Legislature(2015 - 2016)BELTZ 105 (TSBldg)
05/25/2016 01:30 PM Senate LABOR & COMMERCE
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| Audio | Topic |
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| Start | |
| SB4001 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB4001 | TELECONFERENCED | |
| + | TELECONFERENCED |
ALASKA STATE LEGISLATURE
SENATE LABOR AND COMMERCE STANDING COMMITTEE
May 25, 2016
1:30 p.m.
MEMBERS PRESENT
Senator Mia Costello, Chair
Senator Cathy Giessel, Vice Chair
Senator Kevin Meyer
Senator Gary Stevens
Senator Johnny Ellis
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
SENATE BILL NO. 4001
"An Act relating to taxation, including establishing an
individual income tax; relating to the marijuana tax and bonding
requirements for marijuana cultivation facilities; relating to
the exploration incentive credit; increasing the motor fuel tax;
increasing the taxes on cigarettes and tobacco products; taxing
electronic smoking products; adding a definition of 'electronic
smoking product' and requiring labeling of an electronic smoking
product; increasing the excise tax on alcoholic beverages;
relating to exemptions from the mining license tax; removing the
minimum and maximum restrictions on the annual base fee for the
reissuance or renewal of an entry permit or an interim-use
permit; increasing the mining license tax rate; relating to
mining license application, renewal, and fees; increasing the
fisheries business tax and fishery resource landing tax;
relating to refunds to local governments; and providing for an
effective date."
- HEARD AND HELD
PREVIOUS COMMITTEE ACTION
BILL: SB4001
SHORT TITLE: OMNIBUS TAXES & CREDITS; MINING LICENSES
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
05/23/16 (S) READ THE FIRST TIME - REFERRALS
05/23/16 (S) L&C, FIN
05/25/16 (S) L&C AT 1:30 PM BELTZ 105 (TSBldg)
WITNESS REGISTER
RANDALL HOFFBECK, Commissioner
Department of Revenue (DOR)
Juneau, Alaska
POSITION STATEMENT: Presented SB 4001.
KEN ALPER, Director
Tax Division
Department of Revenue (DOR)
Juneau, Alaska
POSITION STATEMENT: Presented SB 4001.
ACTION NARRATIVE
1:30:03 PM
CHAIR MIA COSTELLO called the Senate Labor and Commerce Standing
Committee meeting to order at 1:30 p.m. Present at the call to
order were Senators Ellis, Giessel, Stevens, Meyer, and Chair
Costello.
SB4001-OMNIBUS TAXES & CREDITS; MINING LICENSES
1:30:41 PM
CHAIR COSTELLO announced the consideration of SB 4001.
1:31:22 PM
RANDALL HOFFBECK, Commissioner, Department of Revenue (DOR),
introduced himself.
1:31:30 PM
KEN ALPER, Director, Tax Division, Department of Revenue (DOR),
introduced himself.
COMMISSIONER HOFFBECK reminded the committee that the governor
initially introduced a package of bills that were designed to
bring in new revenue, reduce expenses, and use the state's
financial assets in order to close the fiscal gap. The new
revenues were introduced as individual bills and for the special
session they were bundled as an omnibus tax bill. It is one of
the components that the governor has identified as essential to
close the fiscal gap by 2019. The bill incorporates: income tax
(HB 250/SB 134), the motor fuel tax (HB 249/SB 132), tobacco tax
(HB 304/SB 133), alcohol tax (HB 248/SB 131), mining tax (HB
253/SB 137), fish tax (HB 251/SB 135), and marijuana tax
enforcement (provisions of HB 337).
SB 4001 incorporates much of the committee work that was done on
these bills during the regular session, but not necessarily the
provisions in opposition to the governor's position. This
committee already heard the income tax, tobacco tax, and alcohol
tax bills, although the tobacco tax is based on the House
version. Together, these bill will raise about $350 million in
revenue.
COMMISSIONER HOFFBECK reviewed the format of the presentation.
There will be two slides for each of the taxes. The first will
talk about what the bill does and how it differs from what was
heard during the regular session. The second slide will show how
much money it raises and how it impacts Alaskans. He noted that
the electronic filing provisions are not included due to the
passage of HB 375.
