
POSITION STATEMENT: Commented on SB 180 for sponsor.                                                                          
Mr. David R. Owens                                                                                                              
Owens Inspection Services                                                                                                       
P. O. Box 3589                                                                                                                  
Palmer AK 99645                                                                                                                 
POSITION STATEMENT: Supported SB 180.                                                                                         
Mr. James Baisden                                                                                                               
Kenai Fire Marshall                                                                                                             
PO Box 105, South Willow Street                                                                                                 
Kenai AK 99611                                                                                                                  
POSITION STATEMENT: Opposed SB 180.                                                                                           
Mr. Steve Shuttleworth                                                                                                          
Fairbanks Building Official                                                                                                     
800 Cushman                                                                                                                     
Fairbanks AK 99701                                                                                                              
POSITION STATEMENT: Commented on SB 180.                                                                                      
Mr. Rick Urion, Director                                                                                                        
Division of Occupational Licensing                                                                                              
Department of Community & Economic Development                                                                                  
PO Box 110800                                                                                                                   
Juneau, AK 99811-0800                                                                                                           
POSITION STATEMENT:  Supported SB 114.                                                                                        
Ms. Jane Alberts                                                                                                                
Staff to Senator Bunde                                                                                                          
Alaska State Capitol                                                                                                            
Juneau, AK  99801-1182                                                                                                          
POSITION STATEMENT: Commented on SB 168 for the sponsor.                                                                      
Mr. Mike Elerding                                                                                                               
Northern Sales                                                                                                                  
PO Box 8112                                                                                                                     
Ketchikan AK 99901                                                                                                              
POSITION STATEMENT: Supported SB 168.                                                                                         
Mr. Larry Persily, Deputy Commissioner                                                                                          
Department of Revenue                                                                                                           
PO Box 110400                                                                                                                   
Juneau, AK  99811-0400                                                                                                          
POSITION STATEMENT: Supported SB 102.                                                                                         
Mr. Gregory Peterson                                                                                                            
Allied Charities of Alaska                                                                                                      
POSITION STATEMENT:  Commented on SB 102.                                                                                     
Mr. Dale Robertson                                                                                                              
American Games                                                                                                                  
Council Bluffs IA                                                                                                               
POSITION STATEMENT:  Commented on SB 102.                                                                                     
Mr. Roger Frank, President                                                                                                      
North American Fund Raising Ticket Manufacturers Association                                                                    
POSITION STATEMENT: Commented on SB 102.                                                                                      
Mr. Jack Powers                                                                                                                 
P.O. Box 24-1113                                                                                                                
Anchorage AK 99517                                                                                                              
POSITION STATEMENT: Commented on SB 102.                                                                                      
Mr. David Lambert                                                                                                               
3431 Airport Way                                                                                                                
Fairbanks AK 99709                                                                                                              
POSITION STATEMENT: Commented on SB 102.                                                                                      
Mr. Roger McCoy                                                                                                                 
United Services                                                                                                                 
Juneau AK                                                                                                                       
POSITION STATEMENT: Commented on SB 102.                                                                                      
Mr. Jim Peot, General Manager                                                                                                   
Whaler Casino Supply                                                                                                            
520 W. International Airport Rd.                                                                                                
Anchorage AK 99518                                                                                                              
POSITION STATEMENT: Commented on SB 102.                                                                                      
Mr. Wayne Stevens, Executive Director                                                                                           
Kodiak Chamber of Commerce                                                                                                      
P.O. Box 1485                                                                                                                   
Kodiak AK 99615                                                                                                                 
POSITION STATEMENT: Opposed SB 102.                                                                                           
Mr. George Wright                                                                                                               
Juneau AK                                                                                                                       
POSITION STATEMENT:  Commented on SB 102.                                                                                     
Ms. Camille Ferguson                                                                                                            
Sitka Tribe of Alaska                                                                                                           
456 Katlian                                                                                                                     
Sitka AK                                                                                                                        
POSITION STATEMENT: Opposed SB 102.                                                                                           
Ms. Erin Jackson-Hill                                                                                                           
Powers Public relations                                                                                                         
PO box 241113                                                                                                                   
Anchorage AK 99524                                                                                                              
POSITION STATEMENT: Opposed SB 102.                                                                                           
Mr. Dan Thompson                                                                                                                
C & A Distributors                                                                                                              
