Legislature(1999 - 2000)

02/17/2000 08:05 AM House STA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
HB 138-INCOME TAX ON INDIVIDUALS & FIDUCIARIES                                                                                
                                                                                                                                
Number 2232                                                                                                                     
                                                                                                                                
CHAIR JAMES  announced the  next order of  business is  HOUSE BILL                                                              
NO. 138, "An Act relating to the taxation of income."                                                                           
                                                                                                                                
REPRESENTATIVE  MOSES, speaking  as sponsor  of HB 138,  presented                                                              
the following sponsor statement:                                                                                                
                                                                                                                                
     House  Bill 138  is intended  to raise  revenue for  the                                                                   
     State of  Alaska.  With  a steadily growing  fiscal gap,                                                                   
     the time  is long overdue for  us, as the  policy makers                                                                   
     of this  great state,  to take a  long hard look  at our                                                                   
     future.                                                                                                                    
                                                                                                                                
     House Bill  138 implements a  state income tax  upon the                                                                   
     taxable income of every resident,  nonresident and part-                                                                   
     year  resident individual  and fiduciary  in the  state.                                                                   
     The tax  imposed is  determined as  a percentage of  the                                                                   
     taxpayer's  entire federal  income tax  liability.   The                                                                   
     tax is  introduced to the  taxpayer on a gradual  basis,                                                                   
     starting  at 5 percent  under $20,000;  10 percent  over                                                                   
     $20,000  for  the  first  year   of  implementation,  10                                                                   
     percent/15  percent the  second year  and finally to  15                                                                   
     percent/20 percent thereafter.                                                                                             
                                                                                                                                
     The  tax  will  be levied  only  against  income  earned                                                                   
     within  the state  of  Alaska.   House  Bill 138  allows                                                                   
     credits against the tax for:   (a) income sources earned                                                                   
     in other  states or territories,  (b) the amount  of any                                                                   
     real  and  personal  property  paid  to  a  municipality                                                                   
     within the state.                                                                                                          
                                                                                                                                
Number 2337                                                                                                                     
                                                                                                                                
REPRESENTATIVE  MOSES  said HB  138  brings  Alaska into  the  tax                                                              
picture where it was 20 years ago  when Alaskans paid a percentage                                                              
of  their   federal income  tax to  the  state.   He informed  the                                                              
committee that  a great portion  of the Alaskan  workforce, 70,000                                                              
workers, is nonresident.   It is his opinion that  they make money                                                              
but spend  as little  as possible  in the state  so that  they can                                                              
take money back  to wherever they originally came  from.  He noted                                                              
that nonresident  workers take $1  billion of non-taxed  money out                                                              
of the state.                                                                                                                   
                                                                                                                                
REPRESENTATIVE MOSES  explained that he had drafted into  HB 138 a                                                              
100 percent credit for personal property  tax so that nonresidents                                                              
would  bear  the  greater  impact  of HB  138.    Nevertheless,  a                                                              
nonresident  who  purchased  property  in  the  state  also  would                                                              
receive the  property tax  credit.  By  writing in a  property tax                                                              
credit,  he proposed to  encourage municipalities  to institute  a                                                              
property tax where they do not have one in place now.                                                                           
                                                                                                                                
REPRESENTATIVE  MOSES emphasized  that the  legislature has  to do                                                              
something to  raise revenue.  He  suggested that the  state cannot                                                              
continue to function without revenue,  and further delay will only                                                              
make matters  worse.   He prefers to  see both  HB 138 and  HB 137                                                              
move on to the Finance Committee,  hoping that that committee will                                                              
produce a  complete tax  package to  eliminate the deficit  facing                                                              
Alaska.                                                                                                                         
                                                                                                                                
