Legislature(2023 - 2024)BARNES 124
03/05/2024 08:00 AM House COMMUNITY & REGIONAL AFFAIRS
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| Audio | Topic |
|---|---|
| Start | |
| HB234 | |
| HB267 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 234 | TELECONFERENCED | |
| *+ | HB 267 | TELECONFERENCED | |
| + | TELECONFERENCED |
HB 267-MUNICIPAL PROPERTY TAX EXEMPTIONS
8:41:50 AM
CHAIR MCCORMICK announced that the final order of business would
be HOUSE BILL NO. 267, "An Act relating to property exempt from
municipal taxation."
8:42:08 AM
REPRESENTATIVE FRANK TOMASZEWSKI, Alaska State Legislature,
prime sponsor, presented HB 267. He shared the sponsor
statement [included in the committee packet], which read as
follows [original punctuation provided]:
House Bill 267 changes language exempting non-profits
from municipal taxation on certain properties. This
includes parking lots owned by non-profits used for
parking or other uses free of charge. This also
includes property of a store operated by a non-profit
that distributes food, shelter, clothes, or health
care for below market value or free. Additionally,
this maintains a non-profit's tax exemption if they
rent out their property to another non-profit.
Charitable non-profits are a pillar of our
communities. They help our communities' least
fortunate when they need basic goods and services. Of
course, many non-profits turn to fundraising and
facility rentals to keep their lights on and doors
open so they can continue to provide their essential
services. If these organizations did not provide these
services, the burden would fall on the communities
they serve.
This bill through verbiage change aims to return the
exemption status to non-profits to the level that they
had prior to 2018. The bill does not increase
exemption only clarifies the exemption to allow
fundraising and parking under the exemption as
previously granted. With revenues being down and
permanent fund dividends being cut creating a
regressive tax on our least fortunate, we must help
those who help those in need.
8:44:06 AM
DAVID GOFF, Staff, Representative Frank Tomaszewski, Alaska
State Legislature, on behalf of Representative Tomaszewski,
prime sponsor of HB 267, presented the sectional analysis for HB
267 [included in the committee packet], which read as follows
[original punctuation provided]:
Section 1: Amends AS 29.45.030(a)
Page 2 line 16, Establishes that property is exempt
from general taxation when the property is used
primarily rather than exclusively for nonprofit
religious, charitable, cemetery, hospital, or
educational purposes.
Page 3 lines 19-20, This section further establishes
parking lots that are primarily used to serve real
property that is exempt under municipal taxation.
Section 2: Amends AS 29.45.030(b)
Page 3 line 22-23 Clarifies municipal taxation
exemption of religious property as property used
primarily versus property used exclusively for
religious purposes.
Page 4 line 2 The section further clarifies that a
structure, its furniture, and its fixtures used
primarily rather than solely for qualifying property
is also exempted from municipal taxation.
Section 3: is repeals and reenacts AS 29.45.030(c)Page
4 lines 8-18 Clarifies Properties described in (a)(3)
or (4) of this section that generate income and are
used primarily are exempt from general taxation if the
income is from use of a property by a nonprofit
religious, charitable, hospital group or an
educational group; educational group only as classroom
space; used for fundraising by these groups is also
allowed.
Section 4: to add a new subsection.
Page 4 lines 20-25 Establishes that property described
in (a) (3) of this section that is under construction
or reconstruction and is intended used for tax exempt
purpose upon completion is exempt from general
taxation if completed within two years of permitting.
The section clarifies completion as the first day the
property is occupied for the mission.
Page 4 line 26-30 In addition, the exempt property
remains exempt if it is for a purpose that is directly
incidental to and vitally necessary for the exempt use
of the property, or a nonexempt purpose for an
insubstantial period of time.
8:47:30 AM
MR. GOFF explained that in 2018, assessors began using the term
"exclusively" as a way to tax more property. To mitigate this,
Legislative Legal Services suggested replacing "exclusively"
with "primarily."
CHAIR MCCORMICK sought questions from committee members.
8:49:16 AM
REPRESENTATIVE HIMSCHOOT asked what changed in 2018.
