Legislature(2001 - 2002)

05/09/2002 04:25 PM STA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                    ALASKA STATE LEGISLATURE                                                                                    
                 SENATE STATE AFFAIRS COMMITTEE                                                                               
                           May 9, 2002                                                                                          
                            4:25 p.m.                                                                                           
MEMBERS PRESENT                                                                                                               
Senator Gene Therriault, Chair                                                                                                  
Senator Randy Phillips, Vice Chair                                                                                              
Senator Ben Stevens                                                                                                             
Senator Bettye Davis                                                                                                            
MEMBERS ABSENT                                                                                                                
Senator Rick Halford                                                                                                            
COMMITTEE CALENDAR                                                                                                            
HOUSE BILL NO. 285                                                                                                              
"An Act adding a second verse to  the official Alaska state song."                                                              
     MOVED HB 285 OUT OF COMMITTEE                                                                                              
CS FOR HOUSE BILL NO. 212(L&C)                                                                                                  
"An Act requiring a subcontractor  to obtain workers' compensation                                                              
insurance  covering  the  subcontractor  and  the  subcontractor's                                                              
employees  and establishing  responsibility  of  a contractor  for                                                              
obtaining  workers' compensation  coverage  for the  subcontractor                                                              
and the  subcontractor's employees  if the subcontractor  fails to                                                              
obtain  workers'  compensation  coverage;  and  providing  for  an                                                              
effective date."                                                                                                                
     MOVED SCS CSHB 212 (STA) OUT OF COMMITTEE                                                                                  
2d CS FOR HOUSE BILL NO. 303(RLS)                                                                                               
"An Act relating  to taxation of individual income;  and providing                                                              
for an effective date."                                                                                                         
     MOVED 2d CSHB 303(RLS) OUT OF COMMITTEE                                                                                    
PREVIOUS COMMITTEE ACTION                                                                                                     
HB 285 - See State Affairs minutes dated 5/4/02.                                                                                
HB 212  - See Labor  and Commerce  minutes dated 4/25/01,  3/28/02                                                              
and State Affairs minutes dated 5/2/02.                                                                                         
HB 303- No previous action to record.                                                                                           
WITNESS REGISTER                                                                                                              
Ms. Denny Weathers                                                                                                              
P.O. Box 1791                                                                                                                   
Cordova, AK 99574                                                                                                               
POSITION STATEMENT:  Testified in opposition to HB 303.                                                                       
Representative John Davies                                                                                                      
Alaska State Capitol                                                                                                            
Juneau, AK  99801-1182                                                                                                          
POSITION STATEMENT:  Introduced HB 303.                                                                                       
Ms. Mary Griswold                                                                                                               
Homer, AK                                                                                                                       
POSITION STATEMENT:  Testified in support of HB 303.                                                                          
Mr. Kevin Ritchie                                                                                                               
Alaska Municipal League                                                                                                         
217 2 St. #200                                                                                                                  
Juneau, AK 99801                                                                                                                
POSITION STATEMENT:  Testified in support of HB 303.                                                                          
Mr. Carl Rose                                                                                                                   
Association of Alaska School Boards                                                                                             
316 W. 11 St.                                                                                                                   
Juneau, AK 99801-1510                                                                                                           
POSITION STATEMENT:  Testified in support of HB 303.                                                                          
Mr. Larry Persily                                                                                                               
Deputy Commissioner                                                                                                             
Department of Revenue                                                                                                           
PO Box 110400                                                                                                                   
Juneau, AK  99811-0400                                                                                                          
POSITION STATEMENT:  Testified in support of HB 303.                                                                          
ACTION NARRATIVE                                                                                                              
