Legislature(2017 - 2018)HOUSE FINANCE 519
04/04/2017 09:00 AM House FINANCE
Note: the audio ![]()
and video ![]()
recordings are distinct records and are obtained from different sources. As such there may be key differences between the two. The audio recordings are captured by our records offices as the official record of the meeting and will have more accurate timestamps. Use the icons to switch between them.
| Audio | Topic |
|---|---|
| Start | |
| HB144 | |
| HB137 | |
| HB146 | |
| HB31 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HB 146 | TELECONFERENCED | |
| += | HB 31 | TELECONFERENCED | |
| + | HB 144 | TELECONFERENCED | |
| += | HB 137 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE BILL NO. 146
"An Act imposing a school tax on net earnings from
self-employment and wages; relating to a payment
against the school tax from the permanent fund
dividend disbursement; and providing for an effective
date."
9:41:52 AM
REPRESENTATIVE MATT CLAMAN, BILL SPONSOR, read the sponsor
statement:
Good morning members of the Committee, for the record,
my name is Matt Claman, and I am the State
Representative for House District 21 in West
Anchorage. I would like to thank you all for hearing
House Bill 146.
Alaska faces major financial challenges. Our goal in
proposing House Bill 146, a School Tax, is a
responsible action plan to meet those challenges. The
Alaska Constitution, Article VII, Sec. 1 requires the
legislature to "establish and maintain a system of
public school." The public supports a strong public
school system, and an investment in our students is an
investment in our future.
When asked about the possibility of a broad-based
school tax, many people wanted to know what such a tax
would look like. The School Tax in HB 146 sets a tax
based on adjusted gross income on federal tax returns
for every person who earns income in Alaska. All
Alaskans and out-of-state residents who work in Alaska
would help solve our financial challenges. The minimum
tax would be $100 a year, for those who make $20,000
or less. In this way, the school tax is similar to the
school head tax-everyone contributes. The tax then
increases on a graduated scale based on income. Those
making between $50,000 and $75,000 a year would pay a
school tax of $750. The revenue collected from the
school tax would be designated to support public
education in Alaska. It is not a dedicated tax fund,
which would violate our constitution. (Because it is
well below the budget amount, there would be no need
to argue the designation as well.)
The values of the tax range from 1% in the lowest
bracket to 3.4% at the uppermost bracket. There is
also a cap on the uppermost level, allowing the
highest earners to reinvest in the economy and support
a positive investment climate.
We based our values off a $1000 permanent fund
dividend. Everyone is able to contribute, while
individuals who depend on the PFD still receive a
reasonable portion. To make payment of the tax simple,
the bill includes a provision allowing use of future
Permanent Fund Dividends to pay the tax.
I would like to close by saying that this school tax
bill responds to public concern about the funding of
education in challenging times. It is a transparent
way to produce new revenue and create a responsible
action plan for Alaska. At full implementation, the
school tax bill is projected to raise $540 million-
approximately one third of the state funding for
education. We believe that if the public has a more
direct investment in funding education, they will
become more involved in the education that we deliver.
The school tax is not a proposal to increase education
funding. The intent is to raise revenue to help close
the budget deficit, designate those funds to support
education, and reduce the undesignated general fund
appropriation for education on a dollar-for-dollar
basis.
9:44:49 AM
OWEN PHILLIPS, STAFF, REPRESENTATIVE CLAMAN, noted that the
only change between the sponsor substitute and the original
bill was in the title. He relayed that the old title did
not include out-of-state residents or specify income.
Mr. Phillips reviewed the sectional analysis:
Section 1:
Section 2: AS 43.45.011 School tax imposed; payment by
dividend:
Adds new chapter: Chapter 45. School Tax.
Adds new section AS 43.45.011:
a) Tax imposed on adjusted gross income (AGI) of:
(1) residents and (2) non-residents with income
from in-state source
b) Lists tax liability for individuals based on
tiered AGI levels
c) Stipulates that
(1) the AGI of
(A) a resident is the total AGI of the
resident
(B) a nonresident or part-year resident is
the amount attributable to a source in the
state
(2) the DOR shall assess the tax due on the AGI
of
(A) individuals, for individual returns
(B) 2+ individuals for joint filing
(including dependents)
(C) individual, if return is not filed
d) Tasks the DOR with adopting procedures to
allow use of PFD to pay the school tax,
including refunding amounts exceeding the
tax
e) Defines regulations for the tax payer
f) The department shall adopt regulations:
(1) Delinquent payment annual interest
rate is 18%
(2) Establish fee of up to $2,500 for
the cost of collecting delinquent tax
(3) Allow for a 90-day extension past
due date (at the DOR's discretion)
(4) Determine AGI subject to tax for
joint filers if one of the filers is
not a resident of the state
g) Tax penalties shall be deposited
into the general fund
h) "adjusted gross income" has the
meaning given in 26 U.S.C. 62
Section 3: Uncodified Law: Amended: REGULATIONS. DOR
may adopt regulations to implement section 2
Section 4: Effective Date: Section 3 - Immediately
Section 5: Effective Date: All other sections - Jan 1,
2018
Mr. Phillips delineated that the effective date in Section
5 included the tax component of the bill.