1:35:00 PM
MR. ALPER discussed the proposed income tax (AS 43.22). It
creates an individual income tax at 6 percent of the federal tax
liability. This is similar to Alaska's historic income tax that
was repealed in 1980. The former tax peaked at 16 percent of
federal liability. It contains language for withholding by
employers, and taxes income earned in Alaska regardless of
residence state, as well as income from partnerships and S-
corporations.
The current bill removes language related to the taxation of
trusts and delays the effective date to January 2018. The
intention was to remove fishery crew shares from withholding tax
requirements, because they are contract employees that receive
1099s. He noted that this provision was inadvertently omitted
from the current draft and should the bill progress they hope
the committee would support removing the fisheries withholding
language.
1:37:05 PM
CHAIR COSTELLO noted that Senator Micciche had joined the
committee.
MR. ALPER continued to explain that the new income tax will
raise about $100 million in FY2018 and the full $205 million in
FY2019. After 2019, the revenue will be tied to inflation and
income growth. About 20 percent to 30 percent of Alaskans will
have no tax liability, which is less than initially anticipated.
The permanent fund dividend also helps push people into at least
a minimal tax bracket. There will be a very low tax burden on
households that earn less than $50,000 and most households will
pay substantially less than 1 percent of income. By absorbing
the federal tax code, this becomes a progressive tax at the same
rate as the federal code. He highlighted that state income taxes
are deductible from federal income tax for those Alaskans who
itemize. Currently, 43 states have an income tax, but only 41
tax all income. The other 2 states just tax capital gains.
Should the bill pass, Alaska would have the lowest tax rate in
the country.
1:41:20 PM
MR. ALPER discussed the proposed motor fuel tax (AS 43.40). It
increases the current tax rates as follows: highway fuel
increases from 8 cents to 16 cents per gallon; marine fuel
increases from 5 cents to 10 cents per gallon; aviation gas
increases from 4.7 cents to 7 cents per gallon; jet fuel
increases from 3.2 cents to 6.5 cents per gallon; and doubles
the credit for highway fuel used off road.
The key difference from the regular session bills is that the
aviation and jet fuel numbers conform to CSHB 249(FIN). The
current draft does not incorporate the 2-year sunset proposed in
the Senate Transportation Committee substitute; the motor fuel
tax would be a permanent change.
1:43:09 PM
CHAIR COSTELLO welcomed Representative Hughes, Representative
Wilson, and Senator Hoffman.
MR. ALPER continued to explain that the motor fuel tax will
raise about $43 million per year, which is roughly double the
current collections. About $200,000 would be shared with
municipal airports.
The highway tax was increased to 8 cents per gallon in 1970.
Alaska would still have the lowest tax rate in the nation after
the tax is doubled. He calculated that a person who drives
12,000 miles per year in a vehicle that gets 20 miles to the
gallon will pay an additional $48 in fuel taxes.
1:44:28 PM
MR. ALPER discussed the proposed tobacco tax (AS 43.50). It
increases the existing tax rates. Cigarettes increase from 100
mills to 150 mills. The tax on a standard pack increases from
$2.00 to $3.00. The tax rate on other tobacco products increases
from 75 percent of wholesale value to 100 percent. Electronic
smoking products, which currently are untaxed, will be taxed at
75 percent of wholesale value. The bill adds new definitions for
these products and cleans up the definition of "wholesale
price."
This differs from the regular session bills in that it uses the
House bill as the starting point. The other major change is that
e-smoking products are carved out into a separate tax rather
than with "other tobacco products." This applies only to those
containing nicotine so there is an added labeling requirement to
identify those products.
1:47:10 PM
The tobacco tax is estimated to raise about $29 million per
year, which is roughly 50 percent above the current collections.
The revenue from e-cigarettes is indeterminate. About $2 million
will go to the Tobacco Use Education and Cessation Fund.
CHAIR COSTELLO welcomed Representative Olson to the meeting.
MR. ALPER said the tobacco tax will impact Alaskans by making it
th
more expensive to smoke. Alaska would go from the 11 to the 5th
highest cigarette tax rate in the U.S. The additional revenue
will help offset tobacco related health costs incurred by the
state. The bill also taxes the new e-smoking industry.