TAPE 02-30, SIDE A                                                                                                            
4:25 p.m.                                                                                                                       
CHAIRMAN GENE THERRIAULT called the Senate State Affairs                                                                      
Committee meeting to order at 4:25 p.m.  Present were Senators                                                                  
Phillips, Stevens, Davis, and Chairman Therriault.                                                                              
The first order of business before the committee was HB 285.                                                                    
           HB 285-SECOND VERSE OF ALASKA'S STATE SONG                                                                       
CHAIRMAN THERRIAULT said there was a public hearing on HB 285 on                                                                
Saturday.  He did not have a prepared CS.                                                                                       
SENATOR DAVIS  moved HB  285 out of  committee with attached  zero                                                              
fiscal note and individual recommendations.                                                                                     
There  being no  objection, HB  285  moved out  of committee  with                                                              
attached fiscal note and individual recommendations.                                                                            
The next order of business before the committee was HB 212.                                                                     
        HB 212-WORKERS' COMP:CONTRACTORS & SUBCONTRACTOR                                                                    
CHAIRMAN THERRIAULT  said there  had been a  public hearing  on HB
212.  He said there was a prepared CS.                                                                                          
SENATOR PHILLIPS  moved the  P version of  HB 212 for  purposes of                                                              
There being no objection,  the P version of HB 212  was adopted as                                                              
the working document.                                                                                                           
SENATOR PHILLIPS  moved SCS CSHB  212 (STA) out of  committee with                                                              
attached zero fiscal note and individual recommendations.                                                                       
There being  no objection,  SCS CSHB  212 moved  out of  committee                                                              
with attached fiscal note and individual recommendations.                                                                       
The final order of business before the committee was HB 303.                                                                    
                  HB 303-INDIVIDUAL INCOME TAX                                                                              
CHAIRMAN THERRIAULT  asked Denny Weathers  in Cordova to  give her                                                              
testimony on HB 303.                                                                                                            
MS. DENNY WEATHERS  said the Constitution of the  United States of                                                              
America  recognized  two classes  of  taxes.   The  first was  the                                                              
direct  tax  authorized  in  art.  1,  § 2,  cl.  3  of  the  U.S.                                                              
Constitution,   "Representatives   and  direct   Taxes  shall   be                                                              
apportioned among the several States  which may be included within                                                              
this Union, according to their respective  Numbers."  She said the                                                              
U.S. Constitution in  art. 1, § 9, cl. 4 says,  "No Capitation, or                                                              
other  direct, Tax  shall be  laid,  unless in  Proportion to  the                                                              
Census or enumeration herein before directed to be taken."                                                                      
MS. WEATHERS  said the second recognized  tax was an  indirect tax                                                              
authorized in art. 1, § 8, cl. 1 of the U.S. Constitution:                                                                      
     The Congress  shall have  the Power  To lay and  collect                                                                   
     Taxes,  Duties, Imposts  and Excises,  to pay the  Debts                                                                   
     and provide  for the common Defence and  general Welfare                                                                   
     of  the  United  States; but  all  Duties,  Imposts  and                                                                   
     Excises shall be uniform throughout the United States.                                                                     
She said the State of Alaska recognized  direct and indirect taxes                                                              
as  well as  franchise  taxes.   She  defined  franchise taxes  as                                                              
annual taxes  on the privilege of  doing business in the  state or                                                              
taxes  on  the  franchise  of  corporations.    She  said  direct,                                                              
indirect  and franchise  taxes were constitutional  taxes  but she                                                              
did  not  think  the proposed  state  individual  income  tax  was                                                              
She  said the  Alaskan government  seemed  to want  to reward  the                                                              
unproductive and  penalize the productive.   She  said politicians                                                              
were writing laws designed to confiscate  the proof of the working                                                              
people's labor and use those confiscated  dollars to buy the votes                                                              
of the unproductive.  She said this  was wrong and the people were                                                              
starting to realize it.                                                                                                         
She  asked  the  committee  to  remember  our  American  political                                                              
heritage.   She  said  tax protesters  formed  the Declaration  of                                                              
Independence  and the United  States Constitution.   She  said the                                                              
first four  presidents of  the United  States were tax  protestors                                                              
who  were criminals  under  the laws  of England.    She said  the                                                              
reasons for the  Revolutionary War were listed  in the Declaration                                                              
of  Independence, one  of which  was,  "FOR imposing  Taxes on  us                                                              
without  our Consent."    She asked  if it  was  time for  another                                                              