9:48:10 AM
Co-Chair Seaton cited page 2, line 26 and read the
following:
…an individual if the individual does not file a tax
return…
Co-Chair Seaton wondered how adjusted gross income was
determined for someone who did not file a federal tax
return. Representative Claman responded that the provision
would be subject to Department of Revenue (DOR)
regulations.
Representative Guttenberg asked what the House Education
Committee's feedback or actions were regarding the bill.
Representative Claman responded that there were no
amendment made in the education committee.
9:49:26 AM
Representative Pruitt mentioned that another revenue
measure was being considered in the House. He asked whether
the bill would be an addition to an income tax.
Representative Claman responded that the legislation was
intended as an alternative to an income tax. Representative
Pruitt asked whether the bill was another version of an
income tax. Representative Claman responded in the
negative. He clarified that the school tax combined a
capped head tax with graduated rates between the low and
high ends of income. He delineated that the tax included a
mandatory minimum on the low end and a cap on the maximum
payment and was not considered an income tax.
Representative Pruitt countered that the tax fell within
the definition of an income tax but included the language
that the revenue "may" be appropriated for education. Rep.
Claman declined to "argue the policy question."
Representative Grenn cited page 2, lines 4 through 13 of
the bill. He asked what formula was used to create the
income brackets. Representative Claman replied that he
began with the premise to establish a minimum tax, from the
desire that everyone should be part of the solution. He
assumed that based on a $1000 PFD (Permanent Fund Dividend)
it was reasonable to request a $100 minimum payment. The
other brackets were developed similarly; with the
consideration that, certain income levels should receive a
certain portion of their income and retain the ability to
also contribute above the limit. He considered "economic
levels of income at which the statistical likelihood that
the PFD was critical to their family economics became less
important."
9:52:33 AM
Representative Wilson asked about using a percentage of
income versus a flat fee. She provided an example from the
tax brackets. Representative Claman responded that the goal
of the bracket fees was to create clarity and make it
easier for the public to understand what they were expected
to pay versus calculating percentages. He agreed that by
using step increments a taxpayer at the lower limits of a
higher bracket would pay much more in relation to the
previous bracket versus using a percentage of income but at
the expense of clarity and a straightforward approach.
Representative Wilson asked whether the representative had
information regarding the "correlation between the public
paying the fee and how it would impact what was happening
in the schools." Representative Claman did not understand
her question. Representative Wilson wondered if he had
accessed information from other states that employed a
similar tax on correlation between the tax and educational
outcomes. Representative Claman responded that that he
concluded from anecdotal information that the community
felt that the more they invested in education the more they
would become interested in outcomes. Representative Wilson
did not agree because the system was not the same for all;
not all children go to public school and she doubted the
correlation. She asked for further data from other states.
Representative Claman remarked that no other state had a
school tax similar to the proposal in HB 146 and doubted he
could provide any further information. He believed that all
segments of the community were concerned about how the
state invested in public education.
9:56:26 AM
Vice-Chair Gara thanked the sponsor for introducing the
bill. He asked whether Rep. Claman supported an alternative
way to raise revenue without taxing the PFD as part of
income. Representative Claman replied that the PFD was
included in adjusted gross income on the federal level. He
expressed concerns about complicating the bill for the
public as exceptions and "layers" were added. Vice-Chair
Gara asked whether the income and tax levels in the bill
were adjusted over time. Representative Claman wondered if
he was asking about inflation adjustments. Vice-Chair Gara
responded affirmatively. Representative Claman answered in
the negative.
Co-Chair Foster noted Representative Thompson had joined
the meeting.
Vice-Chair Gara asked whether single and joint tax payers
with or without dependents all paid the same tax.
Representative Claman responded that the tax was based on
the return versus on an individual basis.
9:59:22 AM
Co-Chair Seaton referred to page 2 lines 26 through 30 and
read the following:
(C) an individual, if the individual does not file a
federal income tax return.
(d) The department shall adopt regulations
establishing procedures for an individual eligible for
a dividend under AS 43.23.005 to direct the department
to hold all or a part of the amount of the dividend to
pay the tax due under this section.
