Legislature(2017 - 2018)BELTZ 105 (TSBldg)

04/25/2017 09:00 AM LABOR & COMMERCE

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09:03:31 AM Start
09:05:08 AM HB115
10:39:15 AM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
-- Testimony <Invitation Only> --
+ Presentation - Sponsor - Representative Seaton TELECONFERENCED
-- Testimony <Invitation Only> --
+ Bills Previously Heard/Scheduled TELECONFERENCED
                    ALASKA STATE LEGISLATURE                                                                                  
          SENATE LABOR AND COMMERCE STANDING COMMITTEE                                                                        
                         April 25, 2017                                                                                         
                           9:03 a.m.                                                                                            
MEMBERS PRESENT                                                                                                               
Senator Mia Costello, Chair                                                                                                     
Senator Shelley Hughes, Vice Chair                                                                                              
Senator Kevin Meyer                                                                                                             
Senator Gary Stevens                                                                                                            
Senator Berta Gardner                                                                                                           
MEMBERS ABSENT                                                                                                                
All members present                                                                                                             
COMMITTEE CALENDAR                                                                                                            
COMMITTEE SUBSTITUTE FOR HOUSE BILL NO. 115(FIN) AM(EFD FLD)                                                                    
"An Act bearing  the short title of the  'Education Funding Act';                                                               
relating  to the  taxation of  income  of individuals,  partners,                                                               
shareholders in S corporations,  trusts, and estates; relating to                                                               
a payment  against the individual  income tax from  the permanent                                                               
fund  dividend disbursement;  and repealing  tax credits  applied                                                               
against the  tax on individuals  under the Alaska Net  Income Tax                                                               
     - HEARD & HELD                                                                                                             
PREVIOUS COMMITTEE ACTION                                                                                                     
BILL: HB 115                                                                                                                  
SHORT TITLE: INCOME TAX; PFD PAYMENT/CREDIT;                                                                                    
SPONSOR(s): FINANCE                                                                                                             
02/10/17       (H)       READ THE FIRST TIME - REFERRALS                                                                        
02/10/17       (H)       FIN                                                                                                    
02/13/17       (H)       FIN AT 1:30 PM HOUSE FINANCE 519                                                                       
02/13/17       (H)       Heard & Held                                                                                           
02/13/17       (H)       MINUTE(FIN)                                                                                            
02/14/17       (H)       FIN AT 1:30 PM HOUSE FINANCE 519                                                                       
02/14/17       (H)       Heard & Held                                                                                           
02/14/17       (H)       MINUTE(FIN)                                                                                            
02/15/17       (H)       FIN AT 1:30 PM HOUSE FINANCE 519                                                                       
02/15/17       (H)       Heard & Held                                                                                           
02/15/17       (H)       MINUTE(FIN)                                                                                            
02/17/17       (H)       FIN AT 1:30 PM HOUSE FINANCE 519                                                                       
02/17/17       (H)       Heard & Held                                                                                           
02/17/17       (H)       MINUTE(FIN)                                                                                            
02/21/17       (H)       FIN AT 1:30 PM HOUSE FINANCE 519                                                                       
02/21/17       (H)       Heard & Held                                                                                           
02/21/17       (H)       MINUTE(FIN)                                                                                            
02/24/17       (H)       FIN AT 1:30 PM HOUSE FINANCE 519                                                                       
02/24/17       (H)       Heard & Held                                                                                           
02/24/17       (H)       MINUTE(FIN)                                                                                            
03/14/17       (H)       FIN AT 8:30 AM HOUSE FINANCE 519                                                                       
03/14/17       (H)       Heard & Held                                                                                           
03/14/17       (H)       MINUTE(FIN)                                                                                            
03/15/17       (H)       FIN AT 1:30 PM HOUSE FINANCE 519                                                                       
03/15/17       (H)       Heard & Held                                                                                           
03/15/17       (H)       MINUTE(FIN)                                                                                            
03/17/17       (H)       FIN AT 1:30 PM HOUSE FINANCE 519                                                                       
03/17/17       (H)       Heard & Held                                                                                           
03/17/17       (H)       MINUTE(FIN)                                                                                            
03/20/17       (H)       FIN AT 1:30 PM HOUSE FINANCE 519                                                                       
03/20/17       (H)       Heard & Held                                                                                           
03/20/17       (H)       MINUTE(FIN)                                                                                            
03/23/17       (H)       FIN AT 9:00 AM HOUSE FINANCE 519                                                                       
03/23/17       (H)       Heard & Held                                                                                           
03/23/17       (H)       MINUTE(FIN)                                                                                            
03/27/17       (H)       FIN AT 1:30 PM HOUSE FINANCE 519                                                                       
03/27/17       (H)       Heard & Held                                                                                           
03/27/17       (H)       MINUTE(FIN)                                                                                            
03/28/17       (H)       FIN AT 9:00 AM HOUSE FINANCE 519                                                                       
03/28/17       (H)       Heard & Held                                                                                           
03/28/17       (H)       MINUTE(FIN)                                                                                            
03/28/17       (H)       FIN AT 1:30 PM HOUSE FINANCE 519                                                                       
03/28/17       (H)       Heard & Held                                                                                           
03/28/17       (H)       MINUTE(FIN)                                                                                            
03/29/17       (H)       FIN AT 1:00 PM HOUSE FINANCE 519                                                                       
03/29/17       (H)       Heard & Held                                                                                           
03/29/17       (H)       MINUTE(FIN)                                                                                            
03/29/17       (H)       FIN AT 5:30 PM HOUSE FINANCE 519                                                                       
03/29/17       (H)       Heard & Held                                                                                           
03/29/17       (H)       MINUTE(FIN)                                                                                            
03/30/17       (H)       FIN AT 1:30 PM HOUSE FINANCE 519                                                                       
03/30/17       (H)       Heard & Held                                                                                           
03/30/17       (H)       MINUTE(FIN)                                                                                            
04/03/17       (H)       FIN AT 1:00 PM HOUSE FINANCE 519                                                                       
04/03/17       (H)       Heard & Held                                                                                           
04/03/17       (H)       MINUTE(FIN)                                                                                            
04/04/17       (H)       FIN AT 1:30 PM HOUSE FINANCE 519                                                                       
04/04/17       (H)       -- MEETING CANCELED --                                                                                 
04/07/17       (H)       FIN AT 1:30 PM HOUSE FINANCE 519                                                                       
04/07/17       (H)       <Bill Hearing Canceled>                                                                                
04/11/17       (H)       FIN AT 1:30 PM HOUSE FINANCE 519                                                                       
04/11/17       (H)       Moved CSHB 115(FIN) Out of Committee                                                                   
04/11/17       (H)       MINUTE(FIN)                                                                                            
04/12/17       (H)       FIN RPT CS(FIN) NT 4DP 4DNP 2NR 1AM                                                                    
04/12/17       (H)       DP: GUTTENBERG, GARA, SEATON, FOSTER                                                                   
04/12/17       (H)       DNP: TILTON, THOMPSON, PRUITT, WILSON                                                                  
04/12/17       (H)       NR: GRENN, ORTIZ                                                                                       
04/12/17       (H)       AM: KAWASAKI                                                                                           
04/15/17       (H)       BEFORE HOUSE IN SECOND READING                                                                         
04/16/17       (H)       TRANSMITTED TO (S)                                                                                     
04/16/17       (H)       VERSION: CSHB 115(FIN) AM(EFD FLD)                                                                     
04/17/17       (S)       READ THE FIRST TIME - REFERRALS                                                                        
04/17/17       (S)       L&C, FIN                                                                                               
04/24/17       (S)       L&C AT 1:30 PM BELTZ 105 (TSBldg)                                                                      
04/24/17       (S)       -- MEETING CANCELED --                                                                                 
04/25/17       (S)       L&C AT 9:00 AM BELTZ 105 (TSBldg)                                                                      
WITNESS REGISTER                                                                                                              
