Legislature(2023 - 2024)DAVIS 106
04/12/2023 06:00 PM House WAYS & MEANS
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| Audio | Topic |
|---|---|
| Start | |
| HB109 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| += | HB 45 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HB 109 | TELECONFERENCED | |
HB 109-REDUCE CORP. NET INCOME TAX RATE
[Contains discussion of HB 142.]
6:05:13 PM
CHAIR CARPENTER announced that the only order of business would
be HOUSE BILL NO. 109, "An Act reducing the corporate net income
tax rate; and providing for an effective date."
6:05:24 PM
REPRESENTATIVE MCCABE moved to adopt the committee substitute
(CS) for HB 109, Version 33-LS0376\B, Nauman, 4/12/23, as a
working document.
6:05:41 PM
REPRESENTATIVE GRAY objected.
6:06:03 PM
KENDRA BROUSSARD, Staff, Representative Ben Carpenter, on behalf
of Representative Carpenter, prime sponsor, paraphrased the
explanation of changes [included in the committee packet], which
read as follows [original punctuation provided]:
New Title: "An act reducing the corporate net income
tax rate; relating to a sales and use tax; authorizing
the Department of Revenue to enter into the
Streamlined Sales and Use Tax Agreement; and providing
for an effective date."
The Committee Substitute for House Bill 109 combines
HB 109 REDUCE CORP. NET INCOME TAX RATE and HB 142
STATE SALES AND USE TAX Bill. There are no other
changes after the title except renumbering sections
and combining effective date provisions.
Section 1, 2
Sections 1 and 2 from HB 142
Section 3
Section 1 from HB 109
Sections 4,5
Sections 3, 4 from HB 142
Section 6
Section 2 from HB 109
Section 7, 8
Sections 5, 6 from HB 142
Section 9
Makes the corporate income tax reduction effective
January 1, 2024.
Section 10
Makes the sales and use tax effective January 1, 2025.
6:07:07 PM
CHAIR CARPENTER stated that the proposed bill is part of a long-
term fiscal plan for the state. He expressed the opinion that
corporate income taxes harm businesses, and a sales tax would be
stable, as well as less economically disruptive. He said the
proposed bill would create incentives for municipalities to
reduce property taxes, and, coupled with a corporate income tax
reduction, the proposed legislation would replace the current
tax structure with a more stable way to fund state government
and ensure permanent fund dividends (PFDs) would be kept.
6:08:08 PM
REPRESENTATIVE GRAY pointed out that during the initial
discussions of HB 109, it was said that 70 percent of the
state's corporate income tax revenue comes from oil and gas, and
there was a suggestion that the state might be able to make up
losses in revenue another way. He expressed the opinion that
the state would be giving a tax break to oil companies while
making up the lost tax revenue by taxing residents. He asked
why sales tax is being paired with corporate income tax, rather
than with the per-barrel tax credit.
CHAIR CARPENTER explained that the choice to combine [HB 109 and
HB 142] was based on the idea of a way to move forward with the
fiscal plan. He said the intent of the committee meeting is to
combine the two bills, thereby narrowing the number of bills
needed to move through the legislature as part of a fiscal plan.
6:10:29 PM
REPRESENTATIVE GROH questioned what the estimated amount would
be by raising taxes on essentials, like groceries, clothing, and
cleaning supplies.
CHAIR CARPENTER responded that an estimate is not currently
available.
REPRESENTATIVE GROH questioned whether the intention of the
proposed legislation would be to tax groceries to reduce
corporate income tax to about $350 million a year. He suggested
that taxing groceries alone might total $350 million.
CHAIR CARPENTER reiterated that there is not an assessment as to
the amount the individual sectors of the state's economy would
be putting into a sales tax. He said it is a
mischaracterization to suggest the bill would offer a tax on
food so a corporate income tax reduction could happen. He
explained that other sectors of the economy would be paying
sales tax as well. He concurred that having the requested data
would be valuable.
REPRESENTATIVE GROH pointed out there are 17 sales tax
exemptions being proposed, but food is not included.
CHAIR CARPENTER said that, before a fiscal plan is passed, there
would need to be a conversation on exemptions in the sales tax
bill. He stated that it would be similar to an income tax bill,
where certain classes of people may be exempted.
REPRESENTATIVE GROH suggested that the proposed reduction in
corporate income tax would cost the state $350 million annually.