1:48:30 PM
MR. ALPER discussed the proposed alcohol tax (AS 43.60). It
doubles the current tax rates. Distilled spirits increase from
$12.80/gallon to $25.60/gallon; wine increases from $2.50/gallon
to $5.00/gallon; beer and cider increases from $1.07/gallon to
$2.14/gallon; and craft brewery taxes increase from $0.35/gallon
to $0.70/gallon. The increases corresponded to the dime a drink
portion, raising the rates from 10 cents to 20 cents. The fixed
$25,000 bonding requirement becomes variable, which is less
onerous for small taxpayers. These provisions are the same as
the bill heard during the regular session.
1:50:33 PM
The alcohol tax is estimated to raise about $40 million/year,
roughly double the current collections. About $20 million goes
to the Alcohol and Other Drug Abuse Treatment and Prevention
Fund. This is a mental health budget fund that is supplemented
with substantial general fund money that can be backed out if
desired.
This will affect Alaskans by making it more expensive to drink.
Alaska already has the first or second highest alcohol tax rate
in the nation and this would push Alaska to the highest by a
substantial margin. The caveat is that only 33 states tax
alcoholic beverages. The other 17 have state-owned liquor stores
so the tax rate is built into the retail prices.
1:52:45 PM
MR. ALPER discussed the proposed marijuana tax (AS 43.61). This
piece has not been seen in the Senate. It is from a House bill
introduced by Representative LeDoux. It does not change the
$50/ounce excise tax established by the 2014 initiative,
although certain of the non-smokable portions of the plant will
have a lower tax rate. It requires a surety bond of $5,000 for
taxpayers and empowers DOR to enforce the tax against a
marijuana retailer who is selling product that did not come from
a licensed, taxpaying cultivator. It also empowers DOR to
enforce the tax penalty on illegal grow operations in excess of
the personal use limit.
The bill incorporates all the provisions in CSHB 377(L&C).
The marijuana tax will raise an indeterminate amount and will
generate an indeterminate amount from enforcement actions. The
intent is to make it advantageous to be taxed, legal, and
regulated and disadvantageous to operate in the black market.
This will indirectly increase revenue to the state from legal
marijuana sales.
1:56:59 PM
MR. ALPER discussed the proposed mining license tax (AS 43.65).
It increases the current top tax rate on net profits greater than
$100,000/year from 7 percent to 9 percent. The tax holiday for
new mines is reduced from 3.5 years to 2 years. The bill
prevents the mining exploration incentive credits from being
used to reduce royalties. The credits may only be used against
the tax. A $50 annual license fee is also added for miners.
The regular session bill sought to eliminate the tax holiday
entirely. This bill reduces it from 3.5 years to 2 years. The
exploration incentive credit was an amendment from the House
Resources Committee and is incorporated in the current bill. The
estimated revenue is about $7 million/year, $25,000 of which
will come from the license fees.
This tax will impact a small number of taxpayers. In 2014, only
14 taxpayers had over $100,000 in taxable profits, meaning they
paid at the top bracket. The 5 large mines in Alaska would pay
about 99 percent of this tax increase. The rest are either
placer miners who had a good year, or landowners who collect
taxable mining royalties. The tax increase does not impact "mom
and pop" miners, other than the $50 annual license fee.
2:01:15 PM
MR. ALPER discussed the proposed fisheries business tax (AS
43.75) and fisheries landing tax (AS 43.77). It increases by one
percentage point the current tax rates that are between 3
percent and 5 percent. The key is that the entire 1 percent
increment is state general funds. There is robust revenue
sharing language in the existing fish statutes that say half
goes to the municipality where the fish is landed and processed.
The first 1 percent of tax goes entirely to the state and the
remaining amount continues to be shared 50/50. The bill also
removes the $3,000 "cap" on the annual Commercial Fisheries
Entry Commission (CFEC) entry permit fees. That increases the
fees for certain large and valuable fisheries. There are about
200 taxpayers, mostly nonresident, who would be paying
additional entry fees under this provision. Developing fisheries
are exempted from the increase.
The regular session bills increased the rate for one developing
fishery category and the current bill exempts all developing
fisheries. The current bill also adopts the entry permit fee
change that was added in the House Finance Committee.
This portion of the bill is estimated to raise $20 million/year;
$18 million/year comes from the change in the raw fish and
landing tax rates and about $2 million/year is from the CFEC fee
change.