REPRESENTATIVE TOMASZEWSKI said nothing changed aside from the
aggressive nature of tax assessors who started going after
previously untaxed properties.
REPRESENTATIVE HIMSCHOOT asked how "primarily" is defined in
statute.
REPRESENTATIVE TOMASZEWSKI deferred to Mr. Therriault.
REPRESENTATIVE HIMSCHOOT clarified that she was interested in
the unintended consequences, adding that she wanted to prevent
for-profit organizations that occasionally hold nonprofit events
from becoming primarily nonprofit.
REPRESENTATIVE TOMASZEWSKI agreed. He said that is not the
intent of the bill. He conveyed that the goal is to revert the
clock back to the state of things prior to 2018 and prevent
nonprofit organizations, like food banks, who are barely
scraping by from having to add a tax assessment burden to their
bottom line.
8:53:19 AM
GENE THERRIAULT, Board President, Fairbanks Community Food Bank,
shared his understanding that the narrow interpretation and
application of the word "exclusive" is the source of the
problem. He added that the general understanding of "primarily"
is "50 percent plus." He shared his belief that if the term
"primarily" is chosen, it should be defined [in statute].
8:54:46 AM
REPRESENTATIVE HIMSCHOOT, referencing the memorandum to Senator
Meyers [included in the committee packet], concluded that no
change is needed because the state or municipality is not
required to tax property. She asked whether she was
misinterpreting document.
MR. THERRIAULT clarified that the drafter was referring to the
mandatory tax exemption in the constitution. The primary
question is how much tax protection should be extended under the
constitutional mandate, he said, so that it's not up to the
local government to decide.
8:56:36 AM
REPRESENTATIVE HIMSCHOOT said the [tax exemption] seems to be
locally determined, as opposed to mandated. She expressed
concern about the state setting a standard that local
governments would be required to adhere to.
8:57:48 AM
REPRESENTATIVE MEARS asked whether local governments could
exempt these uses or whether exemptions must be made on the
state level.
REPRESENTATIVE TOMASZEWSKI said local governments need to follow
state law.
REPRESENTATIVE MEARS restated her question, asking whether local
governments have the ability to create their own exemptions.
REPRESENTATIVE TOMASZEWSKI said they can, under the guidance of
state law, provide exemptions for properties.
8:58:44 AM
REPRESENTATIVE MEARS said that did not answer her question. She
questioned how the statewide application of the proposed
legislation would financially impact local governments.
REPRESENTATIVE TOMASZEWSKI indicated that there could be an
increase in revenue; however, maintaining the same tax exempted
status would result in no change to municipal revenue.
REPRESENTATIVE MEARS expressed concern that there is not a full
understanding of how local governments are applying exemptions
and how the bill would impact their policies. She emphasized
her interest in getting more comfortable with the impact on
local governments.
9:00:19 AM
CHAIR MCCORMICK asked how the bill compares to laws in other
states.
MR. THERRIAULT shared his understanding that most states in the
nation constitutionally mandate a property tax exemption for
nonprofits.
9:01:31 AM
MR. THERRIAULT gave his invited testimony. He explained that
after 40 years of operating in the Fairbanks North Star Borough
and many rural locations, the Fairbanks Community Food Bank was
stunned to receive a combine property tax bill of over $8,000 in
2022. The reason for the combined tax bill stemmed from a
fundraiser that was held at one of the properties. Taxes were
also assessed on an additional warehouse space that was being
constructed. Lastly, a parking lot dedicated to nonprofit
education and charitable tenants was taxed. If the organization
disagreed with the tax determination, they were told that the
only recourse was to appeal to the court system. Without the
resources to undertake expensive and lengthy litigation, the
food bank paid the taxes under protest. He relayed that after
further investigations, other nonprofits were also receiving
unexpected tax bills. The primary reason for the current
situation is the lack of clarity in Alaska law, he said, which
assessors struggle to interpret and apply. He highlighted the
language on page 2, lines 16-17 of the bill, stating "property
used exclusively for nonprofit purposes." He discussed the
different interpretations of the "exclusive use rule," adding
that the bill seeks to move away from the rigidity by replacing
"exclusively" with "primarily." He opined that both terms need
further definition to solve the problem. He suggested that the
path forward involves the legislature using longstanding court
determinations to provide policy clarity to existing statute.