REPRESENTATIVE PAUL SEATON                                                                                                      
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT: Sponsor of HB 115.                                                                                        
TANEEKA HANSEN, Staff                                                                                                           
Representative Paul Seaton                                                                                                      
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT: Presented the sectional analysis for HB 115.                                                              
ACTION NARRATIVE                                                                                                              
9:03:31 AM                                                                                                                    
CHAIR MIA COSTELLO called the  Senate Labor and Commerce Standing                                                             
Committee meeting  to order at 9:03  a.m. Present at the  call to                                                               
order were  Senators Gardner, Meyer,  Stevens, Hughes,  and Chair                                                               
Costello. She  said that during the  economic hearings throughout                                                               
the session the  committee learned that Alaska  is experiencing a                                                               
recession  and extensive  job  losses.  Economists who  presented                                                               
information  to  the  committee asked  the  legislature  to  help                                                               
provide   some  certainty   for   moving   forward.  Using   that                                                               
presentation  as  a  basis, the  committee  started  asking  what                                                               
impact each  bill that was  introduced would have on  the state's                                                               
             HB 115-INCOME TAX; PFD PAYMENT/CREDIT;                                                                         
9:05:08 AM                                                                                                                    
CHAIR COSTELLO announced the consideration  of HB 115. She stated                                                               
that  the intent  is to  hear  the introduction,  walk through  a                                                               
sectional analysis, and hold the  bill for further consideration.                                                               
Public  testimony will  be heard  during the  6:00 p.m.  meeting.                                                               
[CSHB 115(FIN)am(efd fld) was before the committee.]                                                                            
9:05:48 AM                                                                                                                    
REPRESENTATIVE PAUL SEATON, Alaska  State Legislature, sponsor of                                                               
HB 115,  explained that the  bill creates a broad-based  tax that                                                               
is  based  on   the  adjusted  gross  income   of  residents  and                                                               
nonresidents. The  revenue that is  collected will flow  into the                                                               
Public Education Fund  to fund the base  student allocation (BSA)                                                               
and pupil  transportation. There is  a $4,000 exemption  for each                                                               
resident  filer and  their dependents.  Permanent fund  income is                                                               
also excluded from  taxation. The tax brackets  provide that each                                                               
taxpayer pays  the same tax  rate on  the first $50,000  of their                                                               
adjusted  gross  income.  Income  from  Sub  S  Corporations  and                                                               
partnerships is  reported on the partner's  or owner's individual                                                               
Withholding for  the school tax  would begin January 1,  2019 and                                                               
the first return would be due in April 2020.                                                                                    
9:08:04 AM                                                                                                                    
REPRESENTATIVE SEATON stated  that a broad-based tax  is the last                                                               
piece of  a complete fiscal plan  that will provide a  stable and                                                               
sustainable future. Uncertainty  is bad for both  the economy and                                                               
Alaska's schools,  but forward funding education  eliminates some                                                               
of that  uncertainty. Adding a  new revenue source  also protects                                                               
schools  from uncertainty  because diversifying  revenues reduces                                                               
volatility.  Alaska  has  already   experienced  the  growth  and                                                               
contractions that come from relying  too heavily on one source of                                                               
income. Drawing  from multiple sources  will help smooth  the ups                                                               
and downs.                                                                                                                      
The Education  Funding Act is  important for a fair  and balanced                                                               
plan.  He   pointed  out  that   all  fiscal  plans   before  the                                                               
legislature this session  require some use of  the Permanent Fund                                                               
Earnings Reserve Fund  and a reduction in the  dividend. He noted                                                               
that  the  latter  is  regressive  and  hurts  the  lowest-income                                                               
Alaskans most.  He opined that  the school tax  in HB 115  is the                                                               
best broad-based  tax to balance  the reduction in  the dividend.                                                               
The  sales tax  option is  also regressive  and hits  the lowest-                                                               
income Alaskans  twice. For  example, a  general sales  tax would                                                               
raise  $500 million  in revenue  and  Alaskans in  the bottom  20                                                               
percent  of income  would  feel  a 2.2  percent  impact on  their                                                               
overall  income while  the top  15 percent  would contribute  0.9                                                               
percent and the top 1 percent would contribute just 0.4 percent.                                                                
REPRESENTATIVE SEATON  posited that connecting  Alaskans directly                                                               
with state services  through a broad-based tax  will increase the                                                               
awareness and participation in how  state government revenues are                                                               
used. A  broad-based tax  also directly  connects the  state with                                                               
economic growth.  There is currently  no incentive for  the state                                                               
to  encourage economic  or population  growth.  One thousand  new                                                               
jobs means more  students in the schools, more  people driving on                                                               
the roads, and more common  state services. Without a broad-based                                                               
tax, the state  receives no revenue to help pay  for the services                                                               
needed for  those additional people.  That is a  disincentive for                                                               
economic growth,  he said.  If the state  is connected  to growth                                                               
through  a   broad-based  revenue  source,  the   state  will  be                                                               
incentivized  to  make  choices   that  grow  the  economy.  Most                                                               
importantly, plans without a broad-based  tax leaves a deficit of                                                               
$500 million to be filled at  some future time from new revenues,                                                               
drastic budget cuts,  or spending down our  savings. Leaving this                                                               
sort  of  uncertainty in  place  puts  at  risk the  savings  and                                                               
services we would be preserving for future generations.                                                                         
9:12:09 AM                                                                                                                    
REPRESENTATIVE SEATON  spoke to  the question of  why the  tax is                                                               
based on the adjusted gross income.  He pointed out that 29 other                                                               
states use this as a starting  point and Alaska did too from 1975                                                               
through 1980. Using a percentage  of the federal tax liability as                                                               
the starting point  seemed like a good idea initially,  but it is                                                               
too  volatile. Using  the adjusted  gross as  the starting  point                                                               
avoids  automatically  adopting  all   the  federal  credits  and                                                               
deductions and  allows Alaska to  make those choices  for itself.                                                               
Also, all sources of income  are treated equally in computing the                                                               
adjusted  gross income.  This includes  capital gains  and wages.                                                               
Calculating nonresident taxable income  is simpler under adjusted                                                               
gross income than  under federal tax liability.  This approach is                                                               
Alaska specific.  Specifically, the  permanent fund  dividend and                                                               
Alaska   municipal  bonds   are   exempt   from  taxation.   Most                                                               
importantly, it is the purview  of the legislature to define what                                                               
is and is not taxable. That  authority cannot be delegated to the                                                               
administration.  He said  much  of HB  115  is technical  details                                                               
telling  the administration  how  to  create regulations  without                                                               
imposing taxes.                                                                                                                 
REPRESENTATIVE  SEATON discussed  the  history of  tax in  Alaska                                                               
paraphrasing the following document:                                                                                            
     Before  oil started  flowing, Alaskans  were accustomed                                                                    
     to  participating  in  their state  economy  through  a                                                                    
     structured  tax program.  The income  and school  taxes                                                                    