He asked for data which shows lowering corporate tax rates would
cause significant economic growth.
CHAIR CARPENTER responded that there are examples in other
states where tax reductions had a positive impact on economic
growth.
REPRESENTATIVE GROH asked whether the goal would be to make the
state more attractive to businesses. He questioned whether
other options were considered.
CHAIR CARPENTER said that the legislation before the committee
was modeled off the work of the Fiscal Policy Working Group
(FPWG). He explained that the base student allocation is not
before the committee, and this was not a conversation held by
FPWG, nor would it be something in the framework of a fiscal
plan which addresses the reduction of tax revenue to the state.
He said that the proposed corporation tax reduction would be
offset by a sales tax and create a net gain of about $700
million in tax revenue.
REPRESENTATIVE GROH offered that the tax would be paid mainly by
Alaskans and some by tourists. He questioned why the $350
million in reductions would not go to the dividend payouts.
CHAIR CARPENTER responded that this may be a possibility. He
expressed uncertainty about what corporate interests would do
with the additional revenue. He expressed the hope that the
companies would be incentivized to make money; therefore, the
more money companies can keep, the more likely they are to
invest in business growth.
REPRESENTATIVE GROH, regarding a sales tax, questioned whether
it would affect rural communities where the prices are higher.
He inquired whether exemptions or decreased rates for goods and
services have been explored.
CHAIR CARPENTER answered that the current proposal does not
contain exemptions and reiterated he is open to having the
conversation on exempting certain populations before action is
taken on any tax proposals.
REPRESENTATIVE GROH said, according to the Institute of Social
and Economic Research (ISER) University of Alaska Anchorage, 70
percent of Alaskans would do better under an income tax instead
of a sales tax. He reiterated that a sales tax would
significantly impact rural communities, as well as the
communities which already have a sales tax.
CHAIR CARPENTER responded that while any new tax is going to
fall on some Alaskans, the sales tax would fall on all Alaskans.
He said that the current alternative being discussed in the
legislature is no taxes. This is other than a reduction of the
PFD, something that ISER said is the most regressive tax on
Alaskans. He expressed the opinion that the sales tax would be
fair for all Alaskans, and it would have the possibility of
passing through the legislature.
REPRESENTATIVE GROH stated that another income tax bill has been
referred to the committee, and he expressed the understanding
that part of this would be a consideration of a high-earner tax.
Demonstrating other alternatives, he pointed out that there are
two more oil tax bills, one in the Senate and one in the House.
6:21:16 PM
REPRESENTATIVE MCCABE commented that money going into the
private economy has a return of around 9 times, while money
going to government has a return of around 1.2 times. Regarding
the lowering of corporate income tax, he said that, while the
state may lose money, it is not pointed to the oil companies
which are already in the state, rather it is designed to attract
businesses. He expressed the opinion that the oil companies
would be ambivalent about getting a 7 percent gain in corporate
tax because they already know how to operate under the 9.2
percent rate. He suggested that a 2 percent corporate tax
decrease would be a larger "carrot" for those initially starting
a business. He stressed that tourists would also pay into the
statewide sales tax.
REPRESENTATIVE GROH explained that he spoke to businesspeople
who would be in favor of having greater amenities, like having
adequate roads. He said that a substantial bulk of the sales
tax would be paid by Alaskans because Alaskans are in the state
year round, while the tourists are in the state a small part of
the year.
6:26:11 PM
REPRESENTATIVE ALLARD offered her understanding that tourism is
either second or third in terms of revenue to the state. She
said that, while groceries are expensive in rural communities,
these communities do not pay property taxes. She explained
that, with the offset in corporate taxes, the state must entice
the oil companies.
6:27:48 PM
REPRESENTATIVE GRAY referred to Section 2, Line 7, of the
proposed legislation and requested an explanation about the
"grievance process."
MS. BROUSSARD said she could follow up after the meeting
regarding the question.
6:29:10 PM
CHAIR CARPENTER explained that this section would establish a
process for when the department revokes or suspends a seller's
permit.
REPRESENTATIVE GRAY questioned the definition of a seller's
permit.
6:30:44 PM
CHAIR CARPENTER said that the verbiage before the committee
states that before a person engages in business in the state,
the individual would need to obtain a seller's permit so the
state knows it should be collecting sales tax.