1890 Marika                                                                                                                     
Fairbanks AK 99709                                                                                                              
POSITION STATEMENT:  Commented on SB 102.                                                                                     
Mr. Glen Alt, Manager                                                                                                           
MCA Charities                                                                                                                   
Juneau AK                                                                                                                       
POSITION STATEMENT:  Commented on SB 102.                                                                                     
Mr. Alfred McKinley, Sr.                                                                                                        
Grand Camp                                                                                                                      
Alaska Native Brotherhood                                                                                                       
Juneau AK                                                                                                                       
POSITION STATEMENT: Opposed SB 102.                                                                                           
ACTION NARRATIVE                                                                                                              
TAPE 03-24, SIDE A                                                                                                            
                 SB 180-SAFETY CODE TASK FORCE                                                                              
CHAIR CON  BUNDE called  the Senate  Labor and  Commerce Standing                                                             
Committee meeting  to order  at 1:31  p.m. Present  were SENATORS                                                               
DAVIS, SEEKINS and FRENCH.                                                                                                      
MR. ZACH  WARWICK, staff  to Senator  Therriault, said  they like                                                               
the  committee  substitute  (CS)  and noted  a  fiscal  note  was                                                               
submitted to fund travel to meetings.                                                                                           
SENATOR DAVIS  moved to  adopt CSSB 180(L&C),  Version D,  as the                                                               
working document. There were no objections and it was adopted.                                                                  
MR. DAVID OWENS, Owens Inspection  Services, supported SB 180. He                                                               
recommended  adding a  certified building  inspector to  the task                                                               
CHAIR  BUNDE  thanked him  for  his  support  and said  he  would                                                               
forward his suggestion to the bill's sponsor.                                                                                   
MR. JAMES  BAISDEN, Kenai Fire  Marshall, opposed SB  180 because                                                               
there is no building or fire  code official as a voting member of                                                               
the task force.                                                                                                                 
CHAIR BUNDE  asked Mr. Warwick if  the fire marshall would  be on                                                               
the advisory committee.                                                                                                         
MR.  WARWICK replied  the Fire  Marshall  would. He  noted he  is                                                               
compiling a list of  all of the members who were  hoping to be on                                                               
the advisory panel for the Senate Finance Committee.                                                                            
SENATOR STEVENS arrived at 1:37 p.m.                                                                                            
MR.  STEVE   SHUTTLEWORTH,  Fairbanks  building   official,  said                                                               
Fairbanks  concurs with  the purpose  and spirit  of SB  180, but                                                               
believes that  municipal participation should be  included on the                                                               
task force,  and that a member  of the fire department  should be                                                               
there as well. He commented:                                                                                                    
     If the  task force  is to  reach an  equitable solution                                                                    
     and   provide  a   meaningful  recommendation   to  the                                                                    
     Legislature,  it  is  essential  that  personnel  would                                                                    
     provide   daily  plan   review   and  inspections   for                                                                    
     municipal   code   compliance   and  be   provided   an                                                                    
     opportunity to  engage in  the important  decisions. To                                                                    
     do  otherwise  would  exclude  valuable  expertise  and                                                                    
     We also request that any  appointment to the task force                                                                    
     not result in duplicate representation.                                                                                    
CHAIR  BUNDE asked  if  the bill's  sponsor  wanted to  entertain                                                               
amendments in this  committee or whether it will  be difficult to                                                               
accommodate everyone who wants to be on the task force.                                                                         
MR.  WARWICK  replied  that  it  is  going  to  be  difficult  to                                                               
accommodate  everyone,  but  Senator Therriault  would  entertain                                                               
amendments at  another level. He  cautioned that unless  the bill                                                               
starts  moving, the  task  force, which  is  required to  provide                                                               
recommendations  at  the start  of  the  next session,  would  be                                                               
SENATOR  SEEKINS moved  to pass  CSSB 180(L&C),  Version D,  from                                                               
committee  with  individual   recommendations  and  the  attached                                                               
fiscal note.                                                                                                                    
The roll was taken. SENATORS  STEVENS, DAVIS, FRENCH, SEEKINS and                                                               
BUNDE voted yea and CSSB 180(L&C) passed from committee.                                                                        
              SB 114-INCREASE BUSINESS LICENSE FEE                                                                          
CHAIR BUNDE announced SB 114 to  be up for consideration and that                                                               
a new committee substitute (CS) had been prepared.                                                                              
SENATOR SEEKINS  moved to adopt the  CS to SB 114,  Version H, as                                                               
the committee's  working document.  There were no  objections and                                                               
it was so ordered.                                                                                                              
MR.  RICK URION,  Director, Division  of Occupational  Licensing,                                                               
said  that people  who  file for  a business  license  as a  sole                                                               
proprietor [would]  pay a  fee of $100  while everyone  else pays                                                               
$300. He talked  with corporate leaders who said  that $300 would                                                               
be okay.                                                                                                                        
SENATOR  FRENCH asked  if any  court  has analyzed  the place  of                                                               
business  idea, or  whether there  is any  further definition  in                                                               
state law.                                                                                                                      
MR.  URION replied  yes, businesses  that  sell tobacco  products                                                               
must have a specific endorsement  for each location. However, not                                                               
all businesses with multiple locations sell tobacco products.                                                                   
SENATOR FRENCH said he was  looking at businesses that don't sell                                                               
tobacco,  like  coffee  kiosks, apartment  buildings  and  mobile                                                               
MR. URION replied that from  his perspective, if he were drafting                                                               
regulations  for  this,  he  would say  the  rental  business  is                                                               