revolution.    She   urged  the  legislature  not   to  impose  an                                                              
unconstitutional state individual income tax.                                                                                   
She also wished  to give the following testimony  for her husband,                                                              
Eric John  Weathers,  an Alaskan  resident for  over 48 years  who                                                              
lived on  Hawkins Island.   He wanted  to know if the  Legislature                                                              
had forgotten  to read Sec. 3  of the Alaska Statehood  Act, which                                                              
said, "The  constitution of  the State of  Alaska shall  always be                                                              
republican in form and shall not  be repugnant to the Constitution                                                              
of the  United States  and the  principles of  the Declaration  of                                                              
Independence."   Black's Law Dictionary defined  republican as, "A                                                              
government of  the people," and  repugnancy as "An  inconsistency,                                                              
opposition, or contrariety."  He  said Webster's defined repugnant                                                              
as contradictory or incompatible.                                                                                               
MS. WEATHERS  said her husband said  one of the  grievances listed                                                              
in the Declaration of Independence  was, "FOR imposing Taxes on us                                                              
without our Consent."  He did not  remember giving the Legislature                                                              
his consent to tax  him.  He did not remember any  vote on a state                                                              
income or  sales tax.   He asked to be  provided with the  date of                                                              
the vote,  the outcome  and a  copy of  his signature showing  his                                                              
Amendment X  of the United  States Constitution said,  "The powers                                                              
not  delegated  to the  United  States  by the  Constitution,  nor                                                              
prohibited  by  it to  the  States,  are  reserved to  the  States                                                              
respectively,  or to  the people."   He said  the Legislature  was                                                              
trying to usurp  the people's power.  He said the  Preamble to the                                                              
Constitution  of the  State  of Alaska  said,  "We  the people  of                                                              
Alaska,"  not we the  government of  Alaska.   He said the  people                                                              
were not supposed  to work for the government,  the government was                                                              
supposed to  work for the  people.  He  wanted the  Legislature to                                                              
look at  Representative  Vic Kohring's 10-point  Save Alaska  plan                                                              
and get back to the basics.                                                                                                     
CHAIRMAN  THERRIAULT asked  if there  were any  questions for  Ms.                                                              
Weathers.  There  were none.  He said Representative  John Davies,                                                              
sponsor  of HB  303,  had  joined the  meeting  and  asked him  to                                                              
present the bill.                                                                                                               
4:35 p.m.                                                                                                                       
REPRESENTATIVE  JOHN  DAVIES  said  the  Alaska  Fair  Tax  was  a                                                              
compromise reached in trying to pass  a tax bill through the House                                                              
of Representatives and hopefully  it would be able to pass through                                                              
the Senate.  He  said the first tax that was discussed  was a flat                                                              
income  tax of 2.6%  based on  federal taxable  income, which  was                                                              
rejected.   He said the  next tax that  was discussed was  a sales                                                              
tax, which  had a lot of individual  support within the  House but                                                              
opposition  from municipalities.   He  said the  problem with  the                                                              
income tax  seemed to be  the sticker  shock for the  upper income                                                              
levels.  He thought  if a lot of representatives  were comfortable                                                              
with  a  sales tax,  they  must  have been  comfortable  with  the                                                              
distribution of costs at different income levels.                                                                               
He said  the Alaska Fair  Tax was designed  to mimic the  effect a                                                              
sales tax  would have on  people at different  income levels.   He                                                              
said it  was regressive  at the upper  income levels  but slightly                                                              
progressive at the lower income levels.   He said the distribution                                                              
of percentages had  an unusual hump and was a little  bit lower at                                                              
the lower  income levels, peaked  at the $50,000 to  $60,000 range                                                              
and  dropped  off  at  the  higher levels.    He  said  the  terms                                                              
progressive  and  regressive referred  to  percentages.   He  said                                                              
people in the  lower income levels would pay about  $50, people in                                                              
the middle income levels would pay  about $1,000 and people in the                                                              
upper income levels would pay about  $5,000.  He said people would                                                              
pay  more as  income increased  but the  rate at  which they  paid                                                              
would decrease.                                                                                                                 
REPRESENTATIVE DAVIES  said there was a lot of  discussion on what                                                              
constituted  fair.   He  said flat  taxes,  progressive taxes  and                                                              
regressive taxes  each had  advocates saying they  were fair.   He                                                              