6:31:36 PM
REPRESENTATIVE GRAY pointed out that Sections 1 and 2 are from
HB 142 while Section 3 is from HB 109. He continued that
Sections 4 and 5 are from HB 142, while Section 6 is from HB
109. He expressed confusion concerning the bill's exchange
between corporate tax cuts and sales tax language.
CHAIR CARPENTER explained that there were two bills, one was on
starting a sales tax and the other would lower the corporate
tax. He said the request made to Legislative Legal Services was
to combine HB 142 and HB 109 into one bill. He added that his
office did not request the bill to be drafted in this way. He
said that any drafting questions will have to be directed to
Legislative Legal Services
REPRESENTATIVE GRAY responded that he would print off the two
bills and compare them.
6:33:57 PM
MS. BROUSSARD offered that there would be a sectional analysis
at a future meeting.
6:34:07 PM
REPRESENTATIVE MCCABE commented that the sections go in order of
the statutes.
CHAIR CARPENTER stated that Legislative Legal Services uses a
drafting manual, and the bill is written following this.
6:34:58 PM
REPRESENTATIVE GROH asked if FPWG recommended lowering the
corporate tax rate.
CHAIR CARPENTER answered that FPWG had not; however, he had
added the economic growth element because it was in the
committee recommendations. He stated that a corporate income
tax rate reduction was identified as a way to encourage economic
growth. He further clarified that it was not added by FPWG but
added to the generated report.
6:35:59 PM
REPRESENTATIVE GRAY pointed out quitting businesses and the
successor's liability on page 11, line 20, of the proposed
legislation. Concerning this he questioned the process of
filing a return for sales tax.
CHAIR CARPENTER explained that when a sales tax is collected by
a business and remitted to the jurisdiction, there is a document
showing the business's sales. He said this is attached to the
collection and is considered the tax return. He said HB 110
would direct that, if a business ceases, its final action would
be a tax return to the state with a remittance of tax owed.
REPRESENTATIVE GRAY moved to page 10 and asked about language
which directs that a person filing a return may deduct sales
found to be worthless.
CHAIR CARPENTER offered to follow-up after the meeting with an
answer.
6:38:25 PM
REPRESENTATIVE MCCABE suggested that the language within HB 110
is "boilerplate," in that, the bill language originates from
other states or organizations. He said bad debt reduction is
standard.
CHAIR CARPENTER stated that he does not mind getting a taxation
attorney to assist the committee.
REPRESENTATIVE MCCABE expressed his concern that the committee
may be getting too involved with the minutia of the bill;
however, he stated that the questions posed should be answered
at some point.
6:40:05 PM
REPRESENTATIVE MCKAY said that the essence of the discussion
focuses on page 1 through page 3, as these are the sections
covering corporate tax rates and sales tax.
6:41:11 PM
REPRESENTATIVE GRAY pointed to page 13, line 20, of the proposed
legislation, which read as follows:
The department shall separately account for the
revenue collected from the tax under this chapter that
the department deposits in the general fund. The
legislature may appropriate half of the annual
estimated balance in the account to municipalities. A
municipality may receive an appropriation under this
section if the municipality does not collect an oil
and gas production tax or gas pipeline property tax
under AS 29.45.080.
REPRESENTATIVE GRAY requested an explanation.
CHAIR CARPENTER answered that the language would allow the state
to share 50 percent of the tax collected with certain
municipalities and boroughs. He stated that they would be
eligible for sharing the sales tax revenue if they have a low-
mill property tax, do not have oil and gas production, or do not
have gas pipeline property tax. Hypothetically, he stated that
if a community with a property tax of 20 mills wants to receive
a portion of the sales tax revenue generated, then it could
choose to reduce property tax to less than 10 mills.
REPRESENTATIVE GRAY expressed doubt that a municipality would
reduce property tax to 10 mills and make up the difference by
increasing sales tax. He commented that with the proposed
statewide sales tax on top of a city sales tax, the city might
end up with a sizable overall tax rate. He expressed the fear
that a city would be lowering property taxes in order to access
the statewide sales tax fund, and it would choose to take from
the fund instead of raising its own municipal sales tax.
CHAIR CARPENTER expressed the opinion that the only scenario
where this would occur is when the sales tax revenue sharing
amount is greater than the figure the city would receive from
the lost property tax revenue. He pointed out that these cities
could reduce their property tax and raise their sales tax.
REPRESENTATIVE GRAY expressed the belief that cities might want
to take advantage of "free money" from the state.