passive as opposed  to a grocery store or bank  that has multiple                                                               
branches. He  expects to  see some type  of business  activity at                                                               
the locations.                                                                                                                  
SENATOR SEEKINS  explained that  the CS  basically says  that the                                                               
fee  for a  business license  starting July  1, 2003  for a  sole                                                               
proprietorship  is $100  annually.  Any other  type of  business,                                                               
like a  corporation, partnership, limited  liability partnership,                                                               
etc.,  would  be  $300 annually.  Multiple  locations,  including                                                               
coffee  kiosks, would  be  $300 annually  for  each location.  He                                                               
calculated a  25% dropout rate  of the sole  proprietorships, but                                                               
he didn't  think it would be  that high - maybe  half. He thought                                                               
this  CS  was  a  reasonable  approach  and  brings  the  tobacco                                                               
endorsement  back  on  an  annual basis,  which  would  bring  in                                                               
$125,000 more per year.                                                                                                         
CHAIR BUNDE  noted that this program  brings in far more  than it                                                               
costs  to  issue  a  business license  because  it's  a  revenue-                                                               
generator and the state needs revenue.                                                                                          
SENATOR FRENCH  asked if taxicabs would  need individual business                                                               
licenses, since there  is an exchange of money  happening in each                                                               
MR. URION  replied that he didn't  know how all cabs  operate. He                                                               
said  some  are  individually  owned  and some  are  owned  by  a                                                               
company. A company  that owns 15 cabs would be  considered as one                                                               
SENATOR FRENCH countered,  "But if you only own one  cab, you pay                                                               
the same as the guy with 15 cabs."                                                                                              
CHAIR  BUNDE added  that someone  could own  one coffee  kiosk or                                                               
five.  He wanted  to make  sure there  was a  good definition  of                                                               
multiple locations.                                                                                                             
SENATOR FRENCH  asked how the  division determined there  are 265                                                               
businesses with multiple locations.                                                                                             
MR.  URION   answered  that  those   figures  are   from  tobacco                                                               
endorsements only, the only figures the division has.                                                                           
SENATOR FRENCH pointed out there are 1,256 tobacco endorsements.                                                                
MR. URION clarified that 265 businesses have 1,256 locations.                                                                   
SENATOR FRENCH  said if there  are 1,256 locations, it  should be                                                               
$300 [not $100]  times that figure, if he  understands the intent                                                               
of the bill correctly.                                                                                                          
CHAIR BUNDE  asked Mr. Urion to  make an appointment with  him to                                                               
come up with a better  definition of multiple locations and bring                                                               
it back before the committee. He  said they would hold SB 114 for                                                               
further work.                                                                                                                   
               SB 168-CIGARETTE SALE/DISTRIBUTION                                                                           
CHAIR BUNDE announced SB 168 to  be up for consideration and that                                                               
the  industry requested  the  committee  include minimum  pricing                                                               
verbiage,  which has  been included  in the  committee substitute                                                               
SENATOR SEEKINS  moved to adopt the  CS to SB 168,  Version I, as                                                               
the  working document.  There were  no objections  and it  was so                                                               
MS. JANE ALBERTS,  staff to Senator Bunde, said that  the CS sets                                                               
a minimum price  for the sale of cigarettes,  either wholesale or                                                               
retail,  in the  state creating  a more  level playing  field for                                                               
competition. She  explained that the Department  of Revenue (DOR)                                                               
would   receive  a   wholesale  list   price  from   the  tobacco                                                               
manufacturer of  all the  various brands  of cigarettes  from the                                                               
high end all  the way to the  low end. That price  will be listed                                                               
on its website  for all distributors to see.  Everyone would know                                                               
the  price and  be better  able to  police each  other to  see if                                                               
anyone is underselling. Upon discovering  an entity selling below                                                               
cost, a  competitor could contact  the Department of  Revenue and                                                               
file court action,  a class B misdemeanor with a  fine of $2,000,                                                               
against  the violator.  The  bill  was set  up  this  way so  the                                                               
industry could self  regulate and only involve  the Department of                                                               
Revenue in extreme cases to keep the cost to the state lower.                                                                   
CHAIR  BUNDE explained  the changes  in the  CS are  basically on                                                               
page 9, lines 26 - 27, where  it states there was a zero discount                                                               
for collecting tax on more than $2 million worth of cigarettes.                                                                 
MR.  MIKE  ELERDING,  Northern  Sales,  supported  the  committee                                                               
substitute. He thanked the committee  for working on the bill. He                                                               
said  the  department  has  projected   that  every  one  percent                                                               
increase in taxes would generate  an increase in revenue of about                                                               
$400,000. Other  states that have  implemented a tax  stamp after                                                               
not  having   one  have  had   significant  increases   in  their                                                               
collections. He said  that he has some definitions  to offer, but                                                               
didn't want to slow the bill down.                                                                                              
CHAIR BUNDE  responded that the  wordsmithing could  be discussed                                                               
in the Senate Finance Committee.                                                                                                
SENATOR  SEEKINS moved  on  page  9, lines  26  -  27, to  delete                                                               
language  after "$2  million" through  "$5 million"  so it  would                                                               
read "the amount  that is more than $2 million  is zero percent."                                                               
There were no objections and it was adopted.                                                                                    
SENATOR  SEEKINS moved  to pass  CSSB 168(L&C),  Version I,  from                                                               
committee  with individual  recommendations  and the  appropriate                                                               
fiscal note.                                                                                                                    
The  roll was  called. SENATORS  FRENCH, STEVENS,  DAVIS, SEEKINS                                                               
and BUNDE voted yea and CSSB 168(L&C) moved from committee.                                                                     
             SB 102-CHARITABLE GAMING REVENUE/TAXES                                                                         
