Legislature(2015 - 2016)BARNES 124
02/13/2016 10:00 AM House LABOR & COMMERCE
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| Audio | Topic |
|---|---|
| Start | |
| HB248 | |
| HB252 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 159 | TELECONFERENCED | |
| += | HB 194 | TELECONFERENCED | |
| += | HB 248 | TELECONFERENCED | |
| += | HB 252 | TELECONFERENCED | |
HB 248-ELECTRONIC TAX RETURNS & ALCOHOL TAX
10:02:53 AM
CHAIR OLSON announced that the first order of business would be
HOUSE BILL NO. 248, "An Act requiring the electronic submission
of a tax return or report with the Department of Revenue;
relating to the excise tax on alcoholic beverages; and providing
for an effective date."
CHAIR OLSON opened public testimony on HB 248.
10:03:20 AM
SASSAN MOSSANEN, founder of the Denali Brewing Company, informed
the committee that his brewery is located in the Matanuska-
Susitna Borough, and began production in 2009. In seven years
the brewery has undergone five expansions to a 35,000 square
foot building and to twenty-five year-around employees. The
brewery's growth was supported by its employees, partners, and
the willingness of the local lending institution. Mr. Mossanen
explained that the price of beer is set by outside influences
and by the high cost of producing beer in Alaska. Denali
Brewing's growth has been good for employment and for local
business, but the business is in a fragile position. He said a
small increase in price could lead his customers to purchase
beverages produced outside of Alaska, or to lower quality
products. In that case, the ability of the business to create
jobs and invest in the community would be diminished, and its
ability to make beer threatened. The current $0.35 excise tax
is among the highest in the nation and an increase would
directly affect his ability to stay in business.
10:06:05 AM
BILL FRY said he and his wife own and operate Bear Creek Winery
in Homer. The winery opened 12 years ago and last year sold
over 92,000 bottles. Mr. Fry employs between 8 and 15 employees
and now has a new bottling plant, warehouse, event pavilion, and
large freezer. The winery purchased over 37,000 pounds of
Alaska fruit and berries grown in Cantwell to Southeast, and
buys from villagers and Native corporations, spending $55,000 on
Alaska fruit. He pointed out that unlike Alaska breweries,
wineries use more than just local water, but purchase local
ingredients. He said he wants to pay a fair share to balance
the budget, and agrees with the governor's plan; in fact, he is
not opposed to the bill if it is amended to provide wineries,
distilleries, and distributors the same exemption as is afforded
to breweries. Currently, the bill directs wineries to pay $5
per gallon and the breweries pay $0.70 per gallon. Wineries
cannot raise their prices to cover this increase, as making wine
from Alaska ingredients is expensive; his business also uses
American-made bottles, corks, and labels. Without the
exemption, his options would be to buy berries from Canada and
Oregon, cut back on employees, expansion, and capital projects,
or buy Chinese bottles. Mr. Fry added that over 2 million
gallons of wine was imported into Alaska last year, which
contributed $5 million in excise tax, and 18,000 gallons of wine
from his winery contributed $45,000 in excise taxes, mostly paid
by his distributor. Distributors should also be given an
exemption for Alaska-made products. Mr. Fry urged for the
committee to extend the exemption or remove it.
10:09:29 AM
STEPHEN GERTEISEN said he is the founder of Arkose Brewery in
Palmer. Arkose Brewery has been in business for five years and
manufactures beer in Palmer. The brewery is set to expand in
the spring and add full-time employees. Although in support of
balancing the budget, and doing its fair share, successful
manufacturing businesses in Alaska are rare, and breweries,
wineries, and distilleries are already contributing by creating
jobs and products. Furthermore, in the summer tourists come to
visit the brewery. In order to continue to expand production,
he said he is opposed to the bill because the increase is a
burden.
10:12:05 AM
JEANNE KITAYANA, co-owner, Haines Brewing Company, said she is
greatly concerned with HB 248's impact to small businesses. A
successful manufacturing business in a small rural community
already is economically burdened with availability and the
shipping costs of shipping in raw materials, and shipping out
final products. A small population will only support a small
profit margin, and the proposed additional taxes will work
against economic development in Alaska communities. Small craft
breweries are based on community support and hometown loyalty.