     created  stability  for  basic  programs  -  education,                                                                    
     health, public safety, infrastructure, and more.                                                                           
      • School tax implemented in 1949 during territorial days;                                                                 
      • Alaska Territorial Legislature also passed income tax                                                                   
         in 1949 (in 11 days);                                                                                                  
      • Alaskans paid both taxes from 1949-1980;                                                                                
      • In 1975 the income tax had changed from 16 percent of                                                                   
         federal tax liability to a tax with brackets from 3 to                                                                 
         14.5 percent;                                                                                                          
      • Alaska income tax provided 40 percent of all state                                                                      
9:18:38 AM                                                                                                                    
REPRESENTATIVE SEATON stated  that based on an  effective date of                                                               
January 1,  2019, the  Department of  Revenue estimates  that the                                                               
Education Funding Act will raise  $341 million in FY2019 and $687                                                               
million   in  FY2020.   Once  the   tax  is   fully  implemented,                                                               
approximately  $80 million  will be  collected from  nonresidents                                                               
who  work in  Alaska. DOR  estimates that  administering the  tax                                                               
will cost between 1 percent and  1.5 percent of the total revenue                                                               
He said  the Education Funding  Act is intended  to be part  of a                                                               
larger  fiscal plan  that  includes  restructuring the  permanent                                                               
fund earnings and changing the  calculation of the permanent fund                                                               
dividend. Individuals  and families in  the lowest 20  percent of                                                               
the  income range  will feel  the reduction  in the  dividend the                                                               
most, because  it makes up  a larger percentage of  their income.                                                               
Those  in the  higher  income range  will  contribute a  slightly                                                               
higher percentage through the school  tax, but will see a smaller                                                               
impact  through the  change to  the dividend.  The higher  income                                                               
brackets  will also  see a  larger  offset in  their federal  tax                                                               
liability.  He directed  attention to  the chart  on page  7 that                                                               
illustrates that the lowest 20  percent of filers will feel about                                                               
the same impact  to their total income as the  top 1 percent when                                                               
the  Education  Funding Act  is  combined  with  HCS SB  26,  the                                                               
restructured PFD. Individuals in  the lowest income brackets will                                                               
be  impacted more  in the  first few  years because  the dividend                                                               
will change first, and the full  year of income tax won't be paid                                                               
until 2020.                                                                                                                     
REPRESENTATIVE SEATON  highlighted that Alaska is  the only state                                                               
that doesn't  have some form  of broad-based tax to  support core                                                               
state services.  It is ranked 50  in state and local  tax burden,                                                               
but 10  in per capita  income. Forty-one states have  a statewide                                                               
income tax  and two have an  income tax on interest  and dividend                                                               
income.  The school  tax in  HB 115  would be  the fourth  lowest                                                               
amount of  tax revenue collected  as a portion of  total personal                                                               
income. Alaska would rank 30  in the per capita revenue collected                                                               
through this tax.  The three states with lower tax  rates than HB
115 proposes all  have statewide sales taxes. North  Dakota has a                                                               
5 percent  state sales  tax and  a total state  and local  tax of                                                               
6.78 percent.  Arizona has a  5.6 percent  state sales tax  and a                                                               
total state  and local tax of  8.25 percent. Louisiana has  a 5.0                                                               
percent state sales  tax and a total state and  local tax of 9.98                                                               
percent. Alaska's  average local  sales tax  is 1.76  percent. Of                                                               
the  6 other  states with  no income  tax, all  have a  statewide                                                               
sales tax.  He reminded  members that a  sales tax  is regressive                                                               
and  would disproportionately  affect communities  with a  higher                                                               
cost structure.                                                                                                                 
He said it's  difficult to quickly and  accurately compare income                                                               
taxes between  states because of  the differences  in deductions,                                                               
tax brackets, and credits. Some  states also have income taxes at                                                               
the  local level.  He directed  attention to  page 10  that shows                                                               
that  Hawaii does  not adjust  brackets for  inflation, Ohio  has                                                               
additional  income taxes  at the  local level  that average  2.25                                                               
percent, Montana  allows deductions  for some federal  taxes, and                                                               
Kentucky  does   not  adjust  brackets  for   inflation  but  has                                                               
additional  income  taxes  at  the local  level  that  average  2                                                               
percent. He disputed the claim  that the tax brackets proposed in                                                               
HB 115 are the  12  highest marginal tax rate  in the country. It                                                               
ignores the  fact that  most states apply  the top  marginal rate                                                               
after  the first  $10,000-$50,000. Thus,  more people  are paying                                                               
the  highest rate  on a  majority of  their income  leading to  a                                                               
higher effective tax rate.                                                                                                      
REPRESENTATIVE SEATON  offered more information on  how different                                                               
states create their brackets. Twenty-nine  states use the federal                                                               
adjusted  gross, 14  states automatically  adjust their  brackets                                                               
for inflation,  10 states  double the  bracket for  joint filers,                                                               
and 9 states increase but  don't double joint filing. Nine states                                                               
have a  flat tax  that applies  to all  taxable income  between 3                                                               
percent and 5.5 percent. Most  states start their tax brackets at                                                               
zero  and  30 states  have  a  standard deduction.  The  proposed                                                               
school tax in HB 115 does  not have a standard deduction, but the                                                               
first $10,300 is  exempt and there is also  a personal exemption.                                                               
Four states have a tax  benefit recapture that results in certain                                                               
high-income taxpayers paying  the top marginal rate  on all their                                                               
income. HB 115 has no such proposal.                                                                                            
9:30:24 AM                                                                                                                    
REPRESENTATIVE SEATON  reported that  Alaska Department  of Labor                                                               
and  Workforce  Development  (DOLWD) 2015  statistics  show  that                                                               
nonresidents comprised  21.3 percent  of the total  workforce and                                                               
earned 16  percent of the  total wages  in the state.  That means                                                               
$2.7  billion in  wages left  the state  that year.  That doesn't                                                               
include  income  from   self-employed  individuals  and  non-wage                                                               
industries  such  as  commercial   fishing.  DOR  estimates  that                                                               
nonresidents  will  contribute  about  $80 million  of  the  $687                                                               
million in revenue that is collected in FY2020.                                                                                 
He directed  attention to  a chart  from Northern  Economics that                                                               
shows the projected  job losses under three  budget scenarios. He                                                               
said the state has already lost  jobs and any choice that is made                                                               
to  address the  deficit  will contribute  to  future job  losses                                                               
before state employment  is forecast to recover.  The question is                                                               
how much.  According to the  analysis from Northern  Economics, a                                                               
cut to the permanent fund  dividend or implementing a broad-based                                                               
tax  would  have  similar effects  on  the  employment  forecast.                                                               
However, cutting the budget an  additional $1 billion will have a                                                               
far  greater  effect,  even with  the  full  projected  dividend.                                                               
Cutting  the budget  instead of  using the  dividend or  a broad-                                                               
based tax  to fill  the deficit  would result in  the loss  of an                                                               