CHAIR BUNDE announced SB 102 to  be up for consideration and that                                                               
a  committee  substitute (CS)  had  been  prepared and  that  the                                                               
Governor has  made suggestions. The  CS would impose a  5 percent                                                               
tax  on earnings  from pulltabs  and  disallow any  taxes at  the                                                               
municipal  level,  basically  duplicating what  is  happening  in                                                               
Juneau  now. The  Governor's version  would substitute  8 percent                                                               
for the 5 percent and reduce the amount of payout.                                                                              
SENATOR SEEKINS  said during  the process  of obtaining  input in                                                               
Fairbanks, he talked to a reputable  accountant who does a lot of                                                               
accounting for  operators in the  Interior. The accountant  had a                                                               
document  that showed  the real  corpus  of money  that is  being                                                               
spent in  the gambling industry  to be around $60  million rather                                                               
than  $240 million.  He explained  that much  of what  happens is                                                               
that someone  will come  in with  $100, play  $100, win  a little                                                               
bit;  they'll  take  their  winnings  and  put  it  back  in.  He                                                               
explained, "In  the end,  you really  see a  large number  in the                                                               
amount of  money that is gambled,  but it is really  the same $60                                                               
million  that  is  just  turning  over again  and  again  in  the                                                               
He  said that  brings  up the  question again  of  what they  are                                                               
really trying to  tax and what the effect will  be if they impose                                                               
a tax  every time someone  gambles the winnings from  their first                                                               
$100. He  also became aware  of other  disconcerting information.                                                               
Revenue  and  gross  gambling receipts  are  reported  from  some                                                               
locations that are  actually, in many cases, 100  miles away from                                                               
that  particular location.  That benefits  municipal governments.                                                               
He said if the committee  is trying to benefit charities, perhaps                                                               
it should put  some geographic restriction in the  bill that says                                                               
a  Fairbanks operator  must operate  somewhere  in the  Fairbanks                                                               
Northstar Borough, not in Juneau or Ketchikan.                                                                                  
SENATOR SEEKINS  said a  letter from a  firm in  Fairbanks, named                                                               
Richards, Johnson  and Granberry, CPAs,  dated April 21  made him                                                               
deliberate on  this particular bill  more. He said he  now favors                                                               
returning to the original intent of helping charities.                                                                          
CHAIR  BUNDE  said  he  told  the Governor  he  would  offer  his                                                               
amendment [Amendment 1]  in committee to change the  5 percent to                                                               
8 percent and  change the payout from 72 percent  to a 68 percent                                                               
SENATOR SEEKINS said  he would offer Amendment 1  for the purpose                                                               
of discussion, but he wasn't sure he was in favor of it.                                                                        
CHAIR BUNDE objected for purpose of taking a vote.                                                                              
SENATOR  SEEKINS  explained  that  he  is  reluctant  to  support                                                               
Amendment 1 because he still has unanswered questions.                                                                          
CHAIR  BUNDE said  this would  be  an amendment  to the  original                                                               
SENATOR FRENCH objected.                                                                                                        
The  roll  was  called.  SENATORS  STEVENS  voted  yea;  SENATORS                                                               
FRENCH,  DAVIS,  SEEKINS and  BUNDE  voted  nay. SENATOR  SEEKINS                                                               
commented that  he was not yet  ready to make a  decision one way                                                               
or the other.                                                                                                                   
TAPE 03-24, SIDE B                                                                                                            
CHAIR BUNDE announced that Amendment 1 failed.                                                                                  
SENATOR SEEKINS moved  to adopt CSSB 102(L&C), Version  I, as the                                                               
working document.                                                                                                               
CHAIR  BUNDE informed  the committee  that  the CS  calls for  25                                                               
percent  of  the ideal  net  tax,  about  a 5  percent  increase,                                                               
requires a surety bond from distributors  to make sure the tax is                                                               
collected and  prevents cities and municipalities  from levying a                                                               
sales tax on the pulltabs.                                                                                                      
MR. LARRY  PERSILY, Deputy  Commissioner, Department  of Revenue,                                                               
agreed that is an accurate synopsis.                                                                                            
SENATOR SEEKINS  said his concern  is what they will  actually be                                                               
taxing.  The bill  could  bring  in more  money  by taxing  every                                                               
transaction,  but, as  he understands  it, there  is a  card that                                                               
goes along  with every  game that  says how  much the  game would                                                               
return in dollars from the first pulltab to the end.                                                                            
MR. PERSILY said that is correct.                                                                                               
SENATOR  SEEKINS continued  by saying  that would  be called  the                                                               
ideal net.                                                                                                                      
MR.  PERSILY  agreed  and  said  the ideal  net  is  a  term  the                                                               
department uses, but  for lay people it would be  the net or what                                                               
is left after prizes, regardless of taxes and expenses.                                                                         
SENATOR SEEKINS  asked what they  should tax  - each play  or the                                                               
amount of money that would be the net.                                                                                          
CHAIR  BUNDE said  he understands  that an  operator goes  to the                                                               
distributor,  buys a  box of  pulltabs, the  tax is  paid then  -                                                               
upfront,  based  on  the  net. Then  the  distributor  plays  the                                                               
pulltabs out and gets his return.                                                                                               
MR. PERSILY  clarified that  the Governor's  proposal would  be a                                                               
tax on the  total ideal gross of that box.  If that box contained                                                               
1,000 pull-tabs  at $1 each, the  Governor's tax would be  on the                                                               
$1,000  as if  every pull-tab  was  sold. Currently,  the tax  is                                                               
computed  on the  net after  prizes.  Version I,  which has  been                                                               
adopted,  would  continue  taxing  the  net  (total  sales  minus                                                               
SENATOR FRENCH  asked if his  understanding is correct  that that                                                               
is why it is  called the ideal net - they  are not measuring what                                                               