Recently, Haines Brewing Company moved to a new building on Main
Street, which is a sign that Haines is progressing with its
downtown revitalization movement. Community support has
encouraged further business development, and she asked the
committee to refrain from hindering small business in Alaska.
10:14:11 AM
GARY SUPERMAN, board member, Alaska Cabaret, Hotel, Restaurant
and Retailers Association (CHARR), and owner of the Hunger Hut
bar, motel, and liquor store, said he did not agree with the
governor that the proposed increase is reasonable. In 2002 and
2003, the industry fought a previous tax increase that doubled
the tax. Mr. Superman directed attention to a spreadsheet in
the committee packet illustrating taxation levels across the
nation. After thirteen years, Alaska taxes are already above
those of other states. Although many states have raised their
taxes, they are not nearly as high as Alaska's level. The
enactment of this bill will have a stifling effect on his
businesses; he has nine employees and built a new store. He
tries to be competitive, which is difficult in his area. Mr.
Superman opined the industry cannot absorb this increase and
remain viable; his bar is losing profits and patronage for a
variety of reasons, and some of the local pubs will close. In
addition, he will not continue to stock local wine because it
will no longer be competitive. There is a negative impact
"across the board," and he expressed his hope that the
legislature will not support the bill.
10:17:51 AM
BILL HOWELL said he was representing the consumer of Alaska. He
has been a resident of Sterling for twelve years and is retired,
and teaches as adjunct faculty at Kenai Peninsula College.
Proposed HB 248 would double the existing excise tax rates on
alcoholic beverages in Alaska, which are already some of the
highest in the U.S. Currently, the state collects almost $40
million per year from taxes paid by the citizens of the state;
producers, distributors, and retailers of beer, wine, and
spirits will pass the cost of the tax along to end-consumers.
He said the governor is directly targeting the tax at Alaskans,
who are already paying their fair share. Mr. Howell questioned
why the liquor industry and consumers are singled out, and
suggested that all taxes should be doubled. He agreed that new
sources of revenue need to be found, after cutting out another
$1 billion from the state budget, including cuts to education
and health care. Mr. Howell said the source of new revenue
should be a statewide sales tax, and restated his opposition to
the bill.
10:21:21 AM
CHRYSTAL SCHOENROCK said she is a member of CHARR and the
secretary of the Kenai Peninsula CHARR; she also owns the
Forelands Bar and Liquor Store in Nikiski. She said Alaska is
about the "second largest taxed state," and she has laid off
employees and cut employees' hours due to layoffs in the
industry on the North Slope. Ms. Schoenrock said she felt that
if workers on the North Slope can take a cut in pay so should
the governor. She said she could not afford the tax as she does
not have many customers, and urged that the legislature "find
another way."
10:23:12 AM
CARMEN LUNDE, Director, Kodiak CHARR, said the liquor industry
has previously had its taxes raised by 300 percent and the last
tax increase put Alaska by far as the highest-taxed state on
alcohol. The industry already contributes heavily to the
state's tax base - approximately $40 million per year - and the
hospitality industry should not pay more. The tax proposal is
for $0.10 per drink, which would bring the tax on a gallon of
spirits to $25.60, on a gallon of wine to $5, and on a gallon of
beer to $2.40. Ms. Lunde characterized the tax proposal as
outrageous. She is aware of the $3.5 billion deficit and urged
that other avenues should be explored, such as cuts to
government and spending, and revisiting tax cuts for oil. She
said she is in favor of a state lottery, and opposed to
"touching the permanent fund."
10:25:21 AM
CLAY MURPHY said he a 35-year Alaska resident and has lived and
worked all over the state. He said he is adamantly opposed to
the alcohol tax because all businesses and restaurants will pass
the cost of the tax along to consumers; in fact, Alaskans would
be "double-taxed" by the actions of their governor and
legislators. The bill will hurt small business and he urged for
a focus on the budget during this crisis. Mr. Murphy said he
was pleased with the focus on the budget by the Alaska House of
Representatives. He said the tax has been introduced as an
afterthought without previous notice to the public.
CHAIR OLSON advised that legislation is posted on the committee
web site.
