04/08/1998 04:40 PM Senate FIN

                                                                               
SENATE BILL NO. 345                                                            
"An Act relating to apportionment of business income."                         
                                                                               
                                                                               
Co-Chair Sharp announced a representative from the                             
Department of Law, NEIL SLOTNICK, was available to comment                     
on this bill if the committee so desired.  He noted at the                     
last hearing, there was no representation from DOL and the                     
bill was held in part for that reason.                                         
                                                                               
Senator Parnell said he did have a question for the                            
department.  He referred to a letter dated April 7, 1998                       
from Deborah Vogt, Deputy Director of Department of Revenue,                   
which said both the DOL and the DOR agreed that the                            
retroactive repeal of the tax on foreign carriers would have                   
no affect on closed cases.  He wanted Mr. Slotnick to                          
comment on whether he agreed with the statement of the                         
letter, and if so, his reasons for agreement.                                  
                                                                               
Mr. Slotnick, via teleconference, responded.  He did agree,                    
but he qualified his agreement by saying that he had not                       
read any cases that addressed the issue.  He explained that                    
a closed tax year was generally closed through agreement of                    
the parties and as a consequence, was generally a binding                      
contract.  He did not believe that a retroactive application                   
of a tax exemption would be grounds for reopening a closed                     
year, which would essentially be reopening a closed                            
contract. Unless the legislation specifically provided that                    
it was for the purpose of reopening these contracts, he                        
added.                                                                         
                                                                               
Senator Adams had a question on the same letter.  He quoted                    
part of Ms. Voght's statement in the letter: "As I testified                   
this morning, we can't calculate the amount of taxes that                      
have been paid on Section 883."  The senator then referred                     
to another letter dated April 6, 1998, which said, "We                         
conclude that the retroactive application of this exemption                    
probably violates the public purpose clause of the Alaska                      
Constitution."  He continued reading from further into the                     
same letter, " A retroactive tax exemption that forgives a                     
liability owed to the state is equivalent to a direct                          
appropriation and cannot be made unless it serves a                            
purpose."  His question of Mr. Slotnick then was if the                        
department therefore was stating that the bill was                             
unconstitutional.                                                              
                                                                               
Mr. Slotnick's response was that in his view, as expressed                     
in the aforementioned memorandum to Ms. Vogt, that the                         
retroactive tax exemption was likely unconstitutional.  This                   
was because it appeared to be an appropriation for the                         
benefit of individual and not to the general public, he                        
expressed.                                                                     
                                                                               
Senator Adams asked if the assistant attorney general was                      
deriving his argument from Article 9 Section 6 of the State                    
Of Alaska Constitution.  Mr. Slotnick affirmed as much.                        
                                                                               
Senator Parnell shared for the recently arrived Senator                        
Donley his earlier question to Mr. Slotnick and Mr.                            
Slotnick's confirmation that the legislation would not                         
affect closed cases.  Senator Donley expressed that was good                   
news.                                                                          
                                                                               
Senator Adams then repeated the questions and answers                          
regarding the bill's constitutionality for Senator Donley's                    
benefit.  Senator Phillips challenged Senator Adams                            
interpretation of Mr. Slotnick's comments as saying the bill                   
was unconstitutional.  Senator Adams asked the assistant                       
attorney general to restate for the record his opinion on                      
the matter.                                                                    
                                                                               
Mr. Slotnick's response was as follows:  "In my view,                          
Senator Adams through the chair, that the retroactive - is                     
the retroactivity clause in SB 345 would be likely to be                       
found unconstitutional if challenged."                                         
                                                                               
Co-Chair Sharp asked about the retroactivity on collecting                     
taxes on ELF, which was found to be constitutional.  He                        
spoke of the passage of ELF in 1989 by the Legislature and                     
its retroactive date for collecting taxes prior to the                         
effective date of the bill.  Mr. Slotnick was not familiar                     
with the specific case but judged that collecting taxes                        
would serve a public purpose.  He mentioned other problems                     
associated with retroactively imposing taxes having to do                      
with notice and due process.                                                   
                                                                               
Co-Chair Sharp announced that the House of Representatives                     
passed a companion bill earlier in the day, which would be                     
read across the Senate floor tomorrow.  Therefore, this bill                   
would not be moved out of committee at this meeting, but                       
would wait until the other bill arrived in the Senate                          
Finance Committee.  The reason for hearing the bill today,                     
he explained was to allow members to hear from the DOL.                        
                                                                               
To Senator Donley's understanding, Mr. Slotnick agreed with                    
the statements of DOR's memorandum dated April 7.  Mr.                         
Slotnick voiced his agreement with the legal analysis, but                     
said he was not up to date with the factual analysis and                       
wouldn't offer an opinion on that portion.                                     
                                                                               
This concluded discussion on the legislation and Co-Chair                      
Sharp ordered SB 345 set aside.