is actually  happening in the  field; they  are saying that  in a                                                               
box that is  going to pay out  28 percent, the state  is going to                                                               
tax 5 percent of that 28 percent.                                                                                               
MR. PERSILY  said that  is correct  and, by  going to  ideal net,                                                               
they are assuming that everything will be sold.                                                                                 
SENATOR SEEKINS said they are in  effect taxing the profit on the                                                               
MR. PERSILY  clarified that  they are taxing  the net  before the                                                               
CHAIR BUNDE said  that he has heard various opinions  on how that                                                               
would  actually   affect  the  operators  and   that  inefficient                                                               
operators may go out of business.  He asked the committee if they                                                               
want to  go forward with the  CS or address the  broader issue of                                                               
charitable gaming and  have the Legislature get  more involved in                                                               
the issue.                                                                                                                      
SENATOR  SEEKINS  added to  the  question  -  or what  radius  of                                                               
operation a non-profit should be able to operate.                                                                               
MR. PERSILY said  current Alaska statute does not  require that a                                                               
charitable organization, for the  purposes of a charitable gaming                                                               
permit, be an IRS certified  501(C)(3) non-profit. It just has to                                                               
meet  the  definition  in  Alaska   statute  of  having  a  civic                                                               
educational purpose - a rather  broad definition. It doesn't just                                                               
apply  to  charities  in  the   traditional  sense;  it  includes                                                               
business associations and small city governments.                                                                               
CHAIR BUNDE  said he has  discussed with Mr. Persily  before that                                                               
becoming a certified non-profit is not that difficult.                                                                          
MR.  PERSILY  agreed  that  he  didn't think  it  would  be  that                                                               
difficult  to qualify,  but he  was  sure some  groups would  not                                                               
qualify  under the  IRS rules  and they  wouldn't be  happy about                                                               
being excluded from charitable gaming.                                                                                          
SENATOR  SEEKINS  said  he  was  beginning  to  understand  after                                                               
talking to  many people  involved in  charitable gaming  that the                                                               
pie actually stays constant and,  because there is a very liberal                                                               
definition of who can be  involved, it's getting cut into smaller                                                               
and smaller pieces.  Actually those people who have  the money to                                                               
come in upfront  and arrange for locations,  operators, etc., are                                                               
at a  distinct advantage over some  other charitable organization                                                               
that may be  struggling to get upfront money to  fund some of the                                                               
operations. It would  be reasonable to say if you're  going to be                                                               
looking to the  gamblers of the state to provide  your income, it                                                               
should be  the gamblers close  to your home  and try not  to make                                                               
the  definition  so  liberal  that the  pieces  get  smaller  and                                                               
CHAIR  BUNDE  added  that current  regulation  doesn't  allow  an                                                               
operator to pool games for  different charities. They all have to                                                               
be accounted for separately. He asked Mr. Persily to comment.                                                                   
MR. PERSILY said:                                                                                                               
     As  Senator Seekins  explained, there  are MBPs,  which                                                                    
     are   multiple   beneficiary  permittees,   which   are                                                                    
     essentially a  co-op where  charities get  together and                                                                    
     run their  own gaming location rather  than contracting                                                                    
     with a  commercial operator.  There are  four different                                                                    
     ways that  pulltabs can be  played. Either  the charity                                                                    
     plays it themselves, self-directed  as we call it, when                                                                    
     they band together as a  co-op, when they contract with                                                                    
     an  operator  or they  contract  with  a vendor,  which                                                                    
     essentially is  putting on  the table  in a  bar. About                                                                    
     half of the charitable gaming  in Alaska is run through                                                                    
     the  charities themselves  as self-directed.  The other                                                                    
     half is  split between  co-ops, operators  and vendors.                                                                    
     So, you've got  four very distinct ways  of playing the                                                                    
     games  - each  with their  own  set of  issues, set  of                                                                    
     expenses, rules  that govern them. It's  a very complex                                                                    
     issue and,  certainly, we're  here to  help you  in any                                                                    
     way we can figure out the answers.                                                                                         
CHAIR  BUNDE said  he  would appreciate  some  feedback from  the                                                               
administration on  the notion of both  the territorial imperative                                                               
of pulltab operations, whether they  should be operated within 50                                                               
miles of  whoever owns them  - or some such  geographic criteria,                                                               
and any feedback on the definition of a charitable organization.                                                                
MR. PERSILY added:                                                                                                              
     There [are]  more charities with  a need for  the money                                                                    
     than  there are  good locations  or good  operations to                                                                    
     play them  at. The  charities are  in a  position where                                                                    
     they don't  have much bargaining power,  because if the                                                                    
     operator or vendor or the  co-op, if that charity won't                                                                    
     go  in  on  those  terms, there's  at  least  one  more                                                                    
     waiting to take  their place. You do  have an imbalance                                                                    
     with supply and  demand, but certainly we  can get back                                                                    
     to the  committee with answers on  those two questions:                                                                    
     how  we   feel  about  a   limitation  to  more   of  a                                                                    
     traditional 501(C)(3) definition and  should there be a                                                                    
     change in the current statute,  which says you can play                                                                    
     your  permit  anywhere.  There are  some  charities  in                                                                    
     Juneau   whose  permits   are  played   on  the   Kenai                                                                    
     Peninsula.  St. George  plays  theirs  on Fireweed,  an                                                                    
     operator  in Anchorage.  There  are  some in  Anchorage                                                                    