additional  10,000   jobs  before  employment  is   projected  to                                                               
9:32:25 AM                                                                                                                    
REPRESENTATIVE SEATON displayed  the chart on page  13 that shows                                                               
the impact of different cuts  on Alaska's workforce. He said that                                                               
according  to  the  Institute of  Social  and  Economic  Research                                                               
(ISER),  every $100,000  million of  deficit reduction  will have                                                               
the  following impact  on  jobs: initiating  an  income tax  will                                                               
result in  the loss  of 450-800 jobs;  cutting the  dividend will                                                               
result  in the  loss of  558-892  jobs; cutting  the budget  will                                                               
result  in the  loss  of  980-1260 jobs;  and  cutting the  state                                                               
workforce will result  in the loss of 1,400-1,600  jobs. The ISER                                                               
report also  indicates that  3 private sector  jobs will  be lost                                                               
for every  2 state employees  that lose  their job due  to budget                                                               
He  noted that  the income  losses are  similar for  each of  the                                                               
9:33:47 AM                                                                                                                    
REPRESENTATIVE SEATON displayed  the IRS form 1040 on  page 14 to                                                               
illustrate how the  Alaska tax would be  calculated. Filers start                                                               
with the adjusted gross income on  line 37, deduct the $4,000 per                                                               
person personal exemption, and enter  the adjustments for taxable                                                               
income or nontaxable municipal bonds on lines 8a and 8b.                                                                        
REPRESENTATIVE SEATON concluded  his presentation emphasizing the                                                               
importance of adopting a complete  fiscal plan this year, because                                                               
failing to do  so creates uncertainty. Until Alaska  shows it has                                                               
a  balanced and  sustainable budget,  credit rating  agencies may                                                               
continue  to   downgrade  the  state's  standing.   The  intended                                                               
implementation date of HB 115  is January 1, 2019, which provides                                                               
time for other parts  of the fiscal plan to be  put in place. "We                                                               
cannot afford to wait one more year."                                                                                           
9:36:40 AM                                                                                                                    
CHAIR COSTELLO  asked Ms.  Hansen to  walk through  the sectional                                                               
analysis for HB 115.                                                                                                            
9:33:14 AM                                                                                                                    
TANEEKA HANSEN,  Staff, Representative Paul Seaton,  Alaska State                                                               
Legislature, spoke  to the following sectional  analysis for CSHB
      Section 1 (page 1, line 7) - Clarifies that this Act                                                                    
     may be known as the Education Funding Act.                                                                                 
        Section 2 (page 1, line 10) - Legislative intent                                                                      
     language outlining what income level for an individual                                                                     
     or a couple is considered exempt from this income tax.                                                                     
     Section 3 (page 2, line  8) - AS 43.05.045(a) clarifies                                                                  
     that there is a penalty if  a state return is not filed                                                                    
     electronically. However,  individual filers  are exempt                                                                    
     from this penalty as noted later in AS 43.22.075(i)                                                                        
     - (see page 19, line 25).                                                                                                  
     Section 4  (page 2, line  18) - Creates  the Individual                                                                  
     Income Tax within AS 43.22                                                                                                 
     Sec.  43.22.010   (page  2,   line  20)  -   Imposes  a                                                                
     progressive  income tax  on residents  and nonresidents                                                                    
     on their taxable income.  Taxable income, defined later                                                                    
     in  this chapter,  is based  on federal  adjusted gross                                                                    
     income   with   some  state   specific   modifications.                                                                    
     Residents  are  taxed  on  all  taxable  income,  while                                                                    
     nonresident individuals will be  taxed on income from a                                                                    
     source within the state.                                                                                                   
     Subsection (b) outlines the income  tax brackets for an                                                                    
     Subsection  (c) outlines  the income  tax brackets  for                                                                    
     two  individuals  who  file   jointly;  those  who  are                                                                    
     eligible to file a joint  federal income tax return are                                                                    
     eligible   to  file   jointly  in   the  state.   Under                                                                    
     subsection  (d) and  (e), those  that  are eligible  to                                                                    
     file  a joint  return federally  but do  not do  so are                                                                    
     directed how to file on the state level.                                                                                   
     Subsection (f) describes how  two individuals who filed                                                                    
     a joint federal  return but who are  not both residents                                                                    
     of Alaska  shall file with  the state. They  may choose                                                                    
     to  file separately,  as  nonresidents,  under the  tax                                                                    
     brackets described in (b) of  this section, or they may                                                                    
     elect to  file jointly  under the  brackets in  (c) but                                                                    
     only if both choose to be taxed as residents.                                                                              
     Sec.  43.22.015 (page  4,  line 4)  -  Describes how  a                                                                  
     nonresident  individual  will  determine  their  Alaska                                                                    
     state income tax  due.  Their tax is  determined on all                                                                    
     of  their   taxable  income,  using  the   brackets  in                                                                    
     43.22.010(b).  That  tax is  then  reduced  by a  ratio                                                                    
     based on  how much of the  nonresident's taxable income                                                                    
     is from  a source  within the state.  [Nonresidents who                                                                    
     choose to  file jointly  are not  eligible to  use this                                                                    
     allocation  of income,  and are  instead considered  as                                                                    
9:39:56 AM                                                                                                                    
     Sec. 43.22.020  (page 4, line  20) -Defines the  tax on                                                                  
     trusts and estates. Trusts are  taxed at the same rates                                                                    
     as  an  individual under  the  income  tax brackets  in                                                                    
     43.22.010(b),  except that  the  first  $10,300 is  not                                                                    
     exempt as  it is for an  individual. Nonresident trusts                                                                    
     are  taxed  on  Alaska  source  income.  Alaska  Native                                                                    
     Settlement  trusts  receive   alternative  federal  tax                                                                    
     treatment and  are taxed at  2.5% by this  state income                                                                    
     tax.  Trusts that  are not  taxed federally,  including                                                                    
     union pension trusts and charity  trusts, are not taxed                                                                    
     under this chapter.  Disability  trusts are also exempt                                                                    
     from state taxation.                                                                                                       
     Sec. 43.22.025  (page 5, line  31) - Provides  a credit                                                                  
     to residents for  taxes paid to another  state based on                                                                    
     income earned in that other  state (ensuring a resident                                                                    
     is not  taxed twice on  the same income). A  credit for                                                                    
     income taxes  paid in another  state cannot  reduce the                                                                    
     tax due to Alaska below what  it would have been if the                                                                    
     out-of-state   income  was   never   included  in   the                                                                    
     calculation of the tax due.  This means that regardless                                                                    
     of the amount of income  tax the resident paid in other                                                                    
     states, the  credit cannot reduce the  amount of income                                                                    
     tax due  to Alaska  below what the  resident individual                                                                    
     would  owe on  just the  income  that is  not taxed  by                                                                    
     other states.                                                                                                              
9:45:34 AM                                                                                                                    
     Sec. 43.22.030 (page  7, line 12) -  Defines the income                                                                  
