Legislature(2019 - 2020)SENATE FINANCE 532
02/28/2020 09:00 AM Senate FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| SB50 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | SB 50 | TELECONFERENCED | |
| + | TELECONFERENCED |
SENATE BILL NO. 50
"An Act imposing an annual educational facilities
maintenance and construction tax on net earnings from
self-employment and wages; relating to the
administration and enforcement of the educational
facilities maintenance and construction tax; and
providing for an effective date."
9:02:08 AM
SENATOR CLICK BISHOP, SPONSOR, introduced himself.
DARWIN PETERSON, STAFF, SENATOR CLICK BISHOP, introduced
himself.
9:02:30 AM
Senator Bishop stated that the bill would establish a head
tax to raise money for new school construction and
maintenance. He spoke of the needs of both rural and urban
areas of the state when it came to school construction. He
believed that deferred maintenance was a financial
liability to the state. He lamented that the deferred
maintenance for schools totaled $149 million. He noted that
deferred maintenance should be part of the conversation at
the table about sound economic policy. He said that,
factoring in inflation, per capita spending was on par with
1996. He mentioned the education raffle legislation, which
raised voluntary donations form the permanent fund, and
shared that this bill would work in tandem to address
deferred maintenance. He said that $2.5 billion left the
state in non-resident monies only to go into schools in
other states. He believed the time was right to pass the
legislation.
9:06:43 AM
Mr. Peterson further addressed the details of the bill. He
read from the sponsor statement:
From 1919-1980, Alaska had an annual employment head
tax for the purpose of collecting revenues to fund
schools. The tax went through numerous
transformations, but it always charged an equal amount
to each employed individual. When it was repealed in
1980, the tax was $10 per person which has the
equivalent value of $30 today.
SB 50 proposes to revive the repealed head tax on
employed individuals, both resident and nonresident,
with income from a source in Alaska. The "Alaska
Education Facilities, Maintenance, and Construction
Tax" would collect $30 from each person employed in
the state. The tax would be withheld from an
employee's first paycheck each year while self-
employed individuals would be required to remit
payment to the Alaska Department of Revenue. The tax
would be deductible on an individual's federal income
tax return.
According to the most recent statistics from the
Alaska Department of Labor and Workforce Development
and the U.S. Census Bureau, there are approximately
441,596 employed individuals in Alaska. Roughly 20% of
those workers who earn their living in Alaska do not
reside here resulting in $2.5 billion in nonresident
income that leaves Alaska's economy each year and, in
most cases, gets taxed by a nonresident's home state.
It is estimated that this tax would generate $13
million each year. The revenue collected would be
deposited into the state's general fund and accounted
for separately to pay for the growing maintenance and
construction needs of Alaska's schools.
Mr. Peterson added that the 30,000 self-employed
individuals would self-report. He said that the states
share for the FY 21 school major maintenance totaled $149
million and the FY 21 total school construction totaled
$142 million. He noted the support letters in member files
from various education organizations.
9:09:29 AM
Senator Wilson looked at Section 2, page 3. He wondered
about people working in a gig economy, who might pay the
tax many times in one year and wondered about refunds for
overpayment.
Senator Bishop read from Line 1:
(b) An employer is liable for the tax required to be
withheld from an employee 2 unless the employer can
demonstrate that the employer relied on proof provided
by the 3 employee that the total tax for the calendar
year imposed under AS 43.45.011 had 4 already been
withheld under this section or paid under AS
43.45.031.
9:10:50 AM
Senator Wilson was concerned about gig economy workers who
might slip through the cracks.
Mr. Peterson explained that if a person paid the tax more
than once they would be able to apply to the department for
a refund.
Co-Chair Stedman remarked that retired people were exempt
as pensions were not included.
Mr. Peterson agreed.
Co-Chair Stedman wondered whether there was a consideration
for adding funds for maintenance to the Public-School Trust
Fund. He thought that could be a way to increase the funds
value.
9:12:39 AM
Senator Bishop replied that it had not been considered but
that it was a good idea.
Senator Wielechowski pointed to Page 4, lines 17 and 18,
which discussed the accounting of funds. He wondered how
the funds were dispersed under AS 37.05.560.
Mr. Peterson deferred to the department.
