Legislature(2015 - 2016)

2016-05-23 Senate Journal

Full Journal pdf

2016-05-23                     Senate Journal                      Page 2905
SB 4001                                                                                                                       
SENATE BILL NO. 4001 BY THE SENATE RULES COMMITTEE                                                                              
BY REQUEST OF THE GOVERNOR, entitled:                                                                                           
     "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."                                                                                          
was read the first time and referred to the Labor and Commerce and                                                              
Finance Committees.                                                                                                             

2016-05-23                     Senate Journal                      Page 2906
The following fiscal information was published today:                                                                           
 Fiscal Note No. 1, Department of Revenue                                                                                       
Governor's transmittal letter dated May 23:                                                                                     
Dear President Meyer:                                                                                                           
Under the authority of Article III, Section 18, of the Alaska                                                                   
Constitution, I am transmitting a bill relating to revenue measures,                                                            
including the establishment of an individual income tax, tax measures                                                           
on fisheries business tax and fisheries landing tax, the mining license                                                         
tax, the excise tax on alcoholic beverages, raising the tax on tobacco                                                          
products and taxing electronic smoking products, fees for commercial                                                            
fisheries entry or interim use permits, regarding the administration and                                                        
enforcement of the marijuana excise tax.                                                                                        
This is a necessary measure to address our fiscal situation. My                                                                 
approach is a broad-based tax bill to address the need as our current                                                           
revenues decrease. This has made it necessary to update our tax laws.                                                           
My proposed measures, while modest, will make a significant                                                                     
difference to the State's fiscal situation.                                                                                     
First, the bill would establish a personal income tax of six percent of                                                         
total federal tax liability. Because the tax would be calculated based on                                                       
federal tax liability rather than on income, the bill effectively                                                               
incorporates federal brackets and exemptions. This permits this bill,                                                           
and the Alaska personal income tax system it would create, to be as                                                             
simple and transparent as possible and minimizes administrative                                                                 
burdens both for the State and for taxpayers. This portion of the bill                                                          
has a delayed effective date, and would apply to income earned on or                                                            
after January 1, 2018. In addition, the bill would repeal a set of                                                              
orphaned individual tax credits from the former income tax.                                                                     
The relatively modest tax is expected to raise approximately                                                                    
$200,000,000. Because, for those who itemize federal tax deductions,                                                            
the tax would be deductible from federal income tax, the deduction                                                              
from federal taxes would offset the actual burden of this tax to Alaska                                                         
taxpayers by 20 - 25 percent.                                                                                                   

2016-05-23                     Senate Journal                      Page 2907
Next, the bill would update our cigarette taxes and include newer                                                               
electronic smoking products. Smoking technology has advanced to                                                                 
include multiple use electronic smoking products which are currently                                                            
untaxed in Alaska. Therefore, our tobacco tax statutes (AS 43.50                                                                
Cigarette Tax Act) should be revised to include this new smoking                                                                
product. To further update our outdated tobacco tax structure, I                                                                
propose to amend the additional tax levy on cigarettes - which has not                                                          
been raised since 2007 - from 62 mills to 112 mills. This change will                                                           
increase the total State tax per standard cigarette pack from $2.00 to                                                          
$3.00. I also propose increasing the tax rate on tobacco products (other                                                        
than cigarettes) from 75 percent of the wholesale price to 100 percent                                                          
of the wholesale price. These reasonable adjustments will bring our                                                             
tax structure up to date.                                                                                                       
The alcoholic beverage tax rates have not been raised for many years.                                                           
Therefore, the bill would increase the tax rates on alcoholic beverages                                                         
under AS 43.60 (excise tax on alcoholic beverages). Alcoholic                                                                   
beverage excise taxes are levied on malt beverages, cider with at least                                                         
0.5 percent alcohol, wine, and other beverages with a higher alcohol                                                            
content. The bill would double the tax rates on each gallon or fraction                                                         
of a gallon. As a result, the excise tax on malt beverages or cider                                                             
would be $2.14 a gallon or fraction of a gallon; the tax on wine or                                                             
other beverages would be $5.00 a gallon or fraction of a gallon; and                                                            
the tax on beverages containing more than 21 percent alcohol by                                                                 
volume would be $25.60 a gallon. The effective tax rate, after these                                                            
changes, will be 20 cents per standard drink portion. I believe this                                                            
proposed increase is reasonable, especially considering the high                                                                
societal cost of alcoholic beverage consumption. Under this bill, the                                                           
alcoholic beverage industry would bear a fairer share of industry costs                                                         
to the State, yet still continue as an economically healthy industry.                                                           
The bill also would amend AS 43.60.040(a) related to surety bonds.                                                              
Current law requires a $25,000 surety bond before a license is issued.                                                          
This amount is out of date, as many wholesalers require a surety bond                                                           
much greater than that; at the same time very small brewers and                                                                 
distillers require a smaller surety bond. The bill proposes to amend                                                            
AS 43.60.040(a) to delete the $25,000 bond and instead add language                                                             
that the surety bond amount would be determined by the Department                                                               
of Revenue.                                                                                                                     

2016-05-23                     Senate Journal                      Page 2908
The mining industry is important to the state, but the taxation rates are                                                       
too low to maintain. My proposal makes necessary adjustments to the                                                             
tax imposed on mining operations. Therefore, the bill would change                                                              
the exemption from paying the mining license tax that currently                                                                 
applies to operations for three and one-half years after production                                                             
begins to a more reasonable two years. This provides a sustainable                                                              
balance between assisting new mining operations and taxing revenues                                                             
from those operations. Additionally, the bill would change the way the                                                          
mineral and coal deposit exploration incentive credit is determined by                                                          
removing the ability to apply the credit against mineral royalty                                                                
production payments. The bill also would increase the mining license                                                            
tax rate from seven percent to nine percent for that portion of net                                                             
income in excess of $100,000 beginning July 1, 2016.                                                                            
Further, the bill would increase the tax rates of the fisheries business                                                        
tax (AS 43.75.015) and the fishery resource landing tax                                                                         
(AS 43.77.010). Developing fisheries are exempted from the increase.                                                            
The tax rates covered by these statutes vary from three percent to five                                                         
percent, depending on the type of fishery. The bill would increase                                                              
those tax rates by one percentage point across the board. Currently, the                                                        
revenue generated by these taxes is split evenly between the State and                                                          
the municipalities where the fisheries are located. The bill would                                                              
exempt this one percentage point increase from the revenue sharing                                                              
arrangement, thereby insuring that the entire increase is applied to the                                                        
general fund. The bill also would require electronic submission for                                                             
fishery taxpayers. Additionally, the bill removes the existing $3,000                                                           
annual cap for entry permits issued by the Commercial Fisheries Entry                                                           
The bill also addresses the marijuana tax laws, first, by requiring a                                                           
marijuana cultivation facility to furnish a bond before a license may be                                                        
issued by the Marijuana Control Board, and by establishing under the                                                            
Department of Revenue's authority the ability to levy the marijuana                                                             
excise tax on both persons who are in possession of more marijuana                                                              
than the amount that is allowable for personal use and possession                                                               
under our marijuana statute as well as marijuana retail establishments                                                          
who have purchased product from an unlicensed cultivator.                                                                       

2016-05-23                     Senate Journal                      Page 2909
The citizens of our state are ready to pitch in to solve our fiscal crisis.                                                     
My measures, by involving a broad base of industries, would result in                                                           
each industry bearing a small share of needed tax changes. Together                                                             
we can continue to assure Alaska's strong and stable financial future.                                                          
I urge your prompt and favorable action on this measure.                                                                        
Bill Walker