     that is  considered taxable income under  this chapter.                                                                    
     This  is based  on  the federal  adjusted gross  income                                                                    
     with  a  few  specific   items  added  and  subtracted.                                                                    
     Specific to  Alaska, this section  allows a  per person                                                                    
     exemption of  $4000 and also allows  the permanent fund                                                                    
     dividend  to   be  deducted  from  state   tax.  Alaska                                                                    
     municipal bonds will also not be taxed.                                                                                    
     Items   added  into   federal  adjusted   gross  income                                                                    
     include: interest  and income from state  and municipal                                                                    
     bonds  and certain  United States  bonds which  are not                                                                    
     taxed by  the federal government but  which are taxable                                                                    
     by the  states; deductions from federal  adjusted gross                                                                    
     income  for  Alaska  income  taxes  (normally  deducted                                                                    
     after  adjusted gross  income);  gain from  a trade  of                                                                    
     like-kind properties which  is not federally recognized                                                                    
     or  taken as  a gain;  income from  an incomplete  non-                                                                    
     grantor trust;  and any  deductions allowed  to federal                                                                    
     adjusted gross  income which relate  to income  that is                                                                    
     not   being  taxed   under   this  chapter,   including                                                                    
     deductions for losses on Alaska municipal bonds.                                                                           
     Items  subtracted from  federal  adjusted gross  income                                                                    
     include: interest  or income  from federal  bonds which                                                                    
     are  not legally  taxable by  the  states; refunds  for                                                                    
     overpayment  of an  income tax;  expenses that  are not                                                                    
     deducted from  federal adjusted  gross income  but that                                                                    
     relate to income taxed under  this chapter; a gain from                                                                    
     a  trade  of  like-kind properties  that  is  federally                                                                    
     recognized as  a gain; gains on  Alaska municipal bonds                                                                    
     which  are not  taxed under  this chapter;  nonresident                                                                    
     pension   income   under   4   U.S.C.   114;   military                                                                    
     compensation for  nonresidents; and the  permanent fund                                                                    
9:47:04 AM                                                                                                                    
MS. HANSEN  noted there is a  small typo in this  section. The                                                                  
subsections  weren't all  renumbered  after  an amendment  was                                                                  
adopted  on  the  House  floor.   She  clarified  that  it  is                                                                  
subsection (c) that deals with the personal exemption.                                                                          
     Subsection  (b)  allows  an   exemption  of  $4000  per                                                                    
     individual  claimed  as  an exemption  on  the  federal                                                                    
     income tax  forms. For  non-residents the  exemption is                                                                    
     $4000 per  individual claimed  times the  fraction used                                                                    
     to determine the non-resident's taxes due.                                                                                 
     Subsection  (c) states  that expenses  not used  in the                                                                    
     tax year they were incurred  may not be carried back to                                                                    
     previous year returns, and may  only be carried forward                                                                    
     for a total of five years.                                                                                                 
     Sec 43.22.035 (page 10, line  8) - Describes how income                                                                  
     from  a  partnership  or   an  s-corporation  shall  be                                                                    
     adjusted  based  the   additions  and  subtractions  of                                                                    
     taxable income under 43.22.030.   Subsection (c) states                                                                    
     that  if  partnership  income  is  allocated  with  the                                                                    
     specific  purpose  of  evading taxes,  that  allocation                                                                    
     shall be disregarded.                                                                                                      
9:50:23 AM                                                                                                                    
     Sec.  43.22.040  (page  11, line  1)  -  Describes  how                                                                  
     income from a  trust or estate shall  be adjusted based                                                                    
     on  the additions  and subtractions  of taxable  income                                                                    
     under  43.22.030.  Taxable  income is  reduced  by  the                                                                    
     amount distributed to  the beneficiaries, in accordance                                                                    
     with  U.S.C.   661.  The  Department  of   Revenue  may                                                                    
     determine in  regulation how the adjustments  to income                                                                    
     will be allocated  between the trust or  estate and the                                                                    
     beneficiary  of that  trust or  estate. Subsection  (b)                                                                    
     states that if  income or loss is  distributed with the                                                                    
     specific  purpose of  evading taxes,  that distribution                                                                    
     shall be disregarded.                                                                                                      
     Sec. 43.22.045  (page 11,  line 15)  -Identifies items of                                                                
     income  that  are considered  as  being  derived  from or                                                                  
     connected with a source in the state.  This is the income                                                                  
     on which nonresidents will be taxed.                                                                                       
     Sec.  43.22.050   (page  15,  line  26)   -  Directs  the                                                                
     Department of  Revenue to create  regulations determining                                                                  
     what is considered income from  a source in the state for                                                                  
     business   conducted   by   a   nonresident   individual,                                                                  
     partnership,  or s-corporation.  The regulations  must be                                                                  
     consistent with  AS 43.19,  the multistate  compact. This                                                                  
     provision will allow the department to create regulations                                                                  
     to  allocate what  income is  taxable under  this chapter                                                                  
     when an out of state business is conducting business both                                                                  
     in and out of state.                                                                                                       
     Sec.  43.22.055  (page  16,  line  12)  -  Directs  the                                                                  
     department to create regulations  to detail what income                                                                    
     from  a  nonresident  trust  or  estate  is  considered                                                                    
     derived  from or  connected with  a  source within  the                                                                    
     state.   These regulations shall be  consistent with AS                                                                    
     43.22.045,  which  identifies   income  from  a  source                                                                    
     within the state.                                                                                                          
     Sec. 43.22.060 (page  16, line 30) -  Provides that the                                                                  
     taxable  income for  a  part-year  resident, trust,  or                                                                    
     estate  shall   be  the  sum  of   all  taxable  income                                                                    
     associated  with   the  part  of  the   year  that  the                                                                    
     individual or entity  was a resident of  Alaska and the                                                                    
     income from a  source in the state for the  part of the                                                                    
     year that the  individual or entity was  not a resident                                                                    
     of the state.                                                                                                              
     Sec. 43.22.065  (page 17, line 12)  - In the case  of a                                                                  
     personal  service corporation  formed  to evade  taxes,                                                                    
     the  department may  allocate  the  income between  the                                                                    
     personal  service corporation  and the  employee-owners                                                                    
     if necessary  to accurately reflect  the source  of the                                                                    
9:54:16 AM                                                                                                                    
     Sec.  43.22.070  (page 18,  line  9)  - States  that  a                                                                  
     taxpayer's taxable  year and  method of  accounting for                                                                    
     the  state income  tax shall  be  the same  as for  the                                                                    
     taxpayer's  federal income  tax.  The department  shall                                                                    
     adopt   regulations  addressing   situations  where   a                                                                    
     taxpayer  changes  methods  of  accounting.  [For  most                                                                    