     that play on the Kenai.                                                                                                    
CHAIR BUNDE  said there  are over 100  charities with  permits to                                                               
play, but  they don't have anyone  to place their permit  with at                                                               
this point.                                                                                                                     
CHAIR  BUNDE  turned the  gavel  over  to SENATOR  SEEKINS,  Vice                                                               
MR. GREGORY PETERSON, Allied Charities  of Alaska, said the small                                                               
village  of  St.  George  in  the middle  of  nowhere  relies  on                                                               
charitable   gaming  money   to   keep  it   going.  The   larger                                                               
municipalities,  in  many cases,  pay  for  the fire  department,                                                               
ambulance  service and  police department.  He  urged members  to                                                               
take a real close look at what they are doing.                                                                                  
MR. DALE  ROBERTSON, American  Games, said  they are  licensed to                                                               
manufacture charitable gaming  to the State of  Alaska. In regard                                                               
to the  pulltab prize  cap, their concern  is that  payout limits                                                               
depress  the  number  of  plays,  reduce  gross  receipts,  hence                                                               
decrease  profits for  charities  and tax  revenues. History  has                                                               
proved this to  be true. He said  that Nebraska has a  low net at                                                               
80 percent and revenues have  been stagnant. Minnesota has a high                                                               
gross  receipts income,  around 82  percent. Charities  that have                                                               
reduced  their payouts,  say, from  86 percent  to 80  percent to                                                               
cover  the  increased tax  have  had  their gross  receipts  drop                                                               
considerably. He questioned  what 72 percent or  68 percent would                                                               
do in  the State of  Alaska. He  concluded, "Less play,  less tax                                                               
He said manufacturers don't create very  many games at all at the                                                               
68 percent or 72 percent  prize payout. They don't create product                                                               
just for  Alaska, but for all  markets and those payouts  are not                                                               
made because they  do not sell very well. Taxing  the ideal gross                                                               
would be satisfactory from his perspective.                                                                                     
MR. ROGER  FRANK, President, North  American Fund  Raising Ticket                                                               
Manufacturers Association,  said that Mr. Robertson's  company is                                                               
a  member  of  their  organization. He  was  formerly  the  state                                                               
regulator  in Minnesota  where they  do  $1.4 billion  a year  in                                                               
pulltabs.  He was  the director  for five  years and  during that                                                               
time he was also a member  of the North America Gaming Regulators                                                               
Association.  He  supported what  Mr.  Robertson  said about  the                                                               
impacts of  increasing the  taxes. There is  a limited  amount of                                                               
money out there  and if you increase the taxes,  you will deflate                                                               
the  gross  receipts. That  has  been  illustrated in  Minnesota,                                                               
Oklahoma, Nebraska  and North Dakota.  He offered,  "Gamblers are                                                               
gamblers, but  they are also shoppers  and while a lot  of people                                                               
think they make foolish mistakes  gambling, they don't make a lot                                                               
of foolish mistakes."                                                                                                           
He  said  the  basic  kinds  of taxing  he  sees  nationwide  are                                                               
generally 10  percent of the  net or 2  percent of the  gross. He                                                               
suggested  if  they  are  looking  at  alternatives,  they  might                                                               
consider a very  small tax on each bingo space.  That would allow                                                               
the industry to contribute to  solving the problems Alaska has as                                                               
well as  moving the industry  forward. He  said he also  has some                                                               
insight into the  $60 million and the definition of  a charity if                                                               
they want that.                                                                                                                 
SENATOR FRENCH said he would be happy to hear his views on that.                                                                
MR. FRANK said:                                                                                                                 
     The  issue of  the $60  million  is what  is left  over                                                                    
     after the prizes  are paid. That's the  only real money                                                                    
     that exists in charitable  gambling. While there may be                                                                    
     high  grosses,  $1.4  billion in  Minnesota,  the  nets                                                                    
     aren't that  high, because our payouts  are 83 percent.                                                                    
     That gets  people to continue  to buy  and consequently                                                                    
     we do well selling pulltabs  in the state of Minnesota.                                                                    
     So, taxing  on the  gross is taxing  of money  that you                                                                    
     have never earned and I  don't think that's the kind of                                                                    
     thing  that you  would  expect if  you  were running  a                                                                    
     business - to be taxed on money you don't have. That's                                                                     
      the objection to the tax on the gross, unless it's a                                                                      
     very small tax on the gross.                                                                                               
MR. FRANK  suggested that they look  at the statute to  see if it                                                               
says the  profits from charitable  gambling can be spent  any way                                                               
the  organization  wants. He  suggested  it  could be  spent  for                                                               
educational  purposes,  in   support  of  recreational  purposes,                                                               
senior citizens or veterans.                                                                                                    
MR.  JACK  POWERS, licensed  Anchorage  operator,  said that  all                                                               
gaming bills  should be  tabled and  the legislature,  along with                                                               
the Governor should  put a task force together over  the next six                                                               
months.  People need  to  know the  mechanics  of how  charitable                                                               
gaming works. He  asked, "How can you pass legislation  if you do                                                               
not understand it?"                                                                                                             
CHAIR BUNDE  added that  there are 25  licensed operators  in the                                                               
state, 11  multi-beneficiary permits,  260 licensed  vendors; and                                                               
1,088   pulltab  permits   are  currently   being  used   out  of                                                               
approximately 1,500 that have been issued in 2001.                                                                              
MR. POWERS added  that a number of the 25  operators are probably                                                               
small time  operators with  one location. He  noted, "There  is a                                                               
lot more activity with the MBPs than with large operators."                                                                     
MR. DAVE LAMBERT  said he operates a fundraising  business for 17                                                               