MR. MURPHY asked what the money will be used for and how much is
expected to be generated for each purpose. He cautioned that
increased taxes will become a steamroller and urged that
legislators consider the harm to individuals and businesses. In
addition, he urged for further cuts to agencies which can be
done without harm to the residents of Alaska because of the way
money is spent by state agencies. His experience is that when
business revenues have decreased, cuts have to be made, and it
is not right to hurt businesses without further cuts to
agencies.
10:29:19 AM
TIFFANY HALL, executive director of Recover Alaska, said she was
calling from Seattle, but lives in Anchorage. She informed the
committee that Recover Alaska is a multi-sector action group
working to reduce the harm caused by excessive alcohol
consumption throughout the state. Increasing the existing
alcohol excise tax will generate much needed revenue for the
public services which rely on state general funds (GF). In this
way, the tax functions as a revenue diversification strategy,
and also supports long-standing public health and safety
objectives. Additionally, an increase in the alcohol tax has
been shown to reduce alcohol consumption, which will also save
money as the cost of alcohol abuse in Alaska causes a loss of
productivity, health care costs, traffic crashes, criminal
justice costs, and protective services costs, totaling over $1.2
billion. An increase in the tax will also save lives, improve
the health of babies, and reduce underage drinking. In 1983 and
2002, statewide alcohol tax increases were followed by 29
percent and 11 percent decreases in the number of alcohol-
related deaths. There were also reductions in the amount of
binge drinking during pregnancy, and in youth alcohol
consumption. Increases to state excise taxes on alcohol have
been recommended by the Surgeon General of the U.S., the
Institute of Medicine, the American Medical Association, and the
Community Prevention Services Task Force due to research which
indicates that increased alcohol excise taxes lead to decreases
in alcohol-related deaths, traffic crashes, violence, crime, and
child abuse. Negative impacts of alcohol abuse cost the state
over $1 billion per year, and increasing the tax will help
bridge the fiscal gap by reducing costs and generating revenue;
an increase in the tax will decrease consumption and save lives
in Alaska. She urged the committee to pass the bill. Ms. Hall
offered to provide written comments that will include sources to
verify her spoken testimony.
10:32:54 AM
The committee took an at ease from 10:32 a.m. to 10:33 a.m.
10:33:07 AM
MICHAEL JEFFERY said he was speaking on his own behalf. He
provided a brief background, noting that he was the superior
court judge in Barrow for 32 years and prior to that a legal
services attorney. He is now retired, and is not speaking on
behalf of the court system. Mr. Jeffery expressed his strong
support for HB 248, and his agreement with the comments of Ms.
Hall. He pointed out the cost of alcohol abuse in 2010 of $1.2
billion was due to loss of productivity, health care costs,
crashes, criminal justice, protective services, public
assistance, and social services. Evidence-based research
supports increases in state excise taxes on alcohol in order to
raise revenue, and reduce heartache all over the state. He
recalled that Barrow went dry for a period of time, and when
residents were allowed to bring alcohol back in, the crime rate
doubled, which is an example of the harm that alcohol can cause.
He acknowledged the concern of business owners in the industry,
but alcohol-related crimes and suicides are beyond price. There
should be support for a program that can raise money for
services including domestic violence shelters, early childhood
education, and treatment for substance abuse and mental health,
while also allowing people to use alcohol. The cost over the
lifetime of one child severely affected by fetal alcohol
spectrum disorder can be $1 million to $2 million; binge
drinking by moms is identified as a cause of this condition.
Mr. Jeffery expressed his support for HB 248.