     individuals,  the taxable  year is  the calendar  year.                                                                    
     However,  entities such  as partnerships  that file  an                                                                    
     individual income tax  return may use a  fiscal year in                                                                    
     place  of  a  calendar  year, and  may  have  different                                                                    
     methods of accounting for their income.]                                                                                   
     Sec.  43.22.075 (page  18, line  18) -  Establishes how                                                                
     taxpayers  will submit  tax returns  and make  payments                                                                    
     for the  individual income tax. It  clarifies that this                                                                    
     tax is  due and payable  to the department at  the same                                                                    
     time and in  the same manner as the tax  payable to the                                                                    
     U.S. IRS  for federal taxes. The  section also outlines                                                                    
     procedures in case there are  changes to the taxpayer's                                                                    
     federal  income tax  return. Any  overpayments will  be                                                                    
     reimbursed by  the department out of  the general fund.                                                                    
     As  noted above,  (i) exempts  an  individual from  the                                                                    
     penalty    for   not    filing    their   income    tax                                                                    
     electronically. However, a person  paid to file returns                                                                    
     is not exempt, and must file electronically.                                                                               
     Sec.  43.22.080 (page  19, line  31) -  Establishes how                                                                  
     taxes will  be withheld by employers  making payment of                                                                    
     wages  or  salaries.  The  employer  shall  deduct  and                                                                    
     withhold  the  amount of  tax,  remit  the tax  to  the                                                                    
     department,  and provide  a  written  statement to  the                                                                    
     employee by  January 31 of the  succeeding year showing                                                                    
     the  amount deducted  and other  necessary information,                                                                    
     similar to  the federal  W2. The Department  of Revenue                                                                    
     shall publish the rate of  withholding required by this                                                                    
     Sec. 43.22.085  (page 20, line 24)  - Partnerships that                                                                  
     are required to file an  annual return with the federal                                                                    
     government shall  also file  a partnership  return with                                                                    
     the Department  of Revenue,  and shall  withhold income                                                                    
     tax  from a  nonresident  partner.   Publically  traded                                                                    
     partnerships are not required to withhold.                                                                                 
     Sec. 43.22.090 (page  21, line 13) -  Allows a resident                                                                  
     the  option to  apply some  or all  of their  PFD as  a                                                                    
     refundable tax  payment to their upcoming  state income                                                                    
     tax due, less any  garnishment, levy, donations to Pick                                                                    
     Click  Give or  college funds,  etc., as  allowed under                                                                    
     other sections  of statute. For  example, a  person may                                                                    
     apply  some or  all of  their  2018 PFD  to their  2018                                                                    
     taxes  due. If  a  person's Refundable  Tax payment  of                                                                    
     their dividend is  more than the amount  of their state                                                                    
     income   tax  due,   any  remaining   amount  will   be                                                                    
     reimbursed to  the person  as a  tax refund,  after the                                                                    
     person has filed their state income taxes.                                                                                 
9:59:14 AM                                                                                                                    
     Sec.  43.22.095 (page  21, line  23)  - Authorizes  the                                                                  
     department  to create  all  necessary  forms and  adopt                                                                    
     regulations   to   implement    this   tax,   including                                                                    
     regulations for  online filing  and online  payment and                                                                    
     prepayment  of  taxes  due,  and  forms  for  itemizing                                                                    
     deductions.  This  section  allows  the  department  to                                                                    
     adopt  Internal Revenue  Code regulations,  as long  as                                                                    
     they do not conflict with this chapter.                                                                                    
     Subsection (b) clarifies  that transactions or payments                                                                    
     between related  parties must have a  reason other than                                                                    
     the  purpose  of  lowering taxes.  The  department  may                                                                    
     determine and adjust  the tax due on such  a payment as                                                                    
     Subsection  (d) directs  the department  to adjust  the                                                                    
     tax  brackets  and  the personal  exemption  every  two                                                                    
     years, based on the Anchorage rate of inflation.                                                                           
     Subsection (e) allows that  the legislature may deposit                                                                    
     the estimated income collected  under this chapter into                                                                    
     the public education fund.                                                                                                 
     Sec.  43.22.100  (page  22,   line  31)  -  allows  the                                                                  
     provisions  of  the  Internal  Revenue  Code  that  are                                                                    
     mentioned in this  chapter to be considered  as if they                                                                    
     are fully  set out and  defined in the  chapter itself,                                                                    
     unless the provision is  inconsistent with the chapter.                                                                    
     Allows  the department  to adopt  by reference  certain                                                                    
     IRS penalties for violations of this chapter.                                                                              
     Sec. 43.22.110 (page 23, line  15) - Allows certain tax                                                                  
     information  to be  released to  a banking  institution                                                                    
     for the  purpose of  verifying a  direct deposit  of an                                                                    
     income tax refund.                                                                                                         
     Sec. 43.22.150 (page 23, line  19) - Defines terms used                                                                  
     in  this   chapter.  Key  terms   include  'domiciled',                                                                    
     'resident', and  'resident trust'. Resident  is defined                                                                  
     as  an  individual who:  lives  in  the state  for  the                                                                    
     entire  calendar  year;  receives an  Alaska  permanent                                                                    
     fund  dividend; or  receives a  tax benefit  such as  a                                                                    
     property  tax exemption  only available  to a  resident                                                                    
     Section 5 (page  26, line 28) - AS 43.23  is amended by                                                                  
     adding a  new section which directs  the Permanent Fund                                                                    
     Division  in  the Department  of  Revenue  to create  a                                                                    
     place  on the  PFD application  where an  applicant may                                                                    
     apply some or all of  their PFD to their upcoming state                                                                    
     income tax due.                                                                                                            
     Section  6  (page  27,  line  2)  -  AS  43.05.085,  AS                                                                  
     43.20.012(b),  and AS  43.20.013, a  former tax  credit                                                                    
     for   political   contributions  that   existed   under                                                                    
     Alaska's  prior individual  income tax  which ended  in                                                                    
     1980, are repealed on January 1, 2019.                                                                                     
10:04:20 AM                                                                                                                   
     Section 7 (page 27, line  3) - Clarifies that the state                                                                  
     income tax  created under  section 4  of this  act only                                                                    
     goes into effect starting on  January 1, 2019, and will                                                                    
     not  be applied  to  any income  earned  prior to  that                                                                    
     Section  8   (page  27,  line   7)  -   Authorizes  the                                                                  
     Department   of  Revenue   to   adopt  regulations   to                                                                    
     implement the  act, but not  before the  effective date                                                                    
     of the law implemented by the regulation.                                                                                  
10:05:14 AM                                                                                                                   
CHAIR COSTELLO thanked Representative Seaton and Ms. Hansen,                                                                    
and asked members if they had questions.                                                                                        
