04/09/2012 09:00 AM Senate FINANCE

                 SENATE FINANCE COMMITTEE                                                                                       
                       April 9, 2012                                                                                            
                         9:13 a.m.                                                                                              
                                                                                                                                
9:13:34 AM                                                                                                                    
                                                                                                                                
CALL TO ORDER                                                                                                                 
                                                                                                                                
Co-Chair Stedman called the Senate Finance Committee                                                                            
meeting to order at 9:13 a.m.                                                                                                   
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Senator Lyman Hoffman, Co-Chair                                                                                                 
Senator Bert Stedman, Co-Chair                                                                                                  
Senator Lesil McGuire, Vice-Chair                                                                                               
Senator Johnny Ellis                                                                                                            
Senator Dennis Egan                                                                                                             
Senator Donny Olson                                                                                                             
Senator Joe Thomas                                                                                                              
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
None                                                                                                                            
                                                                                                                                
ALSO PRESENT                                                                                                                  
                                                                                                                                
Representative Paul Seaton                                                                                                      
                                                                                                                                
PRESENT VIA TELECONFERENCE                                                                                                    
                                                                                                                                
John MacKinnon, Executive Directors, Associated General                                                                         
Contractors,   Fairbanks;   Matt   Fonder,   Director,   Tax                                                                    
Division, Department of Revenue, Anchorage                                                                                      
                                                                                                                                
SUMMARY                                                                                                                       
                                                                                                                                
HB 298    EXEMPTIONS FROM MINING TAX                                                                                            
                                                                                                                                
          HB 298 was HEARD and HELD in committee for                                                                            
          further consideration.                                                                                                
                                                                                                                                
CS FOR HOUSE BILL NO. 298(FIN)                                                                                                
                                                                                                                                
     "An  Act exempting  quarry rock,  sand and  gravel, and                                                                    
     marketable  earth  mining  operations from  the  mining                                                                    
    license tax; and providing for an effective date."                                                                          
                                                                                                                                
9:14:25 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE PAUL SEATON, explained HB 298. He referred                                                                       
to the Sponsor Statement (copy on file).                                                                                        
                                                                                                                                
     HB  298  repeals  the requirement  that  operators  who                                                                    
     produce sand,  gravel and quarry rock  products pay the                                                                    
     mining license tax. This tax  costs the state nearly as                                                                    
     much to administer  as it is raises.  The Department of                                                                    
     Revenue agrees that the mining  license tax on sand and                                                                    
     gravel operators is burdensome  and labels the sand and                                                                    
     gravel  tax  a "nuisance  tax."  During  the last  five                                                                    
     years,  the  Department  of Revenue  collected  between                                                                    
     $206,000 and  $320,000 annually  in mining  license tax                                                                    
     revenue on sand and  gravel operations and spent nearly                                                                    
     $1 50,000 each year to administer the tax.                                                                                 
                                                                                                                                
     Sand  and gravel  is processed  into multiple  products                                                                    
     such  as concrete,  asphalt,  concrete  block and  wide                                                                    
     variety of aggregates. Each of  the final products have                                                                    
     a different  expense track  associated with  them. They                                                                    
     are sold  at retail,  wholesale and at  competitive bid                                                                    
     prices.  Each   of  these   products,  their   cost  of                                                                    
     extraction,  transportation,   various  expense  tracks                                                                    
     from processing  and multiple sales prices  are part of                                                                    
     the many  permutations that  sand and  gravel operators                                                                    
     use  to   calculate  their  mining  license   tax.  The                                                                    
     Department  of  Revenue  ensures compliance  through  a                                                                    
     very  detailed  audit.  The cost  of  these  audits  to                                                                    
     businesses  often exceeds  the tax  amount paid  by the                                                                    
     business.                                                                                                                  
                                                                                                                                
     Between 40  percent and 60  percent of sand  and gravel                                                                    
     mined in  the state is  used in public  works projects.                                                                    
     The  mining license  tax payment  on these  projects is                                                                    
     paid  by the  state and  local governments  through the                                                                    
     increased   cost   of    the   projects.   This   "left                                                                    
     pocket/right  pocket"  payment  is   a  burden  to  the                                                                    
     Department  of  Revenue  auditors does  not  raise  any                                                                    
     additional funds  for the  state. Repealing  the mining                                                                    
     license tax  requirement for sand and  gravel operators                                                                    
     will remove a significant  burden to Alaska businesses,                                                                    
     and  will allow  the  Department of  Revenue to  direct                                                                    
     their auditing capabilities on higher cost mineral                                                                         
     mining operations.                                                                                                         
                                                                                                                                
Co-Chair Stedman  noted the two previously  published fiscal                                                                    
notes from the  Department of Revenue and  the Department of                                                                    
Natural Resources.                                                                                                              
                                                                                                                                
9:18:29 AM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
9:18:54 AM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
9:19:13 AM                                                                                                                    
                                                                                                                                
JOHN  MACKINNON,  EXECUTIVE  DIRECTORS,  ASSOCIATED  GENERAL                                                                    
CONTRACTORS,  FAIRBANKS (via  teleconference), testified  in                                                                    
support  of  HB  298.  He  relayed  a  story  regarding  his                                                                    
frustrations related  to the present tax  structure, and the                                                                    
audit process. He felt that  the current tax was a "nuisance                                                                    
tax."  He  remarked  that  in  order  to  simplify  the  tax                                                                    
structure, sand,  gravel and  quarry rock  operations should                                                                    
be exempt  from the mining  tax. He felt that  the exemption                                                                    
would result in broad public benefit.                                                                                           
                                                                                                                                
Representative Seaton  thanked the committee for  hearing HB
.                                                                                                                            
                                                                                                                                
Co-Chair Hoffman  wondered if there  was an  anticipation of                                                                    
reducing personnel in the Department of Revenue.                                                                                
                                                                                                                                
MATT FONDER, DIRECTOR, TAX  DIVISION, DEPARTMENT OF REVENUE,                                                                    
ANCHORAGE (via  teleconference), responded that  a reduction                                                                    
in personnel  was not anticipated.  He furthered  that audit                                                                    
staff had  been diverted from  other excise tax  programs to                                                                    
focus on  the sand and  gravel tax  payers, which was  a big                                                                    
lift. He noted  that there were eleven  licensed auditors in                                                                    
2007, and there were 189 licensed auditors in 2011.                                                                             
                                                                                                                                
HB  298  was  HEARD  and   HELD  in  committee  for  further                                                                    
consideration.                                                                                                                  
                                                                                                                                
Co-Chair Stedman discussed the afternoon's agenda.                                                                              
                                                                                                                                
ADJOURNMENT                                                                                                                   
9:24:28 AM                                                                                                                    
                                                                                                                                
The meeting was adjourned at 9:24 AM.