10:37:38 AM
LARRY HACKENMILLER, Secretary, Interior CHARR, stated his
opposition to HB 248, which doubles the alcohol tax for the
purpose of closing the budget gap. He said according to the
Department of Revenue, the last major tax [increase] was in
2002, and also created the [Alcohol and Other Drug Treatment &
Prevention Fund Authority], in which 50 percent of the alcohol
taxes were to be deposited and used for mental health budget
code 1180. He said $20 million went to the alcohol and other
drug treatment fund, and questioned how much money was directed
to alcohol treatment and prevention, and how much to other drug
abuse treatment and prevention. The bill would double the tax
on alcohol consumers, so half of the money goes to prevention
programs for drugs other than alcohol. Mr. Hackenmiller said if
money is dedicated to the treatment of other drug abuse, the
additional tax is punitive against an alcohol consumer, and is
discriminatory. He directed attention to page 11 of the
document entitled, "New Sustainable Alaska Plan, Alcoholic
Beverage Tax HB248," and said he did not see any new revenue
estimated from marijuana, and expressed his belief that the
state was going to make money in taxes from marijuana and, if
so, he suggested that marijuana users should pay the $20 million
to the mental health budget code 1180. This would lift the
burden from alcohol consumers. Mr. Hackenmiller said the
additional $40 million in the new revenue component coming from
the new alcohol tax is incorrect because the increase to the
general fund is only $20 million, as the other $20 million is
dedicated to expenditures; depositing $20 million into the
mental health budget code 1180 will increase government spending
for office space, computers, copy machines, employees, and new
programs. He advised that the state budget needs to be
decreased first, and there are more spending reductions to be
found, and more dedicated funds. The alcohol tax is a punitive
tax and should not be considered in the budget gap proposal;
unless the budget is decreased to a sustainable budget, the
state will revisit taxes again in the near future.
10:41:00 AM
ROBERT MCCORMICK said he works at Glacier Brew House and Orso,
serves on the board of Alaska CHARR, and is the treasurer of the
Brewers Guild of Alaska. Mr. McCormick acknowledged the need to
find new sources of income for the state, but the sources need
to be broad-based, so everyone pays, and on services and
products that are taxed less in Alaska than in other states.
In Alaska, the taxes on spirits are the second-highest, the
highest on wine, and the second-highest on beer in the nation.
Mr. McCormick said he is also concerned that Alaskans will buy
alcohol from other states online, and the tax will make that
option more attractive. In addition, illegally importing
alcohol will be more lucrative and tempting. Brewing is one of
the few manufacturing industries that is growing in Alaska; the
number of brewers has grown from less than a dozen to over 20 in
20 years. He pointed out that the state would not double taxes
on the oil industry. Brewers do not receive incentives from the
state, and do not receive tax credits. He restated his
opposition to HB 248.
10:43:35 AM
KIRSTEN MYLES, executive director, Cook Inlet CHARR, said she
represents the food and beverage retailers in Anchorage, who are
opposed to HB 248. She stressed that the proposed alcohol tax
would put Alaska's taxes at five to eight times the national
average; although all industries are needed to bring in revenue,
an increase of this size targeted at one industry is ridiculous.
10:44:54 AM
DARWIN BIWER said he owns Darwin's Theory, a small bar in
downtown Anchorage, and is the chair of the board for statewide
CHARR. He referred to the last tax in 1971-1972, which
established a treatment program, and questioned what happened to
the money and why it didn't solve all of the health problems.
Also, he said he could not raise his prices by $0.10 per drink,
but would have to raise the price by $0.25 at a time; the
proposed tax is an increase at the retail level and an increase
to the consumer. Mr. Biwer said when prices go up consumers
will drink a cheaper beer and not Alaska products, which are
more expensive, thus Alaska brewers, wineries, and distillers
will be hurt by the tax.
10:47:09 AM
DON GRASSE said he is the president of K and L Distributors in
Anchorage, which employs over 200 Alaskans and has been in
business in the state since 1940. He expressed his company's,
and the industry's, disappointment with the governor, his
administration, and the proposed alcohol tax. Many in the
industry contacted the governor and his staff prior to the
release of the bill and pointed out how high the alcohol taxes
are in Alaska, and how little revenue would be raised. When the
proposal is compared to doubling the gas tax, which is 50th in
the nation, the gas tax would be $0.24, and the national average
is $0.30. The fishing tax is proposed to increase by 1 percent
and the mining tax is proposed to increase 2 percent, and
cigarette taxes would be 8th in the nation. Mr. Grasse said the
alcohol taxes are out of step with all of the other proposals by
the governor. The actual cost to consumers will be much greater
than $0.10 per drink and in many cases the costs of goods will
increase by more than 20 percent to a consumer. Mr. Grasse said
the hospitality industry has the potential to grow, but will be
stifled by the proposed taxes. He expressed his hope that the
legislature will see that the alcohol tax is not the solution
for the state's problems.