SENATOR GARDNER asked Representative Seaton for a copy of his                                                                   
opening comments.                                                                                                               
REPRESENTATIVE SEATON agreed to provide it to the chair for                                                                     
10:05:57 AM                                                                                                                   
SENATOR GARDNER said  she assumes that his  statement that the                                                                  
first $50,000 of income would be  taxed at the same rate means                                                                  
the adjusted gross income after the deductions.                                                                                 
REPRESENTATIVE SEATON said yes. The  point is that everyone in                                                                  
the same  bracket is  taxed at  the same  rate. He  added that                                                                  
it's a  complex bill  but not a  complex calculation.  Much of                                                                  
the  bill gives  detailed instructions  to  the Department  of                                                                  
Revenue on implementing regulations.                                                                                            
SENATOR  GARDNER referenced  page 7  of  the presentation  and                                                                  
questioned the $300 reduction to the permanent fund dividend.                                                                   
REPRESENTATIVE SEATON clarified that is  an estimate for 2023.                                                                  
Modeled in  a tax  year 2016 economy,  the dividend  payout is                                                                  
estimated  to be  $1,700. The  difference between that  number                                                                  
and the dividend this year is $300.                                                                                             
MS. HANSEN added that the packet  has the full report from the                                                                  
Institute  on  Taxation  and  Economic  Policy  that  shows  a                                                                  
greater  change  between  next  year   and  2023.  Over  time,                                                                  
however, the difference  is reduced, and the  2023 estimate is                                                                  
SENATOR  GARDNER asked  if any  states collect  tax on  income                                                                  
earned  in another  state. For  example,  could her  husband's                                                                  
nonresident  business partner  pay income  tax  on the  Alaska                                                                  
earnings to both Alaska and his home state?                                                                                     
REPRESENTATIVE  SEATON explained that  the Interstate  Compact                                                                  
allows a credit  when income is taxed in both  states so there                                                                  
isn't a double payment.                                                                                                         
10:13:20 AM                                                                                                                   
SENATOR STEVENS  asked how  much it would  cost to  manage the                                                                  
tax system with 120 employees.                                                                                                  
REPRESENTATIVE  SEATON  clarified  that   there  would  be  60                                                                  
employees,  not 120.  The initial  implementation cost  is $14                                                                  
million  and DOR  estimates  that  total administrative  costs                                                                  
will be 1  percent to 1.5 percent. Starting  with the adjusted                                                                  
gross  income that  is reported  on the  federal 1040  form is                                                                  
financially  advantageous to  the state  because the  Internal                                                                  
Revenue Service audits those numbers.                                                                                           
SENATOR STEVENS  asked if  it's reasonable  to assume  that 60                                                                  
employees can  administer the tax system  when Montana employs                                                                  
155 people for that purpose.                                                                                                    
MS. HANSEN suggested  that DOR could speak to  the question in                                                                  
detail  this afternoon,  but her  understanding  is that  that                                                                  
Montana's  entire  tax  division employs  155  people.  Alaska                                                                  
already has an  established tax division and  DOR estimates it                                                                  
will  only need  an  additional 60  people  to administer  the                                                                  
income tax.                                                                                                                     
SENATOR STEVENS  referenced Section 7 and  asked if retirement                                                                  
income will be taxed.                                                                                                           
MS.  HANSEN explained  that retirement,  Social Security,  and                                                                  
pension  income that  is  reported and  taxed  at the  federal                                                                  
level will be taxed on the state level.                                                                                         
REPRESENTATIVE SEATON  added that  pension and  annuity income                                                                  
is  entered in  box 16(a)  of the  federal 1040  form and  the                                                                  
taxable  amount is  reported on  line  16(b). Social  Security                                                                  
benefits  are entered  in box  20a and  the taxable  amount is                                                                  
entered  on   line  20b.  Those   amounts  are  part   of  the                                                                  
calculation of adjusted gross income  on the federal level, so                                                                  
they aren't reported separately on the state form.                                                                              
SENATOR  MEYER said  he agrees  with Senator  Stevens that  60                                                                  
people  probably wouldn't  be enough  to administer  an income                                                                  
tax.  He pointed  out that  the state  is six  or seven  years                                                                  
behind  on the  audits for  the more  complicated oil  and gas                                                                  
He asked  why it isn't  preferable to  simply pay a  state tax                                                                  
based on a percentage of the federal tax.                                                                                       
REPRESENTATIVE SEATON said his office  looked at that approach                                                                  
initially,  but it  is more  complicated and potentially  more                                                                  
volatile.  Years  ago,  many states,  Alaska  included,  based                                                                  
their state tax  on the federal tax due but  none do that now.                                                                  
Now  most states  use adjusted  gross income  as the  starting                                                                  
point for calculating the state tax.                                                                                            
SENATOR MEYER commented,  "It's a shame we  can't do something                                                                  
simple like  just a certain  percent. I think  accountants are                                                                  
going  to love  your income  tax bill  because we're  going to                                                                  
have  to   hire  more  accountants."  He  recalled   that  the                                                                  
governor's income  tax bill last  year-which was  a percentage                                                                  
of  the  federal  tax-was estimated  to  generate  about  $400                                                                  
million, whereas  HB 115  is estimated  to collect  about $700                                                                  
million. He  said the  largest fear  his constituents  have is                                                                  
that the income tax will continue to rise.                                                                                      
SENATOR MEYER continued:                                                                                                        
     As you  know, in  the Senate we  don't believe  we need                                                                    
     $700 million with the  PFD restructured-Senate Bill 26-                                                                    
     at $2 billion, and  approximately $300 million in cuts,                                                                    
     you're  at 2.3  and your  deficit's 2.7  so under  your                                                                    
     income  tax proposal  we'd be  collecting approximately                                                                    
     $300  million  more than  we  need.  I think  that's  a                                                                    
     concern of people too. Are  we going to now suddenly go                                                                    
     back  to  our  old   habits  of  spending  more  money?                                                                    
     Whereas, again, in  the Senate we like  that little bit                                                                    
     of deficit, whether it's $300  million or $500 million.                                                                    
     It  keeps the  pressure on  us to  keep spending  down.                                                                    
     When you've got $4  billion in your CBR [Constitutional                                                                    
     Budget Reserve]  you can get  away with that  for quite                                                                    
     some time  and maybe  hold off on  an income  tax, hold                                                                    
     off on  taking money from  our constituents as  long as                                                                    
     possible,  because  it  does  have  an  impact  to  our                                                                    
     constituents and to the economy.                                                                                           
     I  think that's  why  we're having  difficulty with  an                                                                    
     income   tax   proposal   and,   frankly,   it's   very                                                                    
     inefficient.  We're going  to give  people, under  your                                                                    
     proposal, a  dividend of $1,200  and then take  it back                                                                    
     via an  income tax.  I have  so many  constituents say,                                                                    
     'Look, if you need more  money just reduce the dividend                                                                    
