SJR 7-CONST. AM: STATE TAX; VOTER APPROVAL   1:33:42 PM CHAIR HOLLAND announced the consideration of SENATE JOINT RESOLUTION NO. 7, Proposing amendments to the Constitution of the State of Alaska relating to prohibiting the establishment of a state tax without the approval of the voters of the state; and relating to the initiative process. [SJR 7 was previously heard on 4/30/21.] 1:34:12 PM MIKE BARNHILL, Deputy Commissioner, Department of Revenue, Juneau, Alaska, offered to answer committee members' questions. 1:34:56 PM SENATOR KIEHL asked for the vision of democracy contained in this proposed change to the Alaska Constitution. MR. BARNHILL answered that SJR 7 would create a constitutional symmetry between direct democracy and representative democracy when enacting new taxes. SENATOR KIEHL suggested SJR 7 would tilt the field against new taxes rather than providing a consistent philosophy. He asked what would constitute a new tax under this language since the term is not defined. For example, he wondered if eliminating a tax break would be considered a new tax. 1:37:13 PM MR. BARNHILL said he reviewed how the state defines constitutional terms. The Alaska Supreme Court first considers dictionary definitions, then legislative history and the content of legislative hearings. Therefore, new taxes are ones that the state does not currently impose. For example, it would be a new tax if the state imposed a new sales tax, a value-added tax, a gross-receipt tax, or a personal income tax. 1:37:59 PM SENATOR KIEHL said the state exempts taxes on natural gas from Cook Inlet for use in state. He characterized it as a $125 million investment in affordable power for the Anchorage Bowl and Kenai Peninsula. He asked whether this exemption was removed by passage of SJR 7 and if it would establish a new tax. MR. BARNHILL recalled that question from last year. He said Mr. Milks responded by writing a letter that became part of the legislative history. He recalled that deleting exemptions does not constitute a new tax. 1:39:22 PM WILLIAM MILKS, Senior Assistant Attorney General, Legislation & Regulations Section, Civil Division, Department of Law, Juneau, Alaska, acknowledged that Mr. Barnhill just explained how terms are defined in the Alaska Constitution. He reviewed some recent Alaska Supreme Court cases that state what the court considers during its review. First, the court looks to the plain meeting and purpose of the provision. He explained it is an ordinary, reasonable, practical understanding of what the words mean. Ultimately, the voters approve the Alaska Constitution. Second, the court considers the intent of the framers. Further, the court looks at the legislative history, and as Mr. Barnhill mentioned, the court considers the dictionary definition. The court may consider other uses of the words, he said. MR. MILKS said SJR 7 is somewhat different than the resolutions previously proposed. The specific language "establishes a state tax." He opined that removing an exemption is not establishing a new tax. However, legislators could always modify the language in the resolution. Currently, SJR 7 will establish a state tax, which would mean creating a new tax. 1:41:35 PM MR. BARNHILL remarked that the letter he referenced by Mr. Milks was dated April 15, 2019, in response to Senator Hughes's question. He read: I stated in hearing testimony the administration's intent is that changes to deductions, credits, and exemptions from an existing state tax would not be considered an increase in the rate of an existing state tax and thus would not require voter approval. MR. BARNHILL related that Senator Kiehl's question was whether that would be construed as a new tax, not an increase in the tax rate. He offered his view that the response would be the same. 1:42:19 PM SENATOR KIEHL remarked that removing an exemption from an existing tax could significantly change what is taxable. He asked if the corporate income tax that applies only to "C" corporations was extended to B" or "S" corporations if it would establish a new tax. MR. BARNHILL responded that he believes a Colorado case ruled on the matter. He acknowledged that just because the Colorado Supreme Court decided one way does not mean the Alaska courts would decide in the same way. He offered to research precedent in other states and report back to the committee. 1:43:39 PM MR. MILKS restated that tools the court would use include a plain language interpretation, a dictionary definition, legislative history, constitutional convention history and discussions in committee. He said there would be a much fuller record if any dispute arose in court. He stated that he agrees with Mr. Barnhill's responses. 