Number 2483                                                                                                                     
                                                                                                                                
REPRESENTATIVE  MOSES mentioned  that in  1995 a nonpartisan  task                                                              
force had  recommended  that the legislature  reinstate an  income                                                              
tax.  He recognized that many people  other than nonresidents come                                                              
to Alaska with no  intention of staying; they want  to make a nest                                                              
egg and return  to their original homes; these people  do not want                                                              
to pay  taxes because it  reduces their  nest egg, and  neither do                                                              
they want to spend  money in the state, if at  all possible.  That                                                              
is his summary as he sees the situation in Alaska.                                                                              
                                                                                                                                
Number 2544                                                                                                                     
                                                                                                                                
REPRESENTATIVE  SMALLEY asked if  Representative Moses  had income                                                              
and  administrative  cost  projections  for  HB 138  to  show  the                                                              
committee.                                                                                                                      
                                                                                                                                
BRETT  FRIED,  Economist,  Division   of  Income  &  Excise  Audit                                                              
Division,  Department   of  Revenue   (DOR),  said  he   did  have                                                              
projections  for revenue  and costs  for HB 138,  although  it was                                                              
difficult to figure.   The DOR had arrived at a  revenue figure by                                                              
using  Internal   Revenue  Service  (IRS)  estimates   of  income,                                                              
gathered  from  tax returns  submitted  by  Alaskans to  the  IRS.                                                              
However,  the IRS  statistics of  income  data are  broken out  by                                                              
adjusted  gross  income  categories, not  federal  tax  liability,                                                              
which makes it difficult to project revenue forecasts.                                                                          
                                                                                                                                
MR. FRIED noted that one reason the  DOR experienced difficulty in                                                              
figuring  revenue  income  for HB  138  is  because  HB 138  is  a                                                              
graduated  income  tax  based on  federal  income  tax  liability.                                                              
Also, there  is no  method currently  available to match  property                                                              
tax and  personal income  tax.   Therefore, the  DOR had  used the                                                              
U.S. Census  Bureau figure of 67  percent home ownership  in order                                                              
to adjust revenues for the property tax credit.                                                                                 
                                                                                                                                
MR. FRIED  told members he envisions  the HB 138 tax  resulting in                                                              
$19.6 million of  revenue in fiscal year (FY) 2001.   For FY 2002,                                                              
FY  2003, and  FY 2004,  the DOR  estimates an  annual revenue  of                                                              
$54.9 million,  $86.2 million,  and $101.9 million,  respectively.                                                              
These revenue projections are based  upon a first-year tax rate of                                                              
5 percent, a  second-year tax rate of 10-15 percent,  and a third-                                                              
year tax  rate of 15-20  percent.  He  suggested that the  cost of                                                              
administering  HB 138 would  be about  $1.2 million for  operating                                                              
expenses in FY  2001; $2.6 million operating expenses  and capital                                                              
expenses  at  $2.2  million  in FY  2002;  and  $3.6  million  for                                                              
operating expenses  and $1.2 million capital expenses  in FY 2003.                                                              
There  would  only be  operating  expenses  of $3.5  million  each                                                              
fiscal year after FY 2003.                                                                                                      
                                                                                                                                
Number 2814                                                                                                                     
                                                                                                                                
REPRESENTATIVE KERTTULA  asked how HB 138 tax  percentages compare                                                              
with other states.  She said 20 percent is high, in her opinion.                                                                
                                                                                                                                
MR. FRIED replied that Rhode Island,  North Dakota and Vermont use                                                              
a percentage of the federal income  tax liability to collect state                                                              
income tax.   Vermont charges 25  percent state income tax  of the                                                              
federal  income  tax  liability,   and  Rhode  Island  charges  27                                                              
percent.                                                                                                                        
Number 2907                                                                                                                     
                                                                                                                                
CHAIR JAMES mentioned that Alaska's  tax percentage was 16 percent                                                              
at the time the  state income tax was abolished.   She said she is                                                              
not willing to move the bill today.  [HB 138 was held.]                                                                         
                                                                                                                                
TAPE 00-6, SIDE B                                                                                                               
                                                                                                                                

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