10:50:04 AM
MATT TOMTER said he owns the Eagle River Alehouse and the Palmer
City Alehouse, two restaurants that employ between 90 and 120
people per year. He informed the committee that the industry
has faced the following challenges in the past 12 months: an
increase in the minimum wage of $2 per hour which increases his
cost by $100,000 per year; Affordable Care Act of 2010 (ACA)
requirements, the cost of which are unclear, except it will cost
$90,000 to $160,000 per year to provide insurance to everybody;
and an increase in alcohol taxes. He said he sells about 3,800
kegs of beer per year, and the increase in cost that will be
passed along to consumers is significant. Taking in all of
these factors, in 2016 and 2017 his operational costs will be
raised by over $250,000 per year. Mr. Tomter said, " ... at
some point there's a breaking point on how much we can charge
for a burger." He warned that when people can't afford the
prices they will stop supporting the food and beverage industry,
which is a primary employer on the road system. He wants to
stay in business and said he is opposed to the increase in
alcohol tax.
10:52:39 AM
JOEL KADARAUCH said he represents the Odom Corporation and the
Alaska Wine and Spirits Wholesale Association. Odom Corporation
has been in business locally for eighty years and employs over
four hundred Alaskans, 98 percent of which hold full-time jobs
with benefits. He said if selective tax increases are to be
part of the solution to the state's deficit, the current tax
burden should be recognized: Alaska's alcohol excise taxes were
tripled in 2002, and became the highest-taxed state in the
nation in wine, beer, and spirits, and remains the highest in
two categories. He directed attention to three graphs provided
in the committee packet which represent this tax burden, and
depict where Alaska would rank should HB 248 become law: seven
times the national average for beer, six times the national
average for wine, and five-and-a-half times for spirits
[documents not provided]. While the total per-capita tax burden
is the lowest in the nation, there is no other industry in
Alaska that carries a disproportionately high tax burden. A
broad-based approach is onerous and inequitable. Secondly, the
contribution of HB 248 to state revenues would be $20 million to
unrestricted general funds, which is a minimal deficit
reduction. Mr. Kadarauch summarized that he and those he
represents are strongly opposed to the bill.
10:55:24 AM
MIKE COONS stated his opposition to HB 248. He said he was a
retired paramedic and has seen abuse and addiction. Mr. Coons
said he opposes all sin taxes and the consequences thereof, and
that he has provided further details in written testimony.
Section 3 of HB 248 shows a 100 percent increase in sin tax on
all alcohol products, except for homebrew. He cautioned that if
the bill is enacted, bootlegging in dry villages will increase.
The socialist-liberalist's stated goal is to make a product so
expensive that users will stop buying a product; however, in his
experience, those with an alcohol addiction will buy homebrew,
and "beg on the street corner ...." Mr. Coons advised that the
result of sin taxes is that state and local governments get
money for the general fund, and some money may go for
rehabilitation efforts, but most of the taxes are used for
bloated local and state government. He opined that sin taxes on
alcohol, cigarettes, and gasoline are really a means to attack
users of a product, and fund the progressive goals of big
government. Mr. Coon said the tax will be paid for "by the
responsible users in the neighborhood of 90 to 95 percent, and
to the addicts, maybe 5 percent, maybe 10 percent." He
concluded that the tax will not help alcoholism, homelessness,
or reduce driving under the influence (DUI) violations.
Referring to earlier testimony, he said he was totally against
lotteries. The bill punishes responsible adults but does not
contribute to a sustainable budget.
10:59:50 AM
MICHELE SHAPIRO, Director, Mat-Su CHARR, said she was speaking
on behalf of restaurants, bars, and package stores in the
Matanuska-Susitna Borough. Hospitality members in the Mat-Su
Borough are strongly opposed to HB 248, and she reiterated
previous testimony that Alaskans pay the highest alcohol tax in
the nation already, which is a heavy burden for one industry to
bear.
11:00:56 AM
KATE BURKHART said she is the Executive Director of the Advisory
Board on Alcoholism and Drug Abuse, and of the Alaska Mental
Health Board, which are the state planning councils for
behavioral health, and her comments are on behalf of the boards.