said there  was no perfect tax that  everyone would agree  on.  He                                                              
said  the  only significant  advantage  HB  303  had was  that  it                                                              
received 24 votes in the House.                                                                                                 
CHAIRMAN  THERRIAULT  said a  graph  showing the  distribution  of                                                              
rates was in the bill packets.                                                                                                  
REPRESENTATIVE  DAVIES said from  the peak  to the right  mimicked                                                              
the distribution of the original HB 303 when it was a sales tax.                                                                
CHAIRMAN THERRIAULT  asked what was  in the packet  Representative                                                              
Davies had given him.                                                                                                           
REPRESENTATIVE DAVIES  said it was an amendment  containing clean-                                                              
up language suggested by the Department  of Law and the Department                                                              
of Revenue (DOR) based on questions  and comments that had come up                                                              
since  the  bill passed  out  of  the  House.   He  supported  the                                                              
amendment.   He said the most  substantial change would  be in the                                                              
second to last  section dealing with the ability  of non-residents                                                              
to establish  trusts to  be managed in  the state.   The amendment                                                              
clarified that  trust income would not  be taxed if a  person were                                                              
not a resident.                                                                                                                 
CHAIRMAN  THERRIAULT asked  if that was  specifically designed  to                                                              
protect that business for the state.                                                                                            
REPRESENTATIVE  DAVIES said  it was  and  it had  always been  his                                                              
intention to  do so but  it somehow got  left out of  the previous                                                              
version of HB 303.                                                                                                              
CHAIRMAN THERRIAULT asked if there  were any further questions for                                                              
Representative  Davies.   There  were  none.   He  asked Ms.  Mary                                                              
Griswold in Homer to give her testimony.                                                                                        
MS. MARY  GRISWOLD said her  highest priority for  the legislative                                                              
session was  a sound fiscal  plan to bridge  the budget gap.   She                                                              
encouraged  support for the  fiscal package  passed by  the House.                                                              
She said  HB 303 was a reasonable  compromise between a  sales tax                                                              
and  a more  conventional income  tax,  both of  which had  strong                                                              
proponents and opponents and neither  of which could pass on their                                                              
own.  She said  she appreciated the government  services we relied                                                              
on  and  did  not  want to  see  them  slashed.    She  encouraged                                                              
government  efficiencies but  recognized  the need  to raise  more                                                              
money.  She said  a combination of taxes and the  use of Permanent                                                              
Fund earnings  would spread  the burden.   She asked  for a  5% of                                                              
market value payout for the Permanent  Fund, broad-based taxes and                                                              
the use of Permanent Fund earnings to solve the budget dilemma.                                                                 
SENATOR PHILLIPS asked  if she was willing to take  a reduction in                                                              
her Permanent Fund Dividend to fund government.                                                                                 
MS. GRISWOLD said she was.                                                                                                      
CHAIRMAN THERRIAULT asked if there  were any further questions for                                                              
Ms. Griswold.  There were none.                                                                                                 
MR. KEVIN  RITCHIE, Alaska  Municipal League  (AML), said  a solid                                                              
long-range fiscal  plan had  been a top  priority of AML  for five                                                              
years.  He thanked  the House for working with  communities around                                                              
the state.  He  said sales tax was a revenue source  that had been                                                              
used by communities since statehood.   He said the community sales                                                              
tax  was  particularly  important  in Alaska  because  many  small                                                              
communities didn't have the option  of property taxes.  AML worked                                                              
with the  State to determine  that about  50 mils of  property tax                                                              
would  be needed  to  replace Bethel's  5%  sales  tax because  of                                                              
ownership patterns.   He  said some people  would pay 50  mils and                                                              
the federal government, which would  be the property owner in many                                                              
cases,  would  pay virtually  nothing.    He  said having  both  a                                                              
community  sales  tax  and  a  statewide  sales  tax  would  be  a                                                              
significant  burden  on  a  community  like  Bethel  because  they                                                              
wouldn't be able to move to a different form of taxation.                                                                       
CHAIRMAN  THERRIAULT said  he was  steady in his  opposition  to a                                                              
statewide sales  tax because he  wanted that option  preserved for                                                              
local governments.   He  wished local  governments would  act like                                                              
