Legislature(2003 - 2004)
05/14/2003 01:41 PM House FIN
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
HOUSE BILL NO. 293
An Act levying and collecting a state sales and use
tax; and providing for an effective date.
BRUCE JOHNSON, UTAH STATE TAX COMMISSIONER, observed that he
is the Co-Chair of the Implementing Group of the Streamlined
State Sales Tax group and provided information on the issue.
He stated that whether a sales tax was adopted was an
individual state policy, but encouraged the streamlined
sales tax system. He discussed his experience advising
businesses on local sales tax provisions. He gave the
example of a sales tax provision in New York State that made
a single item either taxed or exempt at the discretion of a
retailer. He explained that the streamlined sales tax system
unified state definitions, making regulations consistent
throughout the country. He expressed his belief that the
streamlined system was beneficial. He speculated that the
number of returns filed would be reduced, and that software
services would be available to help states. He also
maintained that the system was beneficial to local
retailers, since they were otherwise at a disadvantage to
retailers outside the state selling electronically. He
maintained that this system created a level playing field
for local merchants. He also stated that the system would
ensure that the tax would remain a viable revenue source in
the future. He concluded that the streamlined sales tax was
the best system to choose.
Representative Kerttula asked whether he had experienced
other states, which had never had a sales tax, but rather a
number of non-uniform taxes across the state. Mr. Johnson
noted that Colorado, Alabama and Arizona have local
administration of sales tax, where local governments collect
their own tax and in some cases the tax base is not the same
as for the state. He has also practiced in Colorado, which
had different exemptions at a state and municipal level. He
stressed that while the local governments maintained local
rule, since they believed it was superior, that it was a
difficult situation for businesses. He felt that this led to
the Supreme Court's ruling, which required physical
presences in a state before a sales tax could be collected.
He stated that there was no state with situations exactly
like Alaska, but noted other states were working with the
problem. He reiterated the benefits of the system.
Representative Kerttula asked whether the exemptions or
their definitions must be uniform among the states. Mr.
Johnson clarified that a state may choose their own
exemptions, but that the definitions of exemptions would be
uniform.
Mr. Persily asked whether, under the streamlined program,
there would be prohibition in a municipality against an
excise tax, such as bed tax, car rental tax. Mr. Johnson
stated that there would not be. He noted that in Utah, the
state retained the right for excise taxes.
Co-Chair Williams asked what was required to pass the system
into law. Mr. Johnson noted that the system would come into
effect when ten states were participating, but would still
be voluntary for merchandisers that did not have a physical
presence in the state. For it to be mandatory, Congress
would have to take action.
Co-Chair Williams asked how exemptions were decided. Mr.
Johnson responded that Utah made the minimum conforming
decisions, keeping in place their previous exemptions, but
fine-tuning the system to be in conformation with the
unified definitions. He pointed out that Alaska faced a more
daunting task. He concluded that the intent was not for a
uniform task, but to make the tax uniformly convenient.
Representative Hawker asked for clarification that the
statewide sales tax system did not have dominion over local
decisions. Mr. Persily confirmed that the system did not
prohibit existing or new excise taxes in municipalities. He
pointed out that if a municipality desired to tax an item
that was exempt statewide, they would simply adopt an excise
tax.
Vice-Chair Meyer asked whether a bed or car rental tax would
be left up to municipalities. Mr. Persily pointed out that
those cities with current excise taxes, but that under the
bill, the State would also implement its use tax in addition
to those taxes. Vice-Chair Meyer clarified if the State
could implement a statewide excise tax. Mr. Persily
confirmed that this was true.
Co-Chair Williams called a Committee Recess at 2:01 PM.
TAPE HFC 03 - 93, Side A
Co-Chair Williams reconvened the meeting at 9:30 PM.
JOHN MACKINNON, DEPUTY COMMISSIONER, DEPARTMENT OF
TRANSPORTATION AND PUBLIC FACILITIES provided information on
the motor fuel tax provision of HB 293. The current .08-cent
a gallon would be raised to .20 cents per gallon. The
current .08-cent per gallon tax raises approximately $29
million dollars a year. The increase would generate an
additional $41 million dollars. He noted that the total
raised by the highway user fee would be approximately $70
million. The Department of Transportation and Public
Facilities currently spends $60 million in highway
maintenance and an additional $50 million in federal match
for highway construction, which all comes from the General
Fund. He noted that 38 states would still have a higher fuel
tax than Alaska. The national average is about .20 cents per
gallon.