Co-Chair Seaton asked whether an individual who did not
file income tax had an adjusted gross income and wondered
how much money would be generated under the $100 minimum
tax from individuals who only get a PFD for income purposes
and do not file a federal form. Representative Claman
responded that the fiscal note was prepared by the
department using proprietary information regarding how many
tax returns were filed for each income bracket. He deferred
to DOR for additional information. He furthered that the
department had information regarding who filed for a PFD.
Therefore, it would be known to the department if a person
had not filed a tax return but filed for a PFD.
10:01:59 AM
Representative Wilson ascertained that the state would take
$100 minimum tax from everyone even children.
Representative Claman answered that it depended on how the
family chose to manage their children's PFD income. He
furthered that if parents included their children's PFD
income on their return the only school tax due was based on
the parent's tax return. Representative Wilson responded
that the bill did not reference tax returns; only adjusted
gross income. Representative Claman pointed to page 2,
lines 24 and 25 and read the following:
(B) two or more individuals, including dependents, if
those individuals file one federal income tax return
together;
Representative Claman specified that the language applied
to the scenario in question. Representative Wilson
referenced page 2, lines 26 and 27 and read the following:
(C) an individual, if the individual does not file a
federal income tax return.
Representative Wilson guessed that most individuals not
filing had a disability or incomes so low they were not
required to file a return and would be difficult to track
if not for the PFD data base. She deemed that individuals
who did not file a return or file for a PFD would be
"almost impossible" to track. Representative Claman was
unfamiliar with the area of tax law she was discussing
regarding disability benefits. He agreed that it would be
arduous to find people who did not file a return or file
for a PFD.
10:05:07 AM
Representative Pruitt asked whether the intent was for the
PFD to pay the tax or if an individual would "write a
check," since there was no withholding of funds.
Representative Claman replied that a payroll tax component
was not included to minimize the administrative expense. He
explained that non-payment of the tax was subject to a high
interest rate (18 percent) and fines up to $2.5 thousand to
incentivize timely payment for those in the higher income
brackets. He wanted the tax collected once a year to
provide an easier administrative process for the state. He
envisioned that the tax could be paid for with the PFD for
tax payers in lower income brackets. The goal was to
fashion the tax similar to a property tax. Representative
Pruitt thought that the assumption was made that people
could manage their money to have enough when the payment
was due. He thought a yearly payment was challenging for
people who didn't budget their money adequately.
10:08:36 AM
Vice-Chair Gara recognized that there were several
different policies under consideration. He liked that the
bill clearly defined how much people would be taxed versus
a tax based on percentages. Representative Claman provided
an example from personal experience to illustrate how the
fees and penalties would encourage payment compliance. He
hoped that the department would graduate the fines so that
those that owe more paid higher fines. He voiced that
collection issues occurred for any tax.
10:10:34 AM
Co-Chair Seaton asked Mr. Alper about the administration of
the tax and wondered whether the bill provided enough
guidance.
10:10:55 AM
KEN ALPER, DIRECTOR, TAX DIVISION, DEPARTMENT OF REVENUE,
explained that the bill had a blanket authorization to
write regulations. He stated that many technical issues
were not addressed in the bill but could be dealt with in
regulation. He spoke to the issue of non-resident income
generated in the state and requested more definition and
additional language should the bill advance in the
legislative process. He believed that lawsuits would ensue,
if the bill was adopted, regarding what was effectively
definable through regulation versus statute. He noted that
enough guidance was contained in the bill concerning tax
forms, tax rates, and defining tax payers. The department
would fill in the details through regulations.
Co-Chair Seaton reiterated his question regarding page 2,
line 26 of the bill, dealing with an individual who did not
file a federal tax return but had adjusted gross income. He
asked how the department would administer the tax to
Alaskan residents. Mr. Alper guessed that all PFD
recipients not included in a filed tax return would owe the
$100 minimum tax. The threshold for a larger household
exempted from filing a tax return was under $20 thousand;
and these households could fall under the higher $250 tax.
He surmised that the department would rely on the 1040 form
for the administration of the tax and added that a process
would be necessary to identify non-filers.
10:14:42 AM
BRANDON S. SPANOS, DEPUTY DIRECTOR, TAX DIVISION,
DEPARTMENT OF REVENUE (via teleconference), noted that each
year, there were certain individuals that just refused to
file a tax return or did not for other reasons. However,
employers were required to file a W-2 that would act as
documentation of income for the department. The department
would use the W-2 information in coordination with the
Internal Revenue Service (IRS) to determine assessments.
10:15:49 AM
Co-Chair Seaton referenced the following language on page
2, lines 1 and 2 and page 2, lines 20 through 27 of the
bill:
(1) resident individual; and
(2) nonresident and part-year resident individual with
income from a source in the state.