local  governments and  provide local  services since  they had  a                                                              
tool to raise revenue.                                                                                                          
MR. RITCHIE believed  98 municipalities had a sales  tax.  He said                                                              
AML would be  happy to work with  the State to see who  could best                                                              
provide services.   He said that  was a negotiation they  would be                                                              
happy to encourage municipalities to get involved in.                                                                           
CHAIRMAN  THERRIAULT asked  if there  were any  questions for  Mr.                                                              
Ritchie.  There were none.                                                                                                      
MR. CARL  ROSE, Executive  Director of  the Association  of Alaska                                                              
School Boards  (AASB), said AASB's  top priority was to  support a                                                              
fiscal  plan.    He  said  the  ability   of  the  State  to  move                                                              
successfully into the future on a  sound fiscal note was important                                                              
to all  of us.   He  felt the  State was  facing  a dilemma  if we                                                              
failed to  make the  transition.   He said he  could afford  to be                                                              
wrong  but the  State couldn't  afford to  be wrong  if this  step                                                              
wasn't taken.   He said by the  time the "for sale"  signs started                                                              
going  up in  1984 and  1985 it  was too  late and  the state  was                                                              
already headed into a recession.   He asked what the repercussions                                                              
would be if action  wasn't taken.  He said the  State was flirting                                                              
with a major collision  and would have to scramble  to pick up the                                                              
pieces to  put the economy  back together  again.  He  said Alaska                                                              
was  still   a  young   state  and   didn't  have  the   necessary                                                              
infrastructure  in place.    He thought  much  of  that was  being                                                              
jeopardized if  there was no fiscal  plan.  AASB supported  HB 303                                                              
and any other  legislation to improve  on the plan from  the House                                                              
or address the future.                                                                                                          
CHAIRMAN  THERRIAULT asked  if there  were any  questions for  Mr.                                                              
Rose.  There were none.                                                                                                         
He said HB 303 levied taxes at different  rates depending upon the                                                              
balance in the Constitutional Budget  Reserve (CBR).  He asked why                                                              
the Fiscal Policy Caucus seemed to  be so intent on protecting the                                                              
CBR.  He said a dollar in any savings  account would earn interest                                                              
and  a rate  of  return until  that  dollar was  spent.   The  one                                                              
difference he  could think of was  that a three-quarters  vote was                                                              
required to spend  money from the CBR.  He said  that was not what                                                              
the Legislature  intended but how  the courts had  interpreted it.                                                              
He felt  the three-quarters vote  had been used to  drive spending                                                              
up.   He asked if there  was any other  reason why the CBR  was so                                                              
REPRESENTATIVE  DAVIES said  the  desire to  protect  the CBR  had                                                              
nothing to  do with the  three-quarter vote.   He wasn't  going to                                                              
argue  about whether  the  budget had  been  spent up  or who  was                                                              
responsible for it.   He said if the committee wanted  to amend HB
303 to make it conditional upon getting  rid of the three-quarters                                                              
vote, he  would support that.   He said he  was on the  record for                                                              
three years supporting the repeal  of the three-quarters vote.  He                                                              
felt it  gave a perverted  reflection of  the process  rather than                                                              
perverted the process.                                                                                                          
He said the  CBR was the only  savings account the State  had that                                                              
functioned  as a  shock absorber  if  oil prices  fluctuated.   He                                                              
noted that  oil was  the State's  major revenue  source and  was a                                                              
very volatile  source.   He said  that was  why the Fiscal  Policy                                                              
Caucus  was  concerned  with  maintaining  the  CBR at  $1  to  $3                                                              
billion.   He said the Fiscal  Policy Caucus looked at  the impact                                                              
the various  plans before them would  have on the CBR five  or six                                                              
years into the future as a test.                                                                                                
REPRESENTATIVE  DAVIES said  if  the CBR  were  maintained at  the                                                              
current level, it  would continue to create about  $100 million in                                                              
revenue.    That  was  $100  million  that  wouldn't  need  to  be                                                              
collected in taxes, taken from the  permanent fund or cut from the                                                              
CHAIRMAN THERRIAULT wished getting  rid of the three-quarters vote                                                              
on the CBR could be done statutorily.                                                                                           
REPRESENTATIVE  DAVIES  said that  couldn't  be  done but  if  the                                                              
committee  wanted  to  do  a  constitutional  amendment  he  would                                                              
support it.                                                                                                                     