KEVIN RITCHIE, ALASKA MUNICIPAL LEAGUE provided information.
He noted that a group of municipal officials had met with
the Governor and offered suggestions, which were
subsequently acted upon to lesson the impact on
municipalities. He stated that the rewritten bill was then
reviewed, and a few concerns were raised. The first
objection was to the exemption of sales tax on marine and
motor fuel. He pointed out that currently municipalities tax
marine and motor fuel, equaling millions of dollars for
municipalities. He stated that the exemption was
problematic. The second issue is the concern raised by the
cap. He explained that a number of municipalities had a
variety of caps, put in place to encourage local business in
that particular community. He noted that there was talk of
considering a lower cap, which was then broadened. He noted
that in car sales, the amount of sales tax might effect
where cars are purchased.
JOANNE ROOMSBERG, JUNEAU SALES TAX ADMINISTRATOR, JUNEAU,
spoke in response to a question by Representative Hawker.
She explained that presently Juneau has a fuel flowage fee
that is charged at the municipal airport. Aviation fuel is
exempt from the city's general sales tax. She stated her
understanding that the bill would allow Juneau to continue
to implement a fuel excise tax.
Mr. Ritchie pointed out that Tom Boedeker was the Committee
Chair in the working group that had raised concern about the
effect on fuel taxes.
In response to a question by Representative Berkowitz, Ms.
Roomsberg stated that a non-resident exemption card could be
purchased for a cost of $20 dollars. The card is good for a
year. This allows the purchase of items that would be used
and consumed outside of the city and borough of Juneau. It
would not qualify for items that would be used or consumed
in Juneau, such as a car rental or hotel room. Tangible
personal property can be brought into the city for work or
service, such as service on a car.
Co-Chair Harris asked about the position of communities in
support of a statewide sales tax. He asked what kind of
relief was necessary to garner acceptance from
municipalities. Mr. Ritchie referred to testimony in Senate
Finance, revolving around conflicts foreseen by
municipalities. He pointed out that at this time not all of
the conflicts were apparent. He noted that even in cases
when communities were not in favor, they had suggestions for
making it workable.
Co-Chair Harris asked whether the Alaska Municipal League
foresaw a "roadblock" to working with the sales tax. Mr.
Ritchie maintained that they did not have a history of
blocking legislation. Co-Chair Harris observed that it would
be helpful for the Municipal League to help gather support
for the tax.
Mr. Ritchie pointed out that the organization was committed
to helping meet the budget gap. He stated that the Board had
directed him to work with the Legislature to resolve issues
surrounding the tax.
Representative Berkowitz asked if the Administration had
reviewed other states with overlapping taxes. Mr. Ritchie
observed that Alaska was unique in its taxation, as the only
state with a municipal power to tax sales without a state
sales tax.
Representative Kerttula asked about the level of drop in
revenue sharing. Mr. Ritchie responded that in the past
three years it had remained level, and now it had gone down
by 25%. Municipalities received $40 million in 1986 as
compared to the current $20 million. Representative Kerttula
asked how many municipalities had raised their sales tax in
the last couple of years. Mr. Ritchie thought that three or
four municipalities had raised their sales tax including
Dillingham, and Seward.
Representative Kerttula asked how many communities were at
the cap for property tax, with a fairly high sales tax as
well. Mr. Ritchie observed that there is a statutory cap of
30 mils. Different communities have revenue caps. Petersburg
has a 10-mil property cap, which they are at. Juneau has a
cap of 12 mils, and is currently at 11 mils. In response to
a question by Representative Kerttula, Mr. Ritchie noted
that the state assessor could provide a list of property tax
caps.
Representative Kerttula asked about the range of exemptions.
The city and borough of Juneau has 37 exemptions. Mr.