The price of fish is generally set by the commodity market so
there is no way for the market to absorb the fisheries tax
increase. That means that the processors will pay the tax and to
the extent possible, they will pass it on to the fisherman whose
fish they purchase. The fisherman indirectly pays the tax,
whereas the Tax Division identifies the processor as the
taxpayer.
2:04:49 PM
MR. ALPER reviewed the following sectional analysis for SB 4001:
[Original punctuation provided.]
Sec. 1. Removes CFEC fee cap; part of fish tax
Sec. 2. Requires bond as condition of issuing a
marijuana cultivation license
Sec. 3-6 Conforming language so that mining
exploration incentive credits cannot be used against
mining royalties
Sec. 7. Adds a new chapter 22 in AS 43 for an
individual income tax
nonresident individuals. The tax is six percent of a
resident's federal tax liability. The tax for a
nonresident is six percent of the portion of federal
tax liability that is from a source in the state.
paid to another state based on income earned in that
other state.
43.22.030 Provides for annual returns to the
Department of Revenue with taxes due on the date the
federal tax return is due. The taxpayer must provide a
copy of their IRS return. The department is authorized
to pay refunds of overpaid taxes.
43.22.040 Defines sources of income within Alaska that
are subject to the tax.
43.22.050 Provides for withholding from wages and
salaries by employers, with those withheld taxes
periodically remitted to the state.
42.22.060 Authorizes DOR to administer the tax.
42.22.190 Adds definitions for specific terms used in
this section.
Sec. 8-9. Increases motor fuel tax rates for the four
fuel types
Sec. 10. Increases the motor fuel tax credit for off-
road use
Sec. 11. Conforming language to add electronic smoking
products to the current statute allowing the
department to share information with municipalities
(tobacco).
Sec. 12. Conforming language to reference the new
definition of "electronic smoking product" in Section
23(tobacco).
Sec. 13. Increases the "additional tax levy" on each
cigarette from 62 mills to 112 mills (tobacco).
Sec. 14. Increases the tax on tobacco products other
than cigarettes from 75% of the wholesale price to
100% of the wholesale price.
Sec. 15. Adds a tax on electronic smoking products at
75% of the wholesale price (tobacco).
Sec. 16. Conforming language to add electronic smoking
products to an existing statute referencing federal
tax exemptions (tobacco).
Sec. 17. Conforming language to add electronic smoking
products to the license requirement (tobacco).
Sec. 18. Conforming language to add electronic smoking
products to the monthly tax return (tobacco).
Sec. 19. Conforming language to add electronic smoking
products to the procedures for issuing tax credits and
refunds (tobacco).
Sec. 20. Conforming language to add electronic smoking
products to the requirement to keep complete and
accurate records to support the tax return (tobacco).
Sec. 21. Adds language to clarify that a cessation
product, tobacco dependence product or modified risk
tobacco product are excluded from the definition of a
tobacco product for purposes of taxation.
Sec. 22. Clarifies the definition of "wholesale price"
of a tobacco product or electronic smoking product as
the gross invoice price including all federal excise
taxes, less any trade discounts or other reductions.
Sec. 23. Adds the definition of "electronic smoking
product" (tobacco).
Sec. 24. Changes the per-gallon tax rates for the
three major categories of alcoholic beverages: malt
beverages and ciders from $1.07 to $2.14; wine and
other beverages with less than 21% alcohol content
from $2.50 to $5.00; and beverages with greater than
21% alcohol content (generally distilled spirits) from
$12.80 to $25.60.
Sec. 25. Changes the per-gallon tax rate for the first
60,000 barrels sold in the state from small craft
breweries that meet the federal definition of a small
brewer, from $0.35 to $0.70 (alcohol).
Sec. 26. Changes the surety bond requirement from
$25,000 to an amount determined by the department
(alcohol).
Sec. 27. Clarifies requirements for monthly filing of
marijuana taxes.
Sec. 28. Adds $50/oz. tax penalty for marijuana
possession in excess of the amount of plants legally
authorized. Establishes a bonding requirement for
marijuana cultivators. Establishes liability for a
marijuana retailer or manufacturer to pay the $50/oz.
excise tax if they have product for which the taxes
have not been paid.
Sec. 29. Reduces the 3 ½ year tax exemption for new
mining operations after production begins to 2 years.
Sec. 30. Increases the highest tax rate from 7% to 9%
for net mining taxable income in excess of $100,000.