1:45:07 PM SENATOR KIEHL asked how user fees would fall within the framework of establishing a new tax. He wondered if user fees would be treated differently and, if so, does it matter whether the fees cover more than the program cost. MR. BARNHILL said the distinction between user fees and taxes is the subject of many tax cases in the Lower 48. However, the administration does not intend user fees to apply. He said a user fee is a charge assessed by a state agency to defray the cost of providing a specific service to the public, such as a driver's license. He said that a new user fee established to provide a service such as a driver's license would not require voter approval. He pointed out that Senator Kiehl asked a more difficult question: what if the user fees recover more than the cost of providing the particular service. He related his understanding that the Colorado Supreme Court precedent addresses that issue. The same caveat would apply since it is not an Alaska Supreme Court decision. He said he was not sure it would be helpful to predict what the court would do. However, the administration intends not to characterize or interpret user fees established to defray the cost of providing a particular service as a tax requiring voter approval. 1:47:50 PM SENATOR HUGHES related that if the voters establish a new tax through an initiative process, the legislature must meet to approve or reject it in joint session. If the legislature chose not to meet, whether the initiative would be considered rejected. If so, that decision could be made by a single presiding officer refusing to meet in joint session. She referred to subsection (c) on page 2, lines 6 - 13, which read: (c) A law enacted by the voters through the initiative process under Article XI that establishes a state tax shall not take effect unless the legislature, by resolution, approves the initiated law by a majority vote in joint session before the adjournment of the next regular session occurring after the lieutenant governor certifies the election returns. If approved by the legislature, the initiated law becomes effective ninety days after approval. If the legislature fails to approve the initiated law before the adjournment of the regular session, the initiated law is rejected and does not take effect. 1:49:01 PM SENATOR HUGHES asked if one leader could cause the initiative to fail. She wondered if she was reading something into this. MR. BARNHILL responded that he terms that as "a pocket form of veto." This language requires approval by a majority vote, failing that it would not take effect. However, there does not appear to be any prohibition against a pocket veto. 1:49:58 PM MR. MILKS referred to page 2, lines 11-13 of SJR 7, which read: If the legislature fails to approve the initiated law before the adjournment of the regular session, the initiated law is rejected and does not take effect. MR. MILKS said this means the law is rejected if the legislature fails to act. The language is currently clear on the failure to act, he said. In terms of the question about the authority of a single presiding officer, the legislature's rules of procedure are the Uniform Rules, which the legislature could change. 1:51:04 PM SENATOR MYERS recalled a recent Alaska Supreme Court decision related to the legislature not holding a joint session to confirm governor appointees to boards and commissions. He suggested the legislature should consider changing this language. The legislature could approve appointees by resolution in the normal legislative process for passing legislation rather than in joint session. He acknowledged that legislators would not be on record if a presiding officer could theoretically slow the joint session down or block it. MR. MILKS responded that it is a policy call for the legislature to consider. SENATOR HUGHES offered her view that passing a resolution would open it up for multiple chairs to block the resolution. 1:54:24 PM SENATOR MYERS recalled at the last hearing Senator Kiehl asked what SJR 7 would fix. He offered his view that SJR 7 does not attempt to fix policy or process, but rather it would address a lack of trust. He argued that the legislature does not hold the trust of the people. For one thing, two-thirds of the legislature changed in the last few elections. The referendum to repeal Senate Bill 21 was used to uphold Alaska's taxes on oil companies. He acknowledged that the initiative or referendum process is lengthy and often expensive. SJR 7 attempts to address voter distrust by allowing the voters to have the last say on any new taxes the legislature proposes. Without this final say, the legislature would have an incentive to tax the people least able to protest since it takes time, effort and funding to organize an initiative. He suggested that placing it on the ballot is a change for the better. SENATOR HUGHES commented that the initiative and referendum process is already available to those wishing to initiate or repeal a tax. However, it would constrain the legislature because voters could reverse a tax passed by the legislature. The legislature can repeal a tax passed by initiative after a two-year delay. She viewed SJR 7 as affecting legislative actions more than voter initiatives. 1:58:37 PM SENATOR HUGHES asked if the last legislature narrowed the process to broad-based taxes. MR. BARNHILL recalled that the prior legislative committee held discussions but did not narrow the resolution. [SJR 7 was held in committee.]