Ritchie referred to a list of exemptions provided in 1999,
which lays out most of the exemptions. Representative
Kerttula asked if there had been a study on the impacts on
Juneau of a tax such as that contained in the Committee
Substitute. Ms. Roomsberg stated that Juneau has the
difference in the exemptions and the tax base, which would
make it difficult to evaluate the tax impact. She noted that
several aspects of the tax must be more clearly defined
before a more comprehensive study could occur: the
exemptions, incidents and tax base.
Vice-Chair Meyer asked how to rate the three major sources
of revenue, which are before the Legislature: sales tax,
[capping the] permanent fund dividend, and income tax. He
observed that a sales tax and a state income tax would take
disposable income out of the economy, but pointed out that
capping permanent fund dividend would also keep money out of
the economy. He questioned Anchorage's position. Mr. Ritchie
referred to a poll by the Southeast Alaska Municipal and
Business Conference and noted that, as of 2:30 on 5/14/03,
eight municipalities were in favor and 48 were opposed to
the proposed sales tax. Members were asked to list the least
objectionable revenue stream: 30 permanent fund earnings, 25
income tax, and 2 sales.
Representative Hawker asked if municipal revenue sharing
would be increased or decreased as a result of the bill. Mr.
Ritchie noted that the bill allows the state to appropriate
6 cents of the gas tax increase to road revenue sharing,
which would raise revenue sharing by approximately $18
million. He observed that this year's reduction to revenue
sharing was $7 - $8 million. Representative Hawker concluded
that the legislation would increase revenue sharing by a
multiple of the current reduction. He asked the level of
property tax caps in communities relying solely on property
tax. Mr. Ritchie thought that those communities relying
solely on property tax had rates of 18 to 20 percent. Juneau
is at 11.5 - 12 mils.
ROD PECK, PRESIDENT ALASKA TRAVEL INDUSTRY ASSOCIATION
testified in support of the bill. He stated that his
organization represented small businesses in Alaska. He
stated that tourists spent 1.8 billion on visitor related
activities. His industry recognizes the fiscal gap
challenges that the legislature faces, but faces its own
challenges. He observed that there was a reduction of
visitors to the state. He anticipated a further drop of 10
20 percent drop in visitors. He suggested that a revitalized
marketing program would turn around the trend. He stated
support of the bill, if amended to include a tourism tax
revenues to bolster the existing state marketing program. He
presented the committee with amendment language, which would
identify tourism tax revenue by tracking industries
contributing to a marketing program.
Vice-Chair Meyer asked how much revenue was estimated as a
result of the amendment. Mr. Peck observed that their
research indicates that, of the $1.8 billion, they can
identify $920 million in activities over an annualized
period. Vice-Chair Meyer observed that the car rental tax
bill contained a clause to reappropriate funds to the
tourism industry. Mr. Peck stated that his industry was
opposed to targeted taxes, and believed that this was the
fairest tax since it was industry wide.
Representative Kerttula asked about the nature of the
contract with Alaska Travel Industry Association (ATIA). Mr.
Peck observed that ATIA is in the third year of a three-year
plan that would continue into perpetuity. They have a $10
million budget, of which $4 million was in contribution from
the state and $6 million is from matching private funds. The
budget in year one and two was $8.5 and $7 million, with a
greater percentage coming from the state.
Representative Hawker observed that the proposed amendment
would deprive the State of the tax from an entire sector of
the economy. Mr. Peck stated that this was not true, since
the industry generates $1.8 billion. He stated that the
amendment targets segments of activities in the area of $900
million.
Representative Hawker summarized that the proposal by ATIA
would deprive the state of revenue from a sub sector of the
economy, which would benefit solely from revenues collected
from within it. Mr. Peck pointed out that not all gift shops
would contribute due to a definition of seasonality, but
acknowledged the conclusion. Representative Hawker asked if
the amendment was acceptable to the industry, and questioned
why they had not formed a trade association and self-
assessed for the same efforts.
Representative Berkowitz speculated that problems attendant
to tourism marketing also impeded work in this area. Mr.
Peck confirmed that it was difficult to reach industry
consensus.
In response to a question by Representative Kerttula, Mr.
Peck confirmed that there were a variety of excise taxes in
the industry.
Co-Chair Williams stated that a committee substitute would
be available at the next Committee meeting.
HB 293 was heard and HELD in Committee for further
consideration.
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