     down to  $800' rather  than hiring  another 60,  70, 80                                                                    
     state  employees  to  collect   the  tax  from  working                                                                    
     I don't know if there's  a question in there. It's more                                                                    
     a philosophical difference  we have in the  need for an                                                                    
     income tax.                                                                                                                
He asked to hear the sponsor's response.                                                                                        
REPRESENTATIVE  SEATON clarified  that  the governor's  income                                                                  
tax was  $200 million;  it was calculated  to fill  a specific                                                                  
hole  in the  budget  that  wasn't filled  by  the nine  other                                                                  
targeted taxes. Doing just an  income tax instead of targeting                                                                  
individual  industries spreads  the burden  wider. He  pointed                                                                  
out that  it costs the same  to administer a $650  million tax                                                                  
as a $200  million tax, so collecting the smaller  tax is less                                                                  
efficient. He reiterated that this  tax is not complicated; it                                                                  
starts with the  federal adjusted gross income so  most of the                                                                  
calculations are already done. He  again directed attention to                                                                  
the tax calculator on the  majority website that quickly tells                                                                  
your tax.  TurboTax and other tax software  also automatically                                                                  
calculates state  taxes, he said. Individuals who  have income                                                                  
reported on a  federal form 1099 would need to  send a copy of                                                                  
that 1099 to the state.                                                                                                         
SENATOR MEYER maintained  that it wouldn't be the  same as the                                                                  
federal income tax. For example,  he said, the PFD isn't taxed                                                                  
at the state level, but it is at the federal level.                                                                             
REPRESENTATIVE  SEATON clarified  that the  calculator on  the                                                                  
House and  Senate majority websites automatically  removes the                                                                  
PFD and the $4,000 personal exemption.                                                                                          
SENATOR HUGHES  asked how many  Alaskans would pay  this state                                                                  
income tax.                                                                                                                     
MS. HANSEN  said that  in tax year  2014 about  500,000 single                                                                  
and joint  returns were filed,  but some  of those had  no tax                                                                  
liability due  to the child  tax credit and the  earned income                                                                  
credit.  She opined  that most  of  the filers  that would  be                                                                  
required to file under the state  income tax would pay a small                                                                  
SENATOR  HUGHES offered her  understanding that  approximately                                                                  
330,000 returns are  filed and that not all  the joint returns                                                                  
have two incomes. She maintained  that it's a misnomer to call                                                                  
this  a broad-based  tax  if fewer  than  400,000 returns  are                                                                  
filed.   She   asked   if   the   calculations   account   for                                                                  
outmigration,   because   other    states   have   experienced                                                                  
population loss when  an income tax was  implemented. That's a                                                                  
concern  because  the ratio  of  workers to  nonworkers  would                                                                  
become skewed, she said.                                                                                                        
10:31:45 AM                                                                                                                   
REPRESENTATIVE  SEATON said  the  calculations  in the  fiscal                                                                  
note were done by the  Department of Revenue (DOR). He pointed                                                                  
out that  just six states don't  have a state income  tax, and                                                                  
all other jurisdictions have a  higher tax burden than what HB
115 proposes.                                                                                                                   
SENATOR HUGHES responded  that things like cost  of living are                                                                  
also factored into the decision to move.                                                                                        
She asked  if he'd looked at  the economic impact that  HB 115                                                                  
will have  on small businesses.  "They're the backbone  of our                                                                  
communities so I'm concerned about that," she said.                                                                             
REPRESENTATIVE  SEATON said  they've  looked  at studies  from                                                                  
ISER, Northern  Economics, and  others that  say that  this is                                                                  
the lowest  job loss  option to close  the deficit.  Also, the                                                                  
packets  contain  the  report   released  yesterday  from  the                                                                  
Institute on  Taxation and  Economic Policy  titled "Comparing                                                                  
the Distributional  Impact of Revenue  Options in  Alaska." He                                                                  
said a  lot of  people have  the idea  that they'll  pay state                                                                  
taxes starting  with dollar  one, but  that's not  accurate. A                                                                  
single person will start paying  after approximately the first                                                                  
$15,300 and a couple filing  jointly will have a tax exemption                                                                  
for the first  $31,000. He reiterated that people  who use the                                                                  
tax calculator on  the majority websites realize  that the tax                                                                  
burden  isn't as  large as  they imagined.  However, he  said,                                                                  
people in  the million or  multimillion dollar  income bracket                                                                  
will have a  higher tax burden. He encouraged  members to read                                                                  
the  report,  describing it  as  good  information on  how  to                                                                  
generate $500  million to  reduce the  deficit. It  finds that                                                                  
low- and  middle-income families would  be better off  under a                                                                  
progressive  personal   income  tax  than  any   other  option                                                                  
examined in the report.                                                                                                         
10:37:30 AM                                                                                                                   
SENATOR HUGHES  said her  concern is that  most people  are in                                                                  
that middle income,  so the tax will hit a lot  of people. She                                                                  
then questioned why  a single adult with an  adjusted gross of                                                                  
$75,000  and two  dependents pays  more than  a couple  filing                                                                  
jointly  with  the same  adjusted  gross  and same  number  of                                                                  
REPRESENTATIVE  SEATON  said it's  set  up  on the  individual                                                                  
basis, so  there is  no advantage to  filing jointly.  In that                                                                  
scenario the  single return has  three family members  and the                                                                  
joint return  has four family  members. The single  return has                                                                  
one less  $4,000 exemption and  one less $1,250  PFD exclusion                                                                  
so the income bracket is higher.                                                                                                
SENATOR HUGHES  expressed concern about single  parents paying                                                                  
CHAIR COSTELLO held HB 115 in committee.                                                                                        
10:39:15 AM                                                                                                                   
There being no further business to come before the committee,                                                                   
Chair Costello adjourned the Senate Labor and Commerce                                                                          
Standing Committee meeting at 10:39 a.m.                                                                                        

Document Name Date/Time Subjects
HB 115 - Background - Filing charts.pdf SL&C 4/25/2017 9:00:00 AM
HB 115
HB 115 - Background - History of Alaska Income Tax.pdf SL&C 4/25/2017 9:00:00 AM
HB 115
HB 115 - Background - ISER- Research Summary - Fiscal Options.pdf SL&C 4/25/2017 9:00:00 AM
HB 115
HB 115 - Background - ITEP - Impact of Revenue Options - 4.24.2017.pdf SL&C 4/25/2017 9:00:00 AM
HB 115
HB 115 - Background - ITEP Report.pdf SL&C 4/25/2017 9:00:00 AM
HB 115
HB 115 - Fiscal Note - DOA-OAH _4.12.2017.pdf SL&C 4/25/2017 9:00:00 AM
HB 115
HB 115 - Fiscal Note - DOR-TAX - 4.12.2017.pdf SL&C 4/25/2017 9:00:00 AM
HB 115
HB 115 - Opposition Letter - AK Realtors.pdf SL&C 4/25/2017 9:00:00 AM
HB 115
HB 115 - Presentation to Senate Labor & Commerce - K.A.PDF SL&C 4/25/2017 9:00:00 AM
HB 115
HB 115 - Sectional - Version K.A.pdf SL&C 4/25/2017 9:00:00 AM
HB 115
HB 115 - Sponsor Statement - Version K.A.pdf SL&C 4/25/2017 9:00:00 AM
HB 115
HB 115 - Summary of Changes - K to K.A.pdf SL&C 4/25/2017 9:00:00 AM
HB 115
HB 115 - Summary of Changes - Version E to K.pdf SL&C 4/25/2017 9:00:00 AM
HB 115
HB 115 - Version K.A.pdf SL&C 4/25/2017 9:00:00 AM
HB 115
HB 115 - Opposing Email Testimony.pdf SL&C 4/25/2017 9:00:00 AM
HB 115
HB 115 - Written Opposition.PDF SL&C 4/25/2017 9:00:00 AM
HB 115
HB 115 - Supporting Email Testimony.pdf SL&C 4/25/2017 9:00:00 AM
HB 115
HB 115 - Written Support.PDF SL&C 4/25/2017 9:00:00 AM
HB 115
Litzenberger_HB115_SLAC_042517.pdf SL&C 4/25/2017 9:00:00 AM
HB 115
Petition_HB115_SLAC_042517.pdf SL&C 4/25/2017 9:00:00 AM
HB 115
Petition_Part2_HB115_SLAC_042517.pdf SL&C 4/25/2017 9:00:00 AM
HB 115
Petition_part3_HB115_SLAC_042917.pdf SL&C 4/25/2017 9:00:00 AM
HB 115
Petition_part4_HB115_SLAC_050317.pdf SL&C 4/25/2017 9:00:00 AM
HB 115