Favorable action on HB 267 would also allow nonprofit charitable
organizations, like the food bank, to fulfill their purpose to
meet the critical needs of the community. In response to the
committee's discussion, he said the goal is to determine which
properties and operations qualify for the constitutionally
mandated tax exemptions.
9:09:14 AM
CHAIR MCCORMICK asked Mr. Therriault to restate the
constitutional mandate.
MR. THERRIAULT read the following statement:
All or any portion of the property used exclusively
for nonprofit, religious, charitable, cemetery, or
education purposes, as defined by law, shall be exempt
from taxation.
MR. THERRIAULT noted that the charitable institutions are up
against local interpretation of the law because the tax
exemption is lost if the operation is used to generate revenue,
which contradicts federal law unless a separate standalone
business is created.
9:11:18 AM
REPRESENTATIVE MCCABE differentiated between the definition of
primarily and exclusively. He asked how much could be provided
to the residents of Fairbanks with $8,000.
MR. THERRIAULT reiterated his hope that true nonprofits would
always be able to avail themselves of the mandatory tax
exemption in the constitution despite local choice. He
estimated that the food bank could source 30,000 to 40,000
pounds of bycatch salmon from Seattle for $8,000.
REPRESENTATIVE MCCABE suggested that the goal was to "soften"
the exclusionary language. He opined that nonprofits and food
banks do important work and pondered the implications of an
$8,000 municipal tax to the people served by these
organizations.
MR. THERRIAULT said he understood the need for local governments
to ensure that ineligible properties are not receiving tax
exemptions to avoid abuse. He agreed that [nonprofits] are
looking for latitude in the interpretation of the word
"exclusively," which, he said, the courts have corroborated.
9:20:18 AM
REPRESENTATIVE HIMSCHOOT said she was still trying to wrap her
head around a local government that would exercise the option to
tax a food bank. She asked how "primarily" would be defined.
MR. THERRIAULT restated his understanding that in layman's
terms, "primarily" is defined as "50 percent plus."
REPRESENTATIVE HIMSCHOOT said "primarily" felt murkier than
"exclusively."
9:21:41 AM
REPRESENTATIVE MCCABE asked whether the food bank charges a fee
for parking or makes any money off the parking lot.
MR. THERRIAULT answered no.
REPRESENTATIVE MCCABE sought to verify that no revenue is
collected from the parking lot and that the organization was
taxed on the value of the land.
MR. THERRIAULT said, "That's correct." He described the parking
lot, indicating that the property was improved and within 300
feet of the property that it serves, which meets local
requirements.
REPRESENTATIVE MCCABE asked to explore the incident or "bowl
auction" that generated [the tax bill]. He asked whether the
proceeds from the auction was used for anything other than its
stated purpose, which was to serve those in need.
MR. THERRIAULT answered no. He explained that bowl auctions are
common among nonprofits that partner with pottery guilds. The
event, which was held at a warehouse operation, triggered the
tax consequence in CY 22. He noted that after citing court
cases, the borough relented. He reiterated that the supreme
court determined that the interpretation of "exclusively" should
not be so narrow as to cause organizations to lose their tax-
exempt status [over events like the one in question].
9:26:29 AM
The committee took a brief at-ease.
9:27:01 AM
CHAIR MCCORMICK opened public testimony on HB 267.
9:28:08 AM
NILS ANDREASSEN, Executive Director, Alaska Municipal League
(AML), testified during the hearing on HB 267. He emphasized
the importance of ensuring that there are no unintended
consequences and that the bill brings clarity to assessors
without restricting their ability to do their job. He said
AML's suggested edits center on the need to provide clarity on
spatial apportionment relative to the use of a property.
Spatial apportionment is used to determine the amount of
property used for purposes other than the nonprofit's purpose.