HEIDI TESHNER, DIRECTOR, FINANCE AND SUPPORT SERVICES,
DEPARTMENT OF EDUCATION AND EARLY DEVELOPMENT, introduced
herself.
TIM MEARIG, FACILITIES MANAGER, DEPARTMENT OF EDUCATION AND
EARLY DEVELOPMENT, introduced himself.
Ms. Teshner asked Senator Wielechowski to restate his
question.
Senator Wielechowski asked about the criteria for
determining how the funds for educational facilities,
maintenance, and construction, under AS 37.05.560.
Ms. Teshner replied that the department would receive funds
from the legislature and based on those appropriations
project funds would be distributed in rank order.
Senator Olson asked whether the department had considered
alternative ways to distribute the funds.
Ms. Teshner understood that the Public-School Trust Fund
funded the foundation program, and a change would need to
be made in the distribution of funds.
Senator Olson asked about priorities for the funds.
Ms. Teshner said that the department favored major
maintenance school construction.
Co-Chair von Imhof requested a flow chart of formula versus
maintenance and the different fund sources.
Ms. Teshner agreed to provide that information.
9:16:47 AM
Senator Olson asked about other types of income, such as
the permanent fund dividend or stock market earnings.
Co-Chair von Imhof queried what type of income, based on
the Internal Revenue Service (IRS) definition would be
taxed.
Mr. Peterson replied that the only thing that would be
taxed would be wages and self-employed income.
Co-Chair von Imhof surmised the tax would apply to direct,
earned income.
Mr. Peterson agreed.
Co-Chair von Imhof OPENED public testimony.
9:18:39 AM
JIM ANDERSON, CFO, ANCHORAGE SCHOOL DISTRICT, ANCHORAGE
(via teleconference), testified in support of the bill. He
stressed that the bill would allow for a different revenue
source to provide support for rural districts. He thought
that the bill reinforced the need to maintain state
infrastructure. He thanked the committee for their time.
9:20:28 AM
TREVOR STORRS, ALASKA CHILDREN'S TRUST, ANCHORAGE (via
teleconference), spoke in support of the legislation. He
believed in investing in schools and children and providing
a quality, equitable education for Alaskan children. He
spoke to the maintenance challenges faced by districts. He
lamented that the tax was regressive and could place a
burden on low income families.
9:22:49 AM
TOM KLAAMEYER, ANCHORAGE EDUCATION ASSOCIATION, ANCHORAGE
(via teleconference), spoke in support of the bill. He
believed that the legislation was a modest step in the
right direction. Further cuts could not be made to
education. He supported the consideration of alternative
revenue streams.
9:24:48 AM
KERRY BOYD, SUPERINTENDENT, YUKON KOYOKUK SCHOOL DISTRICT,
FAIRBANKS (via teleconference), testified in support of SB
50. She lamented that education had been flat funded over
the previous years, while operational and healthcare costs
had risen. She felt that the state should be responsible to
maintain and construct schools. She thanked the committee
for their work.
9:26:58 AM
CAROLINE STORM, SELF, ANCHORAGE (via teleconference), spoke
in support of the legislation. He believed that funds
should be available for school maintenance. She thought
that deferring maintenance was costing the state more in
the long run. She was concerned about the regressive nature
of the tax and hoped that other funding mechanisms could be
explored.
9:28:45 AM
NILS ANDREASSEN, EXECUTIVE DIRECTOR, ALASKA MUNICIPAL
LEAGUE, JUNEAU, testified in support of the legislation. He
felt that local governments were comfortable and understood
the nature of taxes. He shared that prior to the moratorium
on school bond debt reimbursement, municipalities had not
generally applied to grant programs. He believed that the
state would experience an increasing need from
municipalities for the state to fulfill their
constitutional obligation. He spoke to the aging school
building in the state. He felt that the bill was a small
step toward addressing a very large need.
9:32:15 AM
LISA PARADY, EXECUTIVE DIRECTOR, ALASKA COUNCIL OF SCHOOL
ADMINISTRATORS, spoke in support of the bill. She echoed
the comments of previous testifiers.
9:33:09 AM
AT EASE
9:33:21 AM
RECONVENED
Ms. Parady continued her remarks. She said that diversified
revenue streams would be very beneficial to the state. He
stated that the proposed head tax would generate
approximately $13 million per year.
