Legislature(2003 - 2004)
05/07/2004 08:44 AM Senate FIN
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* first hearing in first committee of referral
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SENATE BILL NO. 366
"An Act relating to the levy and collection of sales and use
taxes, to the levy and collection of municipal sales and use
taxes, and to municipal sales and use taxes on alcoholic
beverages; and providing for an effective date."
This was the fifth hearing for this bill in the Senate Finance
Committee.
Co-Chair Wilken informed that this legislation addresses a State
sales tax.
Senator B. Stevens moved to adopt CS SB 366, Version 23-LS1051\Z as
the working document.
There being no objection, the Version "Z" committee substitute was
ADOPTED as the working document.
Senator B. Stevens explained that the committee substitute
incorporates the following changes: in Section 17, on page six,
lines 17-21, language is inserted that would allow communities "to
levy and collect specific sales or excise taxes" on categories to
include single events such as a car rentals and fish taxes. This
language reads as follows.
Sec. 17. AS 29.45 is amended by adding a new section to read:
Sec. 29.45.655. Specific taxes on property and services.
Unless otherwise prohibited by law, a municipality may levy
and collect specific sales or excise taxes on single
categories of tangible and intangible property or services,
such as bed taxes, car rental taxes, and fish taxes.
Senator B. Stevens pointed out that another change is incorporated
into the bill in Section 29 (c) on page ten, lines 14 and 15, as
follows.
(c) The rate of the sales tax is three percent of the sales
price. The rate of the use tax is three percent of the
purchase price.
Senator B. Stevens also noted that new language exempting
communities with a population of less than 500 "from any of the
provisions included in this bill" is inserted in Section 29,
subsection 43.44.020 Exemptions. on page 12, lines 15 and 16, as
follows.
(16) sales, leases, or rentals made in a municipality or
unincorporated community with a population of less than 500.
Senator B. Stevens also noted that a new provision in added in
Section 29, Article 3. Administration of Tax., subsection 43.44.310
Relationship to municipal levies. on page 20, lines 10-13, that
would allow the Department of Revenue to contract with the local
municipality that currently have an existing tax office. This
language reads as follows.
(d) The department shall have sole responsibility and
authority for the administration of taxes levied under this
chapter, AS 29.45.650, and 29.45.700. The department may
contract with a municipality to provide a field office for
that municipality 's geographic area of the state.
Senator B. Stevens communicated that the committee substitute would
establish a termination date for the legislation to be effective as
of July 1, 2013, as denoted in Sec. 37 on page 26, lines 12 and 13.
Senator B. Stevens opined, "that this is a fiscal proposal that
would generate revenue." He noted that while the Department of
Revenue has not yet provided a fiscal note specific to this new
committee substitute, it is estimated that a three percent State
sales tax would generate approximately $250 million, with $166
million of that to be designated for the State and with
approximately a $85 million return to communities. He identified
the exemption of communities with less than 500 residents as "the
largest exemption provided to date." He noted that this exemption
would exempt 87 of the 164 incorporated communities that currently
levy taxes.
Senator Bunde asked the rationale of exempting communities of less
than 500, as, he attested, many of those communities rely on the
State for a number of services including education support.
Senator B. Stevens responded that the reason for the exemption is
that these communities "are the most vulnerable." He noted that the
tax that might be collected in those communities "is not worth the
fight."
PHELAN STRAUBE, Staff to Senator Ben Stevens, further noted that
most of the communities consisting of 500 residents or less "have
high prices for goods" as previously pointed out by Senator Hoffman
and Senator Olson; however, he continued, most of the goods and
services purchased by those communities' residents are from larger
communities such as Bethel, Fairbanks, and Anchorage, and
therefore, he attested, "the sales tax would still be collected."
Senator Bunde voiced concern for "a counter-intuitive incentive" in
that communities might not grow in order to avoid the tax in the
future.
Senator B. Stevens disclosed that there have been interesting
discussions in this regard. He stated that the original argument
was that requiring small communities to pay a five-percent tax
would force commerce outside of the State. He declared that now
that it is being proposed to exempt those communities, "the
discussion has transformed into saying "oh, that's a good idea
because you still capture those people because they spend all their
money in Anchorage…or the local hubs in their regions anyway.'"
This argument, he contended, indicates, "that they don't spend
money outside of the State in the first place."
Senator Bunde shared that some small communities with 1,000
citizens are decrying that placing a sales tax on top of their
local sales tax would encourage citizens to conduct business with
communities of less than 500 residents.
Senator Olson asked the cost incurred to the State to generate that
$250 million in gross sales tax revenue.
Senator B. Stevens stated that page two of the Department of
Revenue indeterminate fiscal note, dated March 31, 2004 indicates
that an on-going operational expense of $5.9 million would be
required to provide for 79 full-time positions. He stated that this
is an estimate and does not account for the new provision that
would allow the State to contract with local municipalities to
provide the service. He concluded that while the effort would cost
money, it would generate money.
Senator Bunde agreed "that whatever the cost, there would be a net
gain to the State."
Senator Olson asked for verification that the proposed tax would
now be three percent rather than four percent.
Senator B. Stevens confirmed that this committee substitute would
reduce the tax rate from four percent to three percent as indicated
in Sec. 29, subsection (c) on page ten, lines 14 and 15.
Continuing, he noted that the amount contributed to the community
or the Rate that "would be returned to the community" would remain
the same, as specified in Section 29, Article 3. Administration of
Tax. Subsection (b) (1), (b) (2), (b) (3), and (b) (4) on page 19,
beginning on line 23 through page 20, line 4 which read as follow.
(1) less than three percent, the department shall remit the
amount of the tax levied by the municipality;
(2) at least three percent but less than four percent, the
department shall remit the amount that would have been
collected in the municipality if the sales and use tax had
been four percent;
(3) at least four percent but less than five percent, the
department shall remit the amount that would have been
collected in the municipality if the sales and use levy tax
had been five percent.
(4) five percent of more, the department shall round up to the
next whole number and remit the amount that would have been
collected in the municipality if the sales and use tax levy
had been that whole number; for example, if a municipality
levied a sales and use tax at the rate of five percent, the
department shall remit the amount that would have been
collected under a six percent levy.
Senator B. Stevens stated that, "in reality, one-third of the
revenue collected by the State would be returned back to the
community." He noted that those communities that do not collect a
sales tax would not receive a percentage.
Senator Olson asked whether exemptions might apply to the rental
and sale of real estate as related to language in Section 29,
subsection (d) on page ten, line 16 that reads as follows.
(d) The maximum tax on a single sale, lease, or rental is $60.
Senator B. Stevens responded that the sale, rental, lease, or
construction of real property are exempt from the sales tax in
communities of less than 500 residents.
Senator Hoffman asked for further clarification of this matter by
asking in regards to the taxes on a five-year home lease agreement.
Senator B. Stevens declared that it would be exempt from the tax.
Senator Bunde moved to report the committee substitute from
Committee with individual recommendations and accompanying
"pending" fiscal note.
There being no objection, CS SB 366 (FIN) was REPORTED from
Committee with an indeterminate fiscal note, dated May 7, 2004,
from the Department of Revenue.
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