With Alaska's limited tax base, he said mandatory exemptions
should be applied cautiously and specifically with parameters to
preserve local tax bases as much as possible. He highlighted
Section 1, paragraph (11) of the bill, which adds parking lots
to the list of exemptions, and suggested that the language would
not capture the intended purpose of exempting specifically
nonprofit parking lots. Instead, he suggested that it would
encompass all parking lots described in the exemptions. He
opined that Section 3 is unnecessary and shared his belief that
the shift from "exclusively" to "primarily" would increase
uncertainty for local assessors. He reported that local
governments already exempted nonprofit property for community
purposes at a value of $261 million in 2022. He welcomed the
potential for collaboration with the bill sponsor to work
through these issues and seek maximum benefit to the state and
communities.
9:36:53 AM
REPRESENTATIVE MCCABE asked whether AML conducted a financial
analysis on the impact to local communities.
MR. ANDREASSEN said that work needs to be done. He explained
that the senior citizen and disabled veteran property tax
exemption is tracked by the assessor each year and referenced by
AML to see how the exemption was applied.
REPRESENTATIVE MCCABE asked how AML expects nonprofits, like the
food bank, to pay property taxes without it impacting the
services they offer.
MR. ANDREASSEN said he was not prepared to talk about food
banks' financials specifically. He pointed out that taxes, like
any other expense, are regularly built into budgets. He shared
his belief that the discussion is not nonprofits versus local
governments and emphasized that AML's goal is to strengthen
local governments.
9:41:44 AM
REPRESENTATIVE HIMSCHOOT said her district tends to have a high
ratio of nonprofits. She asked whether Alaska, as a result of
its islanded communities, has a higher number of nonprofits
compared to other states.
MR. ANDREASSEN reported that Alaska has the highest per capital
rate of nonprofits in the nation.
REPRESENTATIVE HIMSCHOOT opined that the nonprofit sector adds a
nonmonetary quality of life that no one wants to diminish.
9:44:44 AM
LORINDA MOFF, State Administrator, Alaska SCTP, testified during
the hearing on HB 267. She shared that Alaska SCTP was given
200 acres by the borough to build a facility for youth training
and education. She said she knew nonprofits do not pay property
taxes; however, she was not aware that it must be applied for,
and subsequently received a bill for over $4,000, which Alaska
SCTIP paid. She noted that eventually, her nonprofit was
granted the exemption because the borough was well informed.
She pointed out that many nonprofits provide critical and
educational services that the government would not want to pay
for itself.
9:50:56 AM
REPRESENTATIVE MEARS acknowledged the challenges of running a
nonprofit. She sought to confirm that Alaska SCTP is no longer
paying property taxes on that parcel.
MS. MOFF answered, "That's correct."
REPRESENTATIVE MCCABE asked how many kids Ms. Moff had served in
total.
MS. MOFF estimated around 7,000 to 8,000.
9:52:24 AM
CHAIR MCCORMICK closed public testimony on HB 267. He invited
closing comments from the bill sponsor.
REPRESENTATIVE TOMASZEWSKI said he looked forward to drafting a
more perfect bill to get this issue cleared up for all
nonprofits throughout Alaska.
9:53:56 AM
CHAIR MCCORMICK announced that HB 267 would be held over.
9:54:18 AM
ADJOURNMENT
There being no further business before the committee, the House
Community and Regional Affairs Standing Committee meeting was
adjourned at 9:54 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 267 Sponsor Staterment.pdf |
HCRA 3/5/2024 8:00:00 AM |
HB 267 |
| HB 267 Sectional Analysis.pdf |
HCRA 3/5/2024 8:00:00 AM |
HB 267 |
| HB 267 Supporting Document - Legal Memo.pdf |
HCRA 3/5/2024 8:00:00 AM |
HB 267 |
| HB 267 Version A.pdf |
HCRA 3/5/2024 8:00:00 AM |
HB 267 |
| HB 234 Amendment B.1 - 2.28.24.pdf |
HCRA 3/5/2024 8:00:00 AM |
HB 234 |
| HB 234 Amendment B.2 - 2.28.24.pdf |
HCRA 3/5/2024 8:00:00 AM |
HB 234 |
| HB 234 Amendment B.3 - 3.1.24.pdf |
HCRA 3/5/2024 8:00:00 AM |
HB 234 |