charities in Fairbanks  and, with a 5 percent tax,  he would have                                                               
been in the  negative by $18,500 last spring. That  would put him                                                               
out of  business. Of  all the operators  in Fairbanks,  he didn't                                                               
know of any that had pulltabs  sales as their primary business as                                                               
it isn't that lucrative anymore.                                                                                                
MR. ROGER  MCCOY, United Services,  said he is the  only licensed                                                               
operator in  Juneau and he  provided them with  a copy of  one of                                                               
his quarterly reports  and commented on how the 5  percent tax in                                                               
SB  102 would  affect  it. For  the first  quarter  of 2003,  the                                                               
permittees would have  received their 30 percent  of the adjusted                                                               
gross and  he would  have paid  all the  expenses to  operate his                                                               
three stores (two in Fairbanks),  but he would have lost $50,000.                                                               
He couldn't do that for very  long. He clarified that an operator                                                               
can have 50  permittees in a store  at the same time,  but he has                                                               
to identify them.                                                                                                               
He noted that Senator Seekins  expressed concern about permittees                                                               
who  want  to  use  their  permits in  other  cities.  Mr.  McCoy                                                               
explained  that he  runs a  Tanana permit  in Fairbanks,  because                                                               
pulltabs are  not sold anywhere  in Tanana  and it is  their only                                                               
source of income.  He said another thing is that  the players who                                                               
play  pulltabs could  care less  who the  permittee is  and, "All                                                               
they want to do is win."                                                                                                        
CHAIR BUNDE  asked if he thought  the vendors should be  taxed as                                                               
MR. MCCOY said that most taxes are passed on to the consumer.                                                                   
CHAIR BUNDE asked what tax he pays as an operator in Fairbanks.                                                                 
MR. MCCOY replied 3 percent of  the ideal net. In Juneau, he pays                                                               
3 percent on the ideal net, plus 5 percent on the gross sales.                                                                  
CHAIR BUNDE asked if that would  equate to 5 percent of the ideal                                                               
MR. MCCOY replied, "If you take  away the 5 percent sales tax and                                                               
add the 5 percent state tax, it's a wash."                                                                                      
MR. JIM PEOT,  General Manager, Whaler Casino,  said the proposed                                                               
SB 102 would  turn them into a tax collection  agency. Right now,                                                               
the tax is about 15 percent  of their gross business, but with SB
102, it  would be  about 50  percent. Also,  if they  go to  a 28                                                               
percent or  greater profit  game, 75  percent of  their inventory                                                               
does not  meet that  criteria and  they have  about 400  games in                                                               
their inventory. Additionally,  they would be liable  for all the                                                               
contracts they signed.                                                                                                          
3:02 p.m.                                                                                                                       
CHAIR BUNDE  noted that  that was a  provision in  the Governor's                                                               
proposal and they adopted a CS that doesn't contain that.                                                                       
MR.  WAYNE   STEVENS,  Executive  Director,  Kodiak   Chamber  of                                                               
Commerce,  said  they run  a  self-directed  gaming operation  in                                                               
Kodiak and  don't allow  operators there.  They are  a membership                                                               
driven organization focused  on economic development. Elimination                                                               
of their ability  to do pulltabs would  basically eliminate their                                                               
operation. He stated:                                                                                                           
     There is a  presumption here in all  of this discussion                                                                    
     that  simply  readjusting  all   of  the  formulas  for                                                                    
     payouts  for expenses,  for net  profit to  charity and                                                                    
     taxes to  the state,  that the gaming  employer remains                                                                    
     constant.  I think  we've  heard  testimony today  that                                                                    
     says that is an incorrect assumption.                                                                                      
TAPE 03-25, SIDE A                                                                                                            
MR. STEVENS said they are  a 501(C)(6) non-profit corporation and                                                               
would not qualify  to be a 501(C)(3) by the  IRS designations. He                                                               
told members, "There are some  serious concerns here and we would                                                               
urge you  to perhaps set  aside some  of discussion until  we can                                                               
get  a working  group together  and  address all  issues for  all                                                               
MR. GEORGE WRIGHT, Operator 84, said  he had been an operator for                                                               
110  days. He  said that  a  25 percent  tax with  the 3  percent                                                               
equals a 28  percent tax. Then there's a 1  percent filing fee at                                                               
the  end of  the year  for a  total of  29 percent.  The adjusted                                                               
gross income, less the prize payouts,  is the only money left for                                                               
the operator.  He sat on  the 1997 and  2002 task forces  and the                                                               
industry  is,  "...trying to  get  away  from the  perception  of                                                               
everybody who says  'evil operators' and we're  doing pretty well                                                               
at that."                                                                                                                       
He  said  regarding   people  gaming  in  other   areas  for  the                                                               
territorial purposes, for 12 years  he did pulltabs in Anchorage,                                                               
Fairbanks, Kenai and  Juneau and he has charities  from all those                                                               
locations. He pointed out:                                                                                                      
     Something the  industry can live  with is  the increase                                                                    
     from the  3 percent  to the 5  percent and  an increase                                                                    
     from 1  percent at  the end  of the  year to  3 percent                                                                    
     when you file  your reports. That will give  you your 5                                                                    
     percent increase;  that will make your  $12 million per                                                                    
     year and all the industries  will survive.... I do love                                                                    
     the  cities  not being  able  to  tax  as they  tax  in                                                                    
     Juneau.  It's really  cool  on how  they  did it,  too,                                                                    
     where  they  changed  the law  so  there's  nothing  to                                                                    
     appeal,  but  they take  those  $800,000  in its  prime                                                                    
     time, which is  now down to $500,000  annually and they                                                                    
     decided they're going to give  50 percent of it away to                                                                    