The other tax rates remain the same. For net income
over $100,000 the tax is $4,000 plus 9% of the amount
in excess of $100,000.
Sec. 31. Establishes a mining license fee of $50 per
year, a license renewal fee of $50 per year, and
changes the due date for applications and renewals
from May 1 to January 1.
Sec. 32. Increases three different tax rates within
the Fisheries Business Tax by one percent. The current
rates range from three to five percent.
Sec. 33. Increases tax rate within the Fisheries
Business Tax for direct marketers from 3 to 4 percent.
Rate remains at 1 percent for developing fish species
sold by direct marketers.
Sec. 34. Conforms with electronic filing. Deletes the
requirement for fisheries taxpayers to submit their
returns to the department in Juneau.
Sec. 35. Establishes that the revenue from the one
percent fisheries tax increase is deposited in the
general fund. The remaining revenue shall be shared
with municipalities per the currently existing
formula.
Sec. 36. Increases tax rate within the Fisheries
Landing Tax for fish species other than developing
fish species from 3 to 4 percent. Rate remains at 1
percent for developing fish species.
Sec. 37-38. Establishes that the revenue from the one
percent fisheries tax increase is deposited in the
general fund. The remaining revenue shall be shared
with municipalities per the current formula.
Sec. 39. Amends uncodified language to include the
increase to the mill rate increase for cigarettes
(tobacco).
Sec. 40. Repeals statutes related to a former tax
credit for political contributions that existed under
Alaska's prior individual income tax which was
repealed in 1980.
Sec. 41. Applicability language related to the
effective dates of multiple tax changes in the bill.
Sec. 42. Applicability language related to the bonding
requirement before the issuance of marijuana
cultivation licenses
Sec. 43. Transition language related to the use of
mining exploration credits against mining royalties.
Sec. 44. Transition language related to the
authorization to write regulations. The authority
extends to DOR, DNR, Fish & Game, CFEC, and the
Marijuana Control Board (multiple).
Sec. 45. Allows marijuana regulations to be
retroactive to the day marijuana became legal under
the initiative, February 24, 2015.
Sec. 46-47. Makes marijuana statute changes
retroactive to 2/24/15.
Sec. 48. Delayed effective date of January 1, 2018 for
income tax.
Sec. 49. Immediate effective date for regulatory
sections (multiple).
Sec. 50. Effective Date of July 1, 2016 for the rest
of the bill sections (multiple).
2:16:45 PM
CHAIR COSTELLO commented that despite the comprehensive nature
of this tax bill, it only addresses 5 percent of the $4 billion
deficit. "Why bother?" she asked.
COMMISSIONER HOFFBECK replied the governor's plan has a lot of
small pieces that add up to a substantial amount in the end.
This piece would address about $350 million in revenue and fits
with the notion of spreading the burden as many ways as
possible. He relayed that the largest piece is the Permanent
Fund Protection Act.
CHAIR COSTELLO asked if Alaskans can expect taxes to skyrocket
if SB 4001 passes and the Permanent Fund Protection Act does
not.
COMMISSIONER HOFFBECK replied the governor's plan does not rely
on taxes alone to balance the budget. But Alaska does have to
devise a systematic way of using its substantial savings and the
income it generates to fund government services. The historic 85
percent to 90 percent of revenue from oil and gas is now 25
percent to 30 percent, so the Permanent Fund Protection Act and
the earnings are needed as a substantial piece moving forward.
CHAIR COSTELLO asked if the governor can guarantee that income
taxes won't go up if his tax plan passes.
COMMISSIONER HOFFBECK explained that the income tax was the last
piece in the governor's overall plan; the 6 percent tax rate was
established to generate the $200 million that was needed to
bring the plan into balance. There is no plan to immediately
start ratcheting up the rate but there can be no guarantee that
the tax won't change in 5, 10, or 15 years. Every legislative
session is different and every legislature faces different
fiscal situations.
CHAIR COSTELLO said what the likelihood is that SB 4001 will
pass with each of the proposed tax pieces intact.
2:21:51 PM
COMMISSIONER HOFFBECK said the idea of an omnibus tax bill was
thoroughly debated before the individual tax bills were
introduced during the regular session. The consensus was that it
would be easier for people to work with the pieces individually
so that's what they did. But what happened was that the taxes
got scattered as they were referred to different committees and
moved at different rates. That made some legislators reluctant
to support a bill when they weren't sure about the status of the
others. For the Special Session, the decision was to bundle them
in a single package so people could deal with them as a whole,
or break them out if they choose to do so.