SENATOR  STEVENS  asked  about lines  1-6  on  page  7 of  HB  303                                                              
describing a part-year  or non-resident individual.   He said that                                                              
seemed hard to enforce.                                                                                                         
REPRESENTATIVE   DAVIES   said    that   section   described   the                                                              
apportionment of income  in the state versus outside  of the state                                                              
for part-year  residents.  He said  state income would  be divided                                                              
by total income  and that would be the proportion  of total income                                                              
the State would tax.                                                                                                            
SENATOR STEVENS asked what the mechanism  of enforcement would be.                                                              
He said he  didn't see payroll withholding for  regular employers,                                                              
only the State.                                                                                                                 
REPRESENTATIVE DAVIES  said payroll withholding was in  Sec. 10 on                                                              
page 10.   He said HB 303  also provided for penalties  for things                                                              
such as fraud.                                                                                                                  
SENATOR STEVENS  asked if the language  on page 2, lines  14-18 of                                                              
the  amendment regarding  the inclusion  of a  child's income  was                                                              
clean-up language.                                                                                                              
REPRESENTATIVE DAVIES  said that language clarified  how the State                                                              
would deal with a child's income.   He said if the parent included                                                              
the child's  income for  federal tax  purposes, that income  would                                                              
also be included for state tax purposes.                                                                                        
SENATOR  STEVENS said  he was concerned  about  that section.   He                                                              
said if a family  in the $30,000 to $40,000  income range included                                                              
their child's  income, that  child would be  paying more  taxes on                                                              
their income  than a  child from  a family that  was in  the upper                                                              
income levels.                                                                                                                  
REPRESENTATIVE  DAVIES said there  was the  option not  to include                                                              
the income.  He said the child from  the upper income family would                                                              
not be paying less.  They would be  paying a lower percentage.  He                                                              
said their total tax bill would be  significantly more.  He didn't                                                              
have  strong feelings  about  that section  and  if the  committee                                                              
wanted to change it, he wouldn't oppose that change.                                                                            
SENATOR  STEVENS  said  he  put   his  children's  Permanent  Fund                                                              
Dividends into  savings accounts  and paid  federal taxes  for the                                                              
children.   He paid $287 for his  oldest child.  According  to the                                                              
tax table in the packet, he would  have to pay $55 in state taxes,                                                              
which was about 27% of the child's federal tax liability.                                                                       
REPRESENTATIVE DAVIES said it wouldn't be that much.                                                                            
SENATOR STEVENS  said the figure on  the table was about  what her                                                              
income was.   He  said that  the majority  of people making  under                                                              
$10,000  per year  were children,  high school  students or  older                                                              
people working part time.  He said  people that make under $10,000                                                              
would  be  paying  a  higher  percentage   of  their  federal  tax                                                              
liability than  a person making over  $100,000.  He said  this was                                                              
an inverted slope.                                                                                                              
REPRESENTATIVE  DAVIES said it  was true that  if a person  made a                                                              
lot of money their  rate would be fairly low.   He said that comes                                                              
from the regressive  nature of a sales tax and would  also be true                                                              
if a broad-based sales tax were collected.   He said the state tax                                                              
wouldn't be  quite as much as  Senator Stevens thought.   It would                                                              
be about  1.35% of  whatever the  dividend was.   He said  the $55                                                              
figure assumed $4,000 income.  He  said the state tax liability of                                                              
the child would be about $20.                                                                                                   
CHAIRMAN  THERRIAULT asked  Representative  Davies if  he had  any                                                              
comment on the fiscal note.                                                                                                     
5:00 p.m.                                                                                                                       
REPRESENTATIVE  DAVIES said he  was relying on  DOR to  present an                                                              
accurate  number.   He said  the fiscal  note was  about $8  or $9                                                              
million, but  he had the sense  that actual operating  costs would                                                              
probably be less.   He said there were two ways  the cost could be                                                              
mitigated.   He said Representative  Norman Rokeberg  presented an                                                              
amendment  on the floor  to allow  people to  use their  Permanent                                                              
Fund  Dividend application  to pay  or withhold  their state  tax,                                                              