CHAIR CARPENTER commented that cities could do that now, and the
taxes paid at the local level are what the people want to pay.
6:46:27 PM
REPRESENTATIVE GRAY maintained his objection.
6:47:21 PM
The committee took a brief at-ease.
6:47:54 PM
A roll call vote was taken. Representatives Allard, Groh,
McKay, McCabe, Tilton, and Carpenter voted in favor of adopting
the proposed CS for HB 109, Version 33-LS0376\B, Nauman,
4/12/23, as a working document. Representative Gray voted
against it. Therefore, by a vote of 6-1, Version B was before
the committee.
6:49:04 PM
REPRESENTATIVE GROH expressed the opinion that a sales tax would
be inferior policy compared to other taxes. Furthermore, he
expressed his concern about whether the state could pay for the
corporate tax reductions.
6:49:54 PM
REPRESENTATIVE GROH, in response to a question from
Representative Allard, explained that ISER has studies which
show that an income tax would be better than a sales tax because
the bottom 80 percent of people in Alaska would do better. He
said that the top 20 percent of the residents in the state would
pay more, while the top 1 percent would pay substantially more.
REPRESENTATIVE ALLARD questioned the impact of an income tax on
a family who makes $100,000 a year. Furthermore, she questioned
whether retirement income would be a part of the state income
tax.
REPRESENTATIVE GROH responded that he supports a high-earner
tax. He explained that in economic literature a sales tax hits
harder for most economic levels until the top 20 percent of
income earners is reached.
REPRESENTATIVE ALLARD requested a comparison between the states
which do not have an income tax.
6:53:59 PM
REPRESENTATIVE GRAY said that the proposed tax would be for
those making $20,000 or more. He pointed out that all the
members are proponents of bigger PFDs. He expressed the belief
that the budget should not be balanced by cutting the PFD, and a
broad statewide sales tax would financially impact individuals
in rural communities more than the gain from receiving a PFD;
therefore, the budget would be balanced off the PFD.
CHAIR CARPENTER suggested that a per-capita limit could be
investigated.
REPRESENTATIVE GRAY said that he would like the information to
cover more than just the large cities in Alaska.
6:56:35 PM
REPRESENTATIVE MCCABE suggested the revenue sharing system
within HB 109 would benefit rural communities. He advised that
a tax expert should be present to help the committee through the
scenarios. He recalled that FPWG had compared an income tax
with a sales tax, and the issue with a high earner tax had been
there are not many high earners in Alaska.
6:58:59 PM
REPRESENTATIVE GROH said ISER studies showed that a sales tax
would be more expensive for households whose incomes are under
$125,000, and this would cost more than an income tax. He
concurred that cutting the PFD would be the most regressive tax,
which is what makes the issue more complicated. He expressed
willingness to work with the committee to come up with a
comprehensive fiscal solution.
7:01:20 PM
CHAIR CARPENTER opined that, in his talks with legislators,
there is no broad support for the passage of a broad-based
income tax. In response to sales tax versus income tax, he
stated that economic growth is wealth creation; therefore, the
companies are the ones with the resources to employ people and
grow the economy. He said there is a balance to strike between
who pays taxes and who has the money to grow the economy. He
added that the permanent fund is the only thing growing. He
suggested that the state needs to re-structure taxes and
spending to ensure that the PFD stays.
7:05:31 PM
REPRESENTATIVE GRAY stressed that Alaska needs a fiscal plan.
He expressed agreement with Representative Groh in the
preference of income tax over sales tax and with Chair Carpenter
that a sales tax could make it over the "finish line." He
commented that there could be a sales tax established at zero
percent, then the state would have the tax structure when
needed. He asked if there would be opposition to a zero percent
income tax.
CHAIR CARPENTER responded that modeling for when the state may
need an income tax is possible. He suggested the committee
should be open to discussing a stairstep tax approach.
7:09:07 PM
[HB 109, Version B, was held over.]
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 109 - New CS v.B.pdf |
HW&M 4/12/2023 6:00:00 PM |
HB 109 |
| HB 109 - New CS v. B Explanation of changes.pdf |
HW&M 4/12/2023 6:00:00 PM |
HB 109 |
| HB109 CS(WAM)-DOR-TAX-04-14-23 Fiscal Note.pdf |
HW&M 4/12/2023 6:00:00 PM |
HB 109 |