CHAIR COSTELLO asked if he's found one legislator who would
support the bill as currently written.
COMMISSIONER HOFFBECK replied nobody is committing to anything
at this point, but he believes they'll eventually see that a
revenue package has to be part of the long-term solution.
CHAIR COSTELLO asked if he could identify a few of the taxes
that have support.
COMMISSIONER HOFFBECK replied there was mixed response to the
taxes. The motor fuel tax seemed to have more support in the
Regular Session, there seemed to be some support for the tobacco
tax, and the marijuana tax also moved forward. The taxes that
didn't move very fast were the income tax and the alcohol tax.
Both the mining tax and fish tax moved out of the first
committee of referral, but with a lot of debate.
2:24:42 PM
SENATOR GIESSEL observed that the income tax is projected to
raise $100 million in FY2018 and $205 in FY2019 and the fiscal
note asks for $500 thousand to implement the tax the first year
and more the next year. She asked what he anticipates the actual
income will be.
MR. ALPER clarified that $500 thousand is half of one percent of
th
$100 million, which is 1/200 of the money coming in. That
request is for the FY2017 capital budget and they wouldn't see
the $100 million income until FY2018. The $500 thousand is an
estimate for a contractor to develop an implementation plan for
an income tax because there isn't in-house expertise. He related
that an earlier version of the fiscal note for the income tax
bill asked for a $14 million capital appropriation. The staffing
plan at its full implementation was for about 60 new state
employees with an annual cost of $7-8 million per year. He
explained that those figures were based on a preliminary
analysis of other states and discussions with the existing tax-
handling software vender. The delayed effective date will
provide an opportunity to find what the actual costs will be and
based on those findings they'll make another request in 2017.
The current fiscal note asks for a one-time $500 thousand and
one employee, which is just 4 percent of the initial estimate.
SENATOR GIESSEL commented it's an indeterminate fiscal note for
an income tax and it will take an indeterminate number of state
employees to implement the tax.
MR. ALPER agreed that's a fair statement.
2:28:05 PM
SENATOR MEYER expressed the desire to see some modeling and
questioned what the bill would do to individuals and the fragile
economies in communities across the state.
COMMISSIONER HOFFBECK said DOR doesn't have a lot of that type
of modeling, but ISER did do a study on the impact of the broad-
based taxes such as the income tax and sales tax. He committed
in a future hearing to provide what they have and make a
statement about what they think the outcome will be. He said the
motor fuel tax increase probably won't have a large impact on
the individual taxpayer, but it will be more an issue for
airlines or the trucking industry. Both the airlines and
trucking industry sent letters of support but trucking has
pulled back recently, probably because the other taxes weren't
moving. He believes a lot of groups recognize that there is a
need for stability, but DOR doesn't have the data to say what
the direct economic impact will be on an individual business.
SENATOR MEYER said that's the problem with the omnibus bill. He
recalled that the presentation Dr. Knapp gave indicated that a
sales tax was preferable to an income tax, assuming there were
certain exemptions. He also recalled that Dr. Knapp said doing
nothing would hurt the economy but doing everything would be
even more damaging.
CHAIR COSTELLO recalled Dr. Knapp said doing nothing is equally
as bad as doing everything at the same time.
SENATOR MEYER asked if the administration had considered an
omnibus tax credit bill that would include oil and gas, mining,
and fish.
COMMISSIONER HOFFBECK acknowledged they didn't discuss an
omnibus tax credit bill. The governor did seriously consider a
sales tax, but the income tax seemed to be a better balance
against the reduction in the size of the permanent fund dividend
because of the progressive/regressive nature of the two taxes.
The income tax also captures income from S-corporations and
outside income.
He agreed that Dr. Knapp said that doing everything in one year
might be more than the economy could handle, but he also said
people need to know what the plan is to finish the job. That
takes the uncertainty out of the equation and that's what
business owners want and need to make investment decisions.
"Even if all of this wasn't put into play immediately, people
need to know what the ultimate solution is so they can adjust
accordingly," he said.