     charities  of  their  choice. So,  if  you  don't  sell                                                                    
     pulltabs and you're not gaming,  you can have a charity                                                                    
     and apply it  to a city through a grant,  you'll get 50                                                                    
     percent  of what  all the  other charities  raised. So,                                                                    
     it's kind of  one-sided. So, I agree with  no sales tax                                                                    
     on the municipality.                                                                                                       
MR.  WRIGHT said  they do  need  a task  force so  the state  can                                                               
become a  partner. There is  virtually no law enforcement  in the                                                               
gaming  business.  There  are two  investigators  without  police                                                               
powers that  harass businesses, but  they don't go out  and catch                                                               
the people who  are embezzling and stealing.  Recently, there was                                                               
a  federal  charge  against  two  storeowners  who  were  trading                                                               
information. Inside information  is the number one  killer in the                                                               
industry. He  said, "Without police participation  and the police                                                               
willing to use public dollars  to prosecute these thieves, you're                                                               
always  going  to  have  a tainted,  nasty,  mean,  old  gambling                                                               
One of the  charities that he has been working  with a long time,                                                               
for example,  is the  Ninilchik Senior  Citizens Meals  on Wheels                                                               
Program,  pulltabs fund  about 90  percent of  the program.  They                                                               
provide 126 meals a day, seven days a week for senior citizens.                                                                 
MS. CAMILLE FERGUSON, Sitka Tribe  of Alaska, said they operate a                                                               
small gaming operation,  but it impacts their community  in a big                                                               
way. She said:                                                                                                                  
     If we  do go out of  operation, we will not  be able to                                                                    
     buy  groceries,  rent,  electricity, oil,  medical  and                                                                    
     funeral   expenses  for   those   who  need   emergency                                                                    
     assistance.  The  tribe  will  not  be  able  to  offer                                                                    
     cultural activities  to our Native communities  and our                                                                    
     local  school   groups  hit  us  up   every  year  with                                                                    
     applications for sports  activities because there's not                                                                    
     enough funding within our schools....                                                                                      
MS. FERGUSON  said they  would also be  laying off  six employees                                                               
who work within their small gaming operation.                                                                                   
MS. ERIN  JACKSON-HILL, Powers Public  Relations, said  they have                                                               
four operations.  [Tape was indiscernible.]  She opposed  SB 102.                                                               
She said a  lot of employees would lose their  jobs and the state                                                               
would not come close to its projected revenues.                                                                                 
MR. DAN THOMPSON,  C & A Distributors, said that  they have a lot                                                               
of  problems  with  the  bill,  although the  CS  is  better.  It                                                               
recognizes that the gross is not  a real number and the ideal net                                                               
is the basis that should be used.  The tax is way too high and 25                                                               
percent equals  an 833  percent increase.  It would  increase the                                                               
overhead  of the  permittees drastically.  Also, a  $250,000 bond                                                               
for distributors is unnecessary  because many charities are going                                                               
to  go out  of  business. A  lot of  operators  and vendors  have                                                               
testified but  operators only make  up 20 percent of  the pulltab                                                               
gaming industry. Vendors make up  13 percent. Sixty-seven percent                                                               
of gaming and  pulltabs is run self-directed by  permittees or in                                                               
groups of multi-beneficiary permits.                                                                                            
MR. GLEN  ALT, manager  of MCA  Charities, thanked  the committee                                                               
for having some dialogue on  this issue. He said his organization                                                               
made lease  commitments based  on the  last task  force meetings.                                                               
With a new  law that would tax  him more, he wouldn't  be able to                                                               
survive and the cost of his  lease is going up. He also supported                                                               
establishing a new task force to look into new regulations.                                                                     
MR.  GRAHAM STOREY,  Nome  Chamber of  Commerce,  said this  bill                                                               
would  put the  Nome Chamber  of Commerce  out of  business. They                                                               
receive  approximately $90,000  annually  from  the pulltabs.  He                                                               
liked the  idea of having a  task force to really  figure out the                                                               
effect that  this bill and  other gaming  bills will have  on the                                                               
charities. He said:                                                                                                             
     To put  this as simply  as I can and,  Senator Seekins,                                                                    
     I'm not picking  on you, you raise the price  on a car,                                                                    
     car sales  go down - you  lower the price on  the cars,                                                                    
     car sales  go up. Right  now, the state is  raising the                                                                    
CHAIR BUNDE  said that testimony  could be sent to  the committee                                                               
and it would be included in their considerations.                                                                               
SENATOR STEVENS  asked Mr. Storey how  he was using the  funds he                                                               
MR.  STOREY replied  that they  are a  501(C)(6) charity  and use                                                               
their funds to  build the business community,  support the Junior                                                               
Achievement Program in the local  schools and pay the salaries of                                                               
the Chamber staff. He added that  their uses had been audited and                                                               
were correct uses.                                                                                                              
MR.  AL MCKINLEY,  Alaska Native  Brotherhood  (ANB), opposed  SB
102. He said  the ANB is a 501(C)(3)10  organization. Their funds                                                               
are  used entirely  for education  now,  but they  are trying  to                                                               
expand their use  to emergencies, like a death in  the family. As                                                               
the bill  is written, the ANB  would be double taxed,  but if the                                                               
city and state taxes were taken out  of the net at one time, they                                                               
could support it.                                                                                                               
CHAIR BUNDE pointed  out that the committee  substitute would cut                                                               
out the local tax. He said he  would block out a work session for                                                               
the committee on SB 102 to see if there was any way to make it                                                                  
work. He adjourned the meeting at 3:35 p.m.                                                                                     

Document Name Date/Time Subjects