reducing  the  amount  of  paperwork  and  allowing  the  existing                                                              
bureaucracy  to  handle  that  part  of it.    The  amendment  was                                                              
withdrawn because of other complications but the idea was sound.                                                                
REPRESENTATIVE   DAVIES  said  when   federal  taxes   were  filed                                                              
electronically there  was the option  to pay state taxes  as well.                                                              
He said  17% of  federal taxpayers  filed electronically  and that                                                              
number was increasing rapidly.  He  said in the next three or four                                                              
years  approximately 50%  of taxpayers  would pay  electronically.                                                              
He said the State could use that to reduce costs significantly.                                                                 
SENATOR STEVENS asked him to explain Sec. 5 on page 8 of HB 303.                                                                
REPRESENTATIVE DAVIES believed it  was clean-up language having to                                                              
do with amended returns after a dispute.                                                                                        
SENATOR STEVENS  asked if  he knew  how many  people in  the state                                                              
used itemized deductions on their federal taxes.                                                                                
REPRESENTATIVE DAVIES said he did  not know.  He believed DOR used                                                              
figures from 1998.                                                                                                              
MR.  LARRY  PERSILY, Commissioner  of  DOR,  said about  25%  used                                                              
itemized deductions.                                                                                                            
SENATOR  STEVENS  asked  if  a state  income  tax  would  only  be                                                              
deductible if itemized deductions were used.                                                                                    
REPRESENTATIVE DAVIES  said that was  correct.  He said  the state                                                              
income tax would reduce taxable income.                                                                                         
SENATOR  STEVENS asked  Mr. Persily  to give a  brief synopsis  on                                                              
state income tax deducted from federal tax liability.                                                                           
MR. PERSILY  said state income taxes  were deductible if  and only                                                              
if a person itemized.  He said if  a person didn't own a home they                                                              
probably  wouldn't  itemize  because  they  wouldn't  have  enough                                                              
itemized deductions without mortgage  interest and would be better                                                              
off taking the standard  deduction.  He said if a  person took the                                                              
standard deduction  they wouldn't be  able to deduct  state income                                                              
tax on  top of that.   He said if a  person had an  adjusted gross                                                              
income of  $60,000 after  mortgage interest, charitable  donations                                                              
and state income tax had been deducted  they would look on the tax                                                              
table to figure  out how much was owed to the  federal government.                                                              
He said if  the state income tax  was $1,000 and they  were in the                                                              
25% federal  tax bracket,  they would get  back $250 of  the state                                                              
taxes  from being  in  a lower  federal tax  bracket.   Thus,  the                                                              
federal government  would be  helping to  subsidize or  lessen the                                                              
burden of Alaskans who itemized.                                                                                                
CHAIRMAN THERRIAULT wanted to clarify  that it didn't apply if the                                                              
taxpayer owned a  home; it applied if there was money  owed on the                                                              
home.  He said  many Alaskans built their own homes  out of pocket                                                              
and would not have that deduction.                                                                                              
MR. PERSILY said that was correct.                                                                                              
SENATOR  PHILLIPS said  he was the  only legislator  who had  been                                                              
around long enough  to have voted to repeal the  state income tax.                                                              
He said when  the state income  tax was repealed there  were about                                                              
77 positions  to collect  $750 million.   He said the  fiscal note                                                              
for HB 303 accounted  for 54 positions to collect  $250 million in                                                              
taxes, a third of the money that 77 positions had collected.                                                                    
MR. PERSILY said  the income tax that was abolished  in 1979 never                                                              
collected more  than about $200 million  at its high  point during                                                              
pipeline construction.   He said if the tax tables  from 1979 were                                                              
applied to today's income, about  $750 million would be collected.                                                              
In terms  of the dollar  of the day,  the amount collected  in the                                                              
past was about the  same as the amount that would  be collected as                                                              
a result  of HB 303.   He said it would  cost the same  to collect                                                              
$250 million  as it  would to collect  $300 to  $600 million.   He                                                              
said the factors  determining cost were things such  as the number                                                              
of  returns and  the amount  of enforcement.   He  said DOR  would                                                              
certainly  be more  efficient  than  they were  in  1979 and  take                                                              
advantage  of electronic  filing, electronic  funds transfers  and                                                              
other technological  advances.   He said  start-up costs  would be                                                              