2:36:56 PM
MR. ALPER added that all the taxes, with the exception of the
income tax, are changes to an existing process so there is no
need for additional staff. He said that implementing an income
tax is a large new process and implementing a sales tax would be
as well. He advised that the least efficient would be to
implement both a small sales tax and a small income tax, because
it would require two new bureaucracies instead of one.
SENATOR MEYER asked why fishing crew shares aren't subject to
the withholding tax requirements.
MR. ALPER explained that fishing crew captains don't do the
other forms of withholding and therefore shouldn't be required
to do the Alaska income tax withholding. The crew members would
still have to pay the tax, just not in advance.
COMMISSIONER HOFFBECK added that the reason is that fishing
crews are essentially contract employees, not salaried
employees.
2:40:35 PM
SENATOR MEYER asked if the consumer would ultimately pay the
fish tax.
MR. ALPER said fish is a commodity so the processor can't
necessarily get that markup, but will recoup the money by
reducing the price paid to the fisherman.
CHAIR COSTELLO pointed out that changing the tax rate from 4
percent to 5 percent is actually a 25 percent increase, not a 1
percent increase.
MR. ALPER relayed that the governor made the same observation
and slide 16 of the PowerPoint describes a 1 percentage point
increase.
SENATOR STEVENS questioned why the old rational to share landing
tax revenues with communities to offset their costs to support
the fisheries industry doesn't still apply.
MR. ALPER explained that the goal of this part of the package
was to raise an additional $15-$20 million from the commercial
fishing industry to make it neutral to the state. If that
revenue were to be split 50/50 with municipalities, a 2
percentage increase in the tax rate would be needed.
SENATOR STEVENS said he didn't like the answer but understands
the explanation.
2:46:14 PM
SENATOR GIESSEL noted that the Senate Resources Committee did
not receive the modeling it requested during the hearing on the
mining tax bill. She asked what the effect would be on a new
mine to move from the current 3.5 year tax holiday to a 2 year
tax holiday.
MR. ALPER replied DOR doesn't have modeling but the tax holiday
isn't the big piece of the benefit. The larger component of
recouping costs is through the depletion allowance, which is
similar to depreciation. Through this mechanism, development
costs are capitalized and applied against the profit over
multiple years. He added that DOR couldn't find any history
showing where the 3.5 year tax holiday came from and they heard
that not much gets paid in the early years anyway.
He noted that the mining bill did move from the House Resources
Committee with a 3 year tax holiday. The current bill splits the
difference.
SENATOR GIESSEL talked about the 14 taxpayers in the mining
industry that had over $100,000 in taxable profits in 2014 and
questioned what effect the changes in the mining tax would have
on a producing mine like Fort Knox.
MR. ALPER replied he can't speak to an individual taxpayer, but
the largest 5 mines in the state each made far more than
$100,000 in taxable profit in 2014. The total profit for those
14 taxpayers was more than $200 million. Realistically, he said,
a company's profits will move up and down much faster related to
the price of gold than the 2 percentage point tax increase from
7 percent to 9 percent.
SENATOR GIESSEL surmised that DOR hadn't calculated how this
might impact the Donlin Mine that hasn't started up yet.
MR. ALPER replied Donlin isn't in the pipeline so it's not part
of the fiscal note. He opined that Alaska's mining tax statutes
need an overhaul.
2:52:17 PM
SENATOR GIESSEL offered to share the research paper on mining,
tourism, and commercial fishing that demonstrates that the state
generates far more revenue from the mining industry than it
spends to regulate it. She also pointed out that the increases
in hunting, fishing, and trapping licenses will bring in more
than the proposed mining tax. Those increases will bring in an
additional $9 million and leverage about $25 million of federal
money.
SENATOR STEVENS asked how much revenue will be generated from
people who work in Alaska and live out of state. He also asked
if Alaska receives money from offshore fisheries.
MR. ALPER replied the state shares with municipalities several
million dollars in landing taxes and Dutch Harbor is by far the
largest line item. That indicates that a lot of the offshore
fishery is passing through that port. Addressing out-of-state
income, he estimated that about 10 percent to 15 percent of the
high income employees in fisheries and oil companies are
nonresidents. There are also Alaskans that earn income both in
Alaska and elsewhere so a lot of the work related to
administering the income tax will be about the fine point of
differentiating instate from out-of-state income.
COMMISSIONER HOFFBECK added that fish that are caught within
Alaska's economic zone will be taxed, even if they're landed in
Seattle.