(2) the department shall assess the tax due on the
adjusted gross income of
(A) an individual, if the individual files a
federal income tax return only on the
individual's own behalf;
(B) two or more individuals, including
dependents, if those individuals file one federal
income tax return together;
(C) an individual, if the individual does not
file a federal income tax return.
Co-Chair Seaton queried whether the language ensured that
the tax was applied to tax returns and not each individual
included in the tax return. Mr. Alper interpreted that the
first section allowed a joint filer to pay a single
household tax. He surmised that DOR would interpret the
language in the same manner.
Mr. Spanos added that federal rules required that a child
file their own return in some cases. He thought further
definitions would be beneficial clarifying when the state
would also require a dependent to pay their own school tax.
10:18:56 AM
Representative Guttenberg referred to line 2, page 2 and
inquired how crew shares fit into the definition of income.
He thought that the bill gave the department "a lot of
leeway to make decisions and write regulations." Mr. Alper
suggested that DOR would have to craft regulations
specifically for S Corporations, partnerships, sole
proprietorships, and contract work. He furthered that crew
shares qualified as a 1099 contractor when received for
work done in Alaska or paid by an Alaska owned business.
The department would have the non-resident crew member's
tax information, apply formulas from regulation to
determine the Alaskan portion of the adjusted gross income
for tax assessment purposes. He reiterated that the
question was whether the regulation language could
withstand a court challenge. Representative Guttenberg
wondered if the division would have enough authority and
guidance to make the decisions required to write the
regulations. Mr. Alper replied that enough guidance
existed, but he was uncertain whether DOR had the legal
authority. He wanted to consult with the state's attorneys.
He cautioned that taxes were prohibited from being imposed
via regulation and he was uncertain how specific the
regulations could be written.
10:22:08 AM
Co-Chair Seaton referred to Page 2, lines 12 and 13 of the
legislation and read the following:
(8) $200,000 or more, but less than $250,000, the tax
is $6,500 a year;
(9) $250,000 or more, the tax is $8,500 a year.
Co-Chair Seaton asked whether someone who made $5 million
per year would pay $8.5 thousand in tax. Representative
Claman confirmed that the statement was correct. Co-Chair
Seaton inquired if an individual with income at $251
thousand would pay $2 thousand more than an individual with
income of $248 thousand. Representative Claman answered in
the affirmative.
Vice-Chair Gara favored the provision that the revenue
would be deposited in the Education Fund. He noted that the
language in the bill used the word "may" versus "shall" due
to the constitutional prohibition on dedicated funds.
Representative Claman confirmed that the statement was
correct.
Co-Chair Foster OPENED Public Testimony.
10:23:42 AM
PAUL KENDALL, SELF, ANCHORAGE (via teleconference),
provided public testimony. He favored an "open" discussion
regarding the bill. He spoke against using property taxes
to pay for any public employee's salaries or compensation.
He spoke to items and beliefs outside of the context of the
legislation.
Co-Chair Foster interrupted to clarify that public
testimony was being heard on HB 146. Mr. Kendall continued
to provide testimony unrelated to HB 146.
Co-Chair Foster CLOSED Public Testimony.
HB 146 was HEARD and HELD in committee for further
consideration.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB144 Legislative Audit.pdf |
HFIN 4/4/2017 9:00:00 AM |
HB 144 |
| HB144 Sponsor Statement.pdf |
HFIN 4/4/2017 9:00:00 AM |
HB 144 |
| HB144 Supporting Letters 032817.pdf |
HFIN 4/4/2017 9:00:00 AM |
HB 144 |
| HB146 Opposing Documents 3.27.17.pdf |
HFIN 4/4/2017 9:00:00 AM |
HB 146 |
| HB146 Opposing Document 3.27.17.PDF |
HFIN 4/4/2017 9:00:00 AM |
HB 146 |
| HB146 Sectional Analysis ver O 3.27.17.pdf |
HFIN 4/4/2017 9:00:00 AM |
HB 146 |
| HB146 Supporting Documents 3.27.17.pdf |
HFIN 4/4/2017 9:00:00 AM |
HB 146 |
| HB146 Sponsor Statement 3.27.17.pdf |
HFIN 4/4/2017 9:00:00 AM |
HB 146 |
| HB 31 Amendment 1.PDF |
HFIN 4/4/2017 9:00:00 AM |
HB 31 |
| Testimony Jayne HB 144 April 3.pdf |
HFIN 4/4/2017 9:00:00 AM |
HB 144 |
| HB31 - Supporting (040617).pdf |
HFIN 4/4/2017 9:00:00 AM |
HB 31 |