substantial,  especially for the  purchase of  software.   He said                                                              
after  the start-up  period, DOR  hoped operating  costs would  be                                                              
about $6 million.                                                                                                               
5:10 p.m.                                                                                                                       
SENATOR PHILLIPS asked if the Administration supported HB 303.                                                                  
MR. PERSILY said the Administration  felt that HB 303 was probably                                                              
the best kind of broad-based tax that could move at that point.                                                                 
SENATOR  PHILLIPS  asked  if  the  Administration  had  considered                                                              
taking $370  out of  everybody's Permanent  Fund Dividend  to fund                                                              
the $250 million.                                                                                                               
MR.  PERSILY said  the  Administration  also supported  using  the                                                              
Permanent Fund earnings.                                                                                                        
SENATOR  PHILLIPS   said  he  was   asking  about   the  dividends                                                              
themselves and not earnings.                                                                                                    
MR. PERSILY said he was limited in how he could speak.                                                                          
SENATOR PHILLIPS said he understood that.                                                                                       
MR. PERSILY said  the Administration favored using  Permanent Fund                                                              
earnings  but  could  not  say how  much  that  would  affect  the                                                              
SENATOR PHILLIPS  said his calculations  indicated that  $370 from                                                              
each dividend would equal about $250  million.  He said that would                                                              
treat everybody equally.                                                                                                        
MR.  PERSILY  said  substantial  funds  would be  taken  from  the                                                              
Permanent Fund  earnings whether or  not a broad-based  income tax                                                              
was passed.                                                                                                                     
CHAIRMAN THERRIAULT asked if there  was anybody else who wished to                                                              
testify on HB 303.  There was nobody.                                                                                           
He said  the amendment was  received after  the hearing on  HB 303                                                              
had started  and he preferred  not to take  any action on it.   He                                                              
said if there were the votes to move  HB 303 out of committee, the                                                              
amendment would  be included in the  packet that would be  sent to                                                              
the Senate  Finance  Committee.   He said the  committee had  been                                                              
asked to  move the bill  on to the  Finance Committee.   He didn't                                                              
think anybody could  read too much into the committee's  action to                                                              
move the  bill and  even if  the bill  moved out  it could  have a                                                              
negative committee  report.   He said he  did not have  a prepared                                                              
CS.  He asked for a motion to move HB 303 out of committee.                                                                     
SENATOR  DAVIS  moved  2d  CSHB 303(RLS)  out  of  committee  with                                                              
attached fiscal note and individual recommendations.                                                                            
SENATOR STEVENS objected for comment.                                                                                           
SENATOR PHILLIPS  said this  was the last  thing he wanted  to do.                                                              
He said HB 303  would hit the middle class the  hardest and 20% of                                                              
the people  would be  shouldering 80%  of the  burden.   He didn't                                                              
like that and  he despised this tax  the most.  He said  the State                                                              
gave away $1,2 billion with the Permanent Fund Dividend.                                                                        
TAPE 02-30, SIDE B                                                                                                            
5:15 p.m.                                                                                                                       
SENATOR PHILLIPS said the budget  shortfall was about $700 to $800                                                              
million.  He said HB 303 would make  the middle class take up that                                                              
slack.   He said that  didn't make sense to  him and he  would not                                                              
support the  bill.  He would vote  to get it out of  committee and                                                              
then he  would vote no and  have his say  on the floor.   He hoped                                                              
that  all  20 senators  would  vote  against  it.   He  said  this                                                              
proposal was not the first step that should be taken, it should                                                                 
be the last step taken.                                                                                                         
CHAIRMAN THERRIAULT shared a lot of the same concerns.  He said                                                                 
if HB 303 passed in this form, there would probably be a                                                                        
citizen's petition and it would be repealed.                                                                                    
He asked if there was any objection to the motion.                                                                              
There being no objection 2d CSHB 303(RLS) moved out of committee                                                                
with attached fiscal note and individual recommendations.                                                                       
There being no further business before the committee, the Senate                                                                
State Affairs Committee meeting was adjourned at 5:20 p.m.                                                                      

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