SENATOR STEVENS asked if Alaska income tax would be due when the
fish is caught in this economic zone and landed in Seattle.
COMMISSIONER HOFFBECK replied that would be addressed in
regulations, but he suspects that income earned within Alaska's
economic zone would be taxed.
SENATOR STEVENS asked about partnerships and S-corporations.
MR. ALPER explained that a nonresident that owns a partnership
that earns income in Alaska would owe an increment to Alaska,
based on their federal tax liability. S-corporations are
exempted from the Alaska corporate income tax because the profit
is passed through in a Schedule K distribution to the owner and
the owner pays the tax on their personal income tax. The key is
the nexus of the income.
2:59:49 PM
COMMISSIONER HOFFBECK clarified that Exxon, BP and
ConocoPhillips are publicly traded C corporations that pay
Alaska income tax; companies that are not publicly traded are
exempt from Alaska corporate income tax.
SENATOR STEVENS calculated that 10 percent to 15 percent of $100
million in FY2018 and $205 million in FY2019 amounts to $10-30
million.
MR. ALPER agreed with the calculation.
CHAIR COSTELLO asked if he is aware that the federal government
is considering not allowing state income tax to be written off.
If that is the case and SB 4001 were to pass, Alaska would be
the only state with an income tax that is a percentage of the
federal tax liability, she said.
MR. ALPER replied he isn't aware of that consideration. Most
states tax use a percentage of gross income, which for this bill
would be about 1 percent of adjusted gross income.
Implementation would be different, however. The decision to go
with a percentage of federal tax liability considered 1)
existing law, even though it needs modernizing, and 2) it is
less complicated. He acknowledged that it would be more
comparable to other states to go to a tax based on adjusted
gross income.
CHAIR COSTELLO asked him to comment on the concern about tying
the tax to the federal rate, and the increase if that were to
occur.
MR. ALPER agreed it's a valid concern and added that he wouldn't
be surprised to see it structured differently should this fail
to pass.
CHAIR COSTELLO asked if the administration would be willing to
look at capturing the foregone revenue from tax exemptions
before looking at a new revenue sources.
MR. ALPER said absolutely; the administration would like very
much to clean up the tax code, especially on the corporate
income tax side.
3:06:55 PM
SENATOR MEYER asked if he said that 15 percent of the income tax
that would be collected is from out-of-state workers.
MR. ALPER answered yes; the total wage income of Alaskans is
about $22 billion and about $3 billion of that is earned by
nonresident workers.
SENATOR MEYER asked if he said that about 90 percent of work to
collect an income tax is related to out-of-state workers.
MR. ALPER replied it's those workers and Alaskans that derive
income from out-of-state sources that wouldn't be taxed in
Alaska.
SENATOR MEYER asked if the fiscal note on the income tax
estimated that 50 new employees would be needed.
MR. ALPER replied the request was for 52 full time employees and
16 part time.
SENATOR MEYER cited the feedback that questions hiring 60 state
employees to take money away from Alaskans when another group of
employees is giving it back via the permanent fund dividend.
MR. ALPER replied the only answer is that it provides some
degree of balance; reducing everyone's dividend equally is
regressive and the progressive income tax balances that
somewhat.
SENATOR MEYER said he appreciates that but both the income tax
and the dividend require a huge bureaucracy.
CHAIR COSTELLO requested any long term economic modeling that is
available. She suggested the public submit their comments to her
office and she would distribute them to the committee members
and the administration.
[SB 4001 was held in committee.]
3:10:06 PM
There being no further business to come before the committee,
Chair Costello adjourned the Senate Labor and Commerce Standing
Committee meeting at 3:10.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB 4001.pdf |
SL&C 5/25/2016 1:30:00 PM |
SB4001 |
| SB 4001 - Hearing Request Letter.pdf |
SL&C 5/25/2016 1:30:00 PM |
SB4001 |
| SB 4001 - Governor's Transmittal Letter.pdf |
SL&C 5/25/2016 1:30:00 PM |
SB4001 |
| SB 4001 - Fiscal Note - DOR-TAX.pdf |
SL&C 5/25/2016 1:30:00 PM |
SB4001 |
| SB 4001 - DOR Omnibus Tax Bill Presentation.pdf |
SL&C 5/25/2016 1:30:00 PM |
SB4001 |