9:35:54 AM
Co-Chair von Imhof CLOSED public testimony.
9:36:07 AM
Co-Chair Stedman discussed the fiscal notes. The first was
a zero note from the Department of Labor and Workforce
Development, Employment and Training Services, Unemployment
Insurance, OMB Component 2276. The second was from the
Department of Revenue, Taxation and Treasury, Tax Division,
OMB Component 2476, which showed expected revenue of
9,344.0 in FY 21. The second year on expenditures were the
same but revenue was expected to rise to $13,366.0.
Co-Chair von Imhof asked about the capital investment for
the implementation cost.
Co-Chair Stedman discussed the implementation cost outlined
in the analysis of the fiscal note.
Co-Chair von Imhof noted that the implementation cost had
risen from $8 million to $11 million over the last year.
9:39:05 AM
BRANDON SPANOS, DEPUTY DIRECTOR, TAX DIVISION, DEPARTMENT
OF REVENUE, ANCHORAGE (via teleconference), stated that the
implementation costs had increased because of system
required for the development of a broad-based tax. The Tax
Management Revenue System (TRMS) had originally been rolled
out in 2015 and cost $9 million. The department planned to
use the most up-to-date system to develop the tax, an
upgrade from Version 9, to Version 12 would be necessary.
The tax would require the same development of any other
broad-based tax and the department believed it was
necessary to upgrade the system before coding any new tax.
Senator Bishop asked whether the new system would be
expandable to include another capital request.
9:40:46 AM
Mr. Spanos said that it would depend. He said that there
was funding in the current budget for the TRMS system. He
said that Version 12 was more future proof and additional
programming could be done without expanding cost. He said a
major change, like an income tax, would require additional
capital cost.
Senator Wilson asked which department would be collecting
the tax.
Mr. Spanos replied that DOR was expected to collect and
administer the tax. He said that the Department of Labor
and Workforce Development (DLWD) could collect the tax, but
it would have to then be remitted to DOR. He stated that
DOR would still need to register all taxpayers. He
explained that if someone had two jobs in one month the
department would need to administer a refund. He thought
that the most recent version of the system was to system
was robust enough to mitigate double payments.
9:44:38 AM
Senator Wilson noted that the legislation stated that DLWD
would collect the tax and remit it to DOR. He wondered
whether the language should be cleaned up.
Mr. Peterson replied that the language had been inserted
giving DLWD the ability to collect the tax if it were the
most cost-effective route. If it was not cost effective,
then DOR would collect the tax.
Co-Chair Stedman wondered how the tax would work for
commercial fishing and processing that happened outside the
3-mile limit.
Senator Bishop deferred to Mr. Peterson.
Mr. Peterson understood that these would be self-employed
persons.
9:46:32 AM
Co-Chair Stedman thought not all would be self-employed. He
wondered whether the fisheries workers would be held to the
honor system.
Mr. Peterson replied that fish processers would be required
to withhold $30 from every employees first paycheck. If
they did not there would be a penalty imposed by DOR.
Fishing vessels would be expected to self-remit. He
deferred to the department on the issue of enforcement for
self-employed individuals.
Mr. Spanos explained that self-employed individuals had to
file a 1099 form with the IRS, which would also need to be
filed with DOR. The department would expect a return to be
filed with the self-employed person. If a return was not
filed, the department would send a reminder letter in the
mail. He shared that due to the low figure of the tax,
there would not been an extreme pursuit for payment.
9:49:54 AM
Co-Chair Stedman thought that there was potential for
leakage because many fishermen resided out-of-state.
Senator Bishop understood Co-Chair Stedmans point. He
thought that the Division of Wage and Hour could speak
before the committee about floating processors.
Senator Wielechowski asked whether teen-aged babysitters
would need to submit something to DLWD.
Mr. Spanos replied that a person who was a babysitter was
considered self-employed but would only need to file if
they were making over $600. The IRS did not require a
person to file if they made under $1300.
9:52:48 AM
Senator Wielechowski wondered whether unemployment benefits
or workers compensation be considered benefits.
Mr. Spanos replied that they would be considered wages for
federal tax purposes. He agreed to follow up with more
information as the question pertained to the bill.
Co-Chair von Imhof discussed housekeeping.
SB 50 was HEARD and HELD in committee for further
consideration.