Ms. Burkhart said she has also provided written comments to the
committee in support of HB 248. She encouraged the committee
to consider the bill as part of the larger attempt to solve the
state's budget problems, along with reduced spending, reforms to
contain costs, and efforts to generate revenue. Ms. Burkhart
referred to criminal justice reform that will succeed only if
the state has a robust community health and social services
sector. This is a multi-dimensional problem that requires a
multi-dimensional solution; it is important to consider the bill
in the context of similar legislation. She urged the committee
to refer to her written comments for further details on issues
related to HB 248.
REPRESENTATIVE JOSEPHSON expressed his understanding that HB 248
would double the amount that goes into the Alcohol and Other
Drug Treatment & Prevention Authority fund.
MS. BURKHART said the governor's intention is to follow the
current practice of putting one-half of the excise tax into the
Alcohol and Other Drug Treatment & Prevention Authority fund,
and one-half into GF.
REPRESENTATIVE JOSEPHSON asked:
Do you know whether or not, that the $20 million, if
it passed, that would go into this fund, would be
omitted from some other behavioral health account or
mental health trust account? In other words, is it a
net gain of $20 million to treat, or is it going to be
status quo?
MS. BURKHART answered that the legislature must make the
appropriation, thus the legislature decides how much goes to
what program. Currently, there are GF mental health funds as
well as revenue from the Alcohol and Other Drug Prevention &
Treatment Authority fund going to behavioral health prevention
and treatment; in fact, more than $20 million goes specifically
to substance use disorder treatment services such as residential
treatment and detoxification services. Every year, all of the
money is before the legislature for appropriation, thus if there
were supplanting, the legislature would do so.
11:04:48 AM
BRANDON HOWARD said he was starting Amalga Distillery, a new
distillery in Juneau. This is a new business in the community,
and he acknowledged that the industry is associated with social
issues. He said the spirit excise taxes will double his taxes
to about $8 per bottle, which will impact his margins.
Businesses in Alaska must pay a premium for materials, and for
shipping products out of the state, and another tax will make it
harder to start a distillery and it may be a less viable
business. Mr. Howard suggested another way to double the tax
revenue would be to double the number of distilleries and grow
the industry in the state. In addition to capital, challenges
to opening a new business are permitting and processing. The
tax burden will be passed to the customer, and the price for his
product will be much greater than that of his competitors. His
initial distribution will be within the state, and the tax will
burden Alaskans. Mr. Howard stated his opposition to HB 248.
CHAIR OLSON recalled previous legislation that allowed micro
distilleries to have tasting rooms, which would be helpful.
MR. HOWARD agreed that is a big help. He added that his
distillery, and others in Alaska, are promoting premium products
for distribution out-of-state. In further response to Chair
Olson, he said Amalga Distillery will manufacture Juneauper Gin
and a single malt whiskey, using Alaska barley, wheat, and rye.
11:09:52 AM
JACK MANNING stated he owns a convenience and liquor store in
Juneau, is president of the local CHARR, and serves on the
statewide CHARR board. He said he applauds the legislature and
the governor for dealing with the state's fiscal issues.
However, this is a tax on consumers, and is it unfair to place
the burden on one segment of Alaskans, the alcohol consumer.
This is a radical tax rate; a similar change in taxes in
Washington almost destroyed a new distillery industry. The
liquor stores in Oregon along the Washington state border
increased sales by 35 percent, benefitting from the tax increase
in Washington. Alaska does not have bordering states, but
liquor is available from the Internet for free freight, as is
advertised by Alaska Airlines. He said he agreed with previous
testimony in opposition to HB 248.
11:12:09 AM
CHAIR OLSON announced that public testimony would remain open.
[HB 248 was held over.]
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB248 Supporting Documents-Email Perry Ahsogeak 02-12-16.pdf |
HL&C 2/13/2016 10:00:00 AM |
HB 248 |
| HB248 Opposing Documents-Written Testimony- Bill Howell 02-13-16.pdf |
HL&C 2/13/2016 10:00:00 AM |
HB 248 |
| HB248 Opposing Documents-Written Testimony-Larry Hackenmiller 02-13-16.pdf |
HL&C 2/13/2016 10:00:00 AM |
HB 248 |