Legislature(2005 - 2006)
05/04/2005 04:52 PM House FIN
| Audio | Topic |
|---|---|
| SB155 | |
| HB280 | |
| HB243 | |
| SB110 | |
| Adjourn | |
| Start | |
| HB280 | |
| HB283 | |
| SB158 | |
| SB155 |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SENATE BILL NO. 158
"An Act prohibiting the imposition of municipal sales
and use taxes on state construction contracts and
certain subcontracts; and providing for an effective
date."
SENATOR CHARLIE HUGGINS, sponsor, spoke in support of the
legislation and read from the sponsor statement.
During the course of business in the last couple of
years, subcontractors in the construction industry, who
work in some areas of the state, have experienced
negative financial impact due to the imposition of
local sales taxes on state DOT/PF funded projects.
In the case of a construction contract being awarded
and a primary contractor doing business with the state,
the state is the purchaser of those services and, as
such, the legal incidence for the tax falls on the
state. Based on the state's sovereign immunity and the
fact that the state is immune from taxation no tax is
owed.
However, when a subcontract is awarded and a primary
contractor hires another contractor to do work for him,
the subcontractor is not working directly for the
state, but for the original contractor, and in some
cases a sales tax has been levied on the value of the
subcontract.
In one instance, on an Airport Project, a construction
contract was awarded to Quality Asphalt Paving (QAP).
QAP and Dimond Electric entered into a subcontract
directly in connection with the project funded under
the construction contract. Dimond Electric was assessed
a sales tax of over $20,000 on the value of their
subcontract. This tax was unexpected and not considered
in their bid.
The state cannot afford to have an increase in the cost
of construction projects due to the levying of sales
taxes on state construction contracts or subcontracts
directly awarded in connection with the project funded
under the construction contract. While all
municipalities do not assess this sales tax the policy
needs to be consistent statewide.
SB 158 will prohibit the imposition of municipal sales
and use tax on state construction contracts and certain
subcontracts and remedy the inequity that exists.
Senator Huggins explained that there would be no tax on the
gross of a state construction contract. He observed that the
Department of Transportation and Public Facilities has
previously found that it was cheaper to pay the tax than to
go through a change order. He asked the Committee to
preserve the traditional way of transacting business.
5:52:02 PM
Vice-Chair Stoltze spoke in support of the legislation.
Senator Huggins stressed that the bill maintains the status
quo.
5:53:38 PM
STEVE BOYD, NATIONAL ELECTRICAL CONTRACTORS ASSOCIATION,
ANCHORAGE, (via teleconference) spoke in support of the
legislation and maintained that subcontractor work should be
exempt from these taxes.
5:56:10 PM
DAVID LANZ, PRESIDENT, DIAMOND ELECTRIC, (via
teleconference) offered to answer questions.
5:56: 31 PM
DENISE MICHELS, MAYOR, NOME, (via teleconference) referred
to her letter in the members' packets (copy on file.) The
City of Nome is opposed to SB 158. She asserted that the
bill is punitive and unfairly restricts local control. The
bill diminishes the existing statutory authority of local
governments to raise needed revenues through the levy of
taxes. Nome receives most of its revenue from self-tax and
property tax. She observed that 40 percent of the property
tax is exempt by state statute. Contractors use the
municipality's services. Contractors are responsible for due
diligences to see what fees or taxes are required in the
community. The legislation would reduce the municipality's
revenues.
5:59:04 PM
KEVIN RITCHIE, EXECUTIVE DIRECTOR, ALASKA MUNICIPAL LEAGUE,
spoke in opposition to the legislation and referred to a
letter from AML to the Committee (copy on file.) He stressed
that municipalities must tax to survive. The tax base
diminishes in small communities. Municipalities have lost
state funds over the past 10 years. He maintained that the
issue is not between the contractor and city. He maintained
that the cost should come out of the overall cost of state
or federal grants. He argued that the impacts are local and
the tax benefits local citizens.
6:01:59 PM
Representative Holm ascertained that Mr. Ritchie had never
bid a contract. Representative Holm explained how a contract
is marked up, and that the percentage has to be included. He
inquired why the Alaska Municipal League would think it
appropriate for tax dollars to be taxed.
6:04:03 PM
Mr. Ritchie responded that in many cases federal money would
come into play. He referred to Mayor Michels' statement of
small communities struggling to provide basic services. He
noted that tax dollars run a municipality. Representative
Holm pointed out that this also applies to Anchorage.
6:07:23 PM
Representative Kelly referred to the letter of April 26 from
Kathie Wasserman. He asked Mr. Ritchie to explain the last
paragraph:
The bill summary states that the bill's intention is to
"prohibit the imposition of municipal sales and use tax
on a construction contract awarded by the state or ~
state agency, or on a subcontract awarded in connection
with the project funded under the construction
contract." This is misleading, as no communities impose
a sales or use tax on a construction contract awarded
by the state. This issue is ONLY about subcontract
workers that have been hired by the contractor.
Mr. Ritchie explained that no community taxes the full
contract. The letter refers to subcontracts awarded in
connection with the project.
6:08:57 PM
Representative Kelly stated the bill's intent is to prohibit
the imposition of municipal sales tax and use tax on
construction contracts awarded by the state of Alaska or on
the subcontractor awarded in connection with the project. He
summarized that AML charges that this is misleading.
Mr. Ritchie clarified that communities can't impose a sales
tax on the general contractor, but can on subcontractors not
awarded by the state. Representative Kelly continued to
express concern.
6:11:35 PM
THYES SHAUB, LOBBYIST, NATIONAL FEDERATION OF INDEPENDENT
BUSINESSES, AGC, in support of the legislation. She
emphasized that business likes to know what the rules are
and have them applied consistently.
6:12:51 PM
Representative Hawker MOVED to report SB 158 out of
Committee with individual recommendations and the
accompanying fiscal note.
Representative Joule OBJECTED for discussion purposes. He
stressed that the legislature must deal with municipalities
and their financial issues. The bigger issue is how we are
not sharing the wealth with those communities.
Representative Joule WITHDREW his objection. There being NO
further OBJECTION, it was so ordered.
SB 158 was REPORTED out of Committee with a "do pass"
recommendation and with a zero fiscal impact note by the
Department of Commerce, Community and Economic Development.
6:14:29 PM
Representative Joule spoke about future problems due to lack
of revenue sharing.
6:16:03 PM
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