Legislature(2011 - 2012)HOUSE FINANCE 519
02/07/2012 01:30 PM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| HB298 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HB 298 | TELECONFERENCED | |
| *+ | HCR 23 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE BILL NO. 298
"An Act exempting sand and gravel and marketable earth
mining operations from the mining license tax; and
providing for an effective date."
1:38:27 PM
Co-Chair Thomas MOVED to ADOPT proposed committee
substitute for HB 298, Work Draft 27-LS1263\B (Bullock,
2/6/12).
Co-Chair Stoltze OBJECTED for discussion.
JOE MICHEL, STAFF, REPRESENTATIVE BILL STOLTZE, explained
that the CS changed the effective date on page 2, line 6
from July 1, 2012 to January 1, 2012. The reasoning behind
the change was that the positive impact of the bill should
be realized at an earlier date. Subsequently, the original
$150,000 cost to the Department of Revenue (DOR) had been
changed to $300,000 to reflect the entire year.
Co-Chair Stoltze clarified that there was no change to the
Department of Natural Resources (DNR) fiscal note. Mr.
Michel responded in the affirmative.
Representative Doogan asked whether the cost to DOR was a
result of foregone revenue. Mr. Michel responded in the
affirmative.
Co-Chair Stoltze WITHDREW his OBJECTION. There being NO
further OBJECTION Work Draft 27-LS1263\B was adopted.
REPRESENTATIVE PAUL SEATON, SPONSOR, relayed that HB 298
addressed a tax that gained the state little money in the
net operation for sand and gravel. He elaborated that the
tax was very cumbersome because it was a profits based tax,
which meant that the end-use profit portion of sand and
gravel had to be determined and was back-calculated and
tracked. The tax also required each pit to have separate
schedules. The fiscal cost was approximately $300,000;
however, administrative costs of the tax were currently
around $150,000 per year. He added that between 50 percent
and 80 percent of sand and gravel operations went into
public works projects; therefore, the majority of the tax
ended up being passed on to customers (funded through the
legislature or municipalities) in project costs. He
believed the tax had been appropriately defined as a
nuisance tax. There would be no unintended consequences on
municipalities and their ability to collect taxes would not
be impacted. The sand and gravel tax was not the basis for
the severance tax that existed in seven municipalities. He
relayed that DOR believed it could utilize its auditors in
a more efficient and profitable way in the other mining tax
sections.
1:43:03 PM
Co-Chair Stoltze asked whether the elimination of the tax
would leave an opening for local governments to charge
their own tax. Representative Seaton replied in the
negative. He restated his earlier comment that
municipalities could have a severance tax, but the basis of
the tax was not the same as the complex profits based tax.
He was not worried that the tax would be duplicated on a
local level.
Co-Chair Stoltze voiced skepticism about underestimating
local government.
1:44:47 PM
DALE MORMAN, PRESIDENT, ANCHORAGE SAND AND GRAVEL CO., INC.
(AS&G), voiced support for the tax exemption provided under
the proposed legislation. He communicated that AS&G had
been in the gravel business since 1938 and provided
products including, sand and gravel, concrete, asphalt
aggregates, block, pre-cast concrete, specialty sands, and
other. The company was in favor of HB 298 for four reasons.
First, the amount of revenue received by the state from the
tax was less than or equal to the collection cost. The tax
was time consuming and complicated and required the state
to conduct numerous audits. Second, the tax was burdensome
to producers; filing the tax return and responding to
audits was time consuming. The Department of Revenue
stipulated the fair market value (FMV) should be used for
each product; AS&G made a range of 20 to 30 types of
products per year and the company's last audit had taken 18
months and cost over $50,000.
Mr. Morman provided the third reason AS&G supported the
legislation. He stressed that the mining tax as it related
to sand and gravel was ambiguous and inconsistent. Sand and
gravel did not have indexes to determine the FMV (unlike
other commodities such as silver, gold, coal, etc.), so it
was determined at the local level. Gravel producers
throughout the state had different gravel making processes;
therefore sale costs varied on one type of item, which led
to significantly different taxes between producers. Fourth,
the cost of the mining tax was passed on to the end-users,
who were local, state, and federal governments 65 percent
to 70 percent of the time. He reiterated that the tax was
non-productive and inconsistent for the state and
producers.
1:50:25 PM
Co-Chair Stoltze wondered whether the cost or the
bureaucratic nuisance represented a larger issue for AS&G.
Mr. Morman replied that the amount of time and effort
required had become ridiculous. He furthered that the
$50,000 cost of the prior audit did not take into account
time spent with attorneys, the audit department, and other.
He reiterated that the tax was not easy to deal with.
Representative Guttenberg asked a question related to
quarry rock. Mr. Morman answered that many times it was
necessary to use rock to make the desired product.
Representative Guttenberg wondered about the definition of
"marketable earth." Mr. Morman replied that marketable
earth was defined as peat.
Representative Gara asked whether the company paid other
state taxes apart from the mining tax. Mr. Morman answered
that the company paid corporate state income taxes.
1:53:14 PM
Representative Seaton clarified that the elimination of the
mining tax did not influence royalties paid to DNR on sand
and gravel removed from state land.
DAVE CRUZ, PRESIDENT, CRUZ COMPANIES ALASKA, spoke in favor
of the legislation. He discussed that the majority of work
conducted by the company related to heavy civil public
works projects. He explained that currently the mining tax
was passed back to the Department of Transportation and
Public Facilities (DOT). He stressed that the tax was
cumbersome and difficult to calculate. The company had
spent a significant amount of time working to decipher an
audit and he did not believe the revenues were enough to
justify the expense. He explained that the elimination of
the tax would save money and time would be better spent in
other areas.
1:55:53 PM
SAM ROBERT BRICE, PRESIDENT, BRICE INCORPORATED, FAIRBANKS,
expressed support for HB 298. The company operated a
basalt, sand, and gravel quarry between Fairbanks and the
North Pole that generated 30 plus products per year. The
company sold to the general public and supported public
works projects; its tax costs were passed on to clients. He
relayed that the tax was extremely burdensome and it was
difficult for the company to determine what it owed on all
of the various products. He relayed it had cost the company
approximately $35,000 to respond to an audit; whereas, the
mining tax from the relevant years had been less than
$10,000.
BEN NORTHEY, PRESIDENT, COLASKA INC, spoke in support of
the legislation. Colaska was a heavy civil road builder and
sand and gravel producer. He assured the committee that the
passage of the bill would not result in a loss of jobs.
Public works represented approximately 80 percent of the
company's work; the tax on sand and gravel was passed
directly on to customers for concrete, asphalt, roads,
airport projects, and more. He noted that costs varied by
producer.
Co-Chair Stoltze remarked that many people had written in
support of the legislation.
2:00:35 PM
JOHN MACKINNON, EXECUTIVE DIRECTOR, ASSOCIATED GENERAL
CONTRACTORS OF ALASKA (AGC), explained the impetus for the
legislation. He relayed that the prior spring one of his
contractor members had received an audit request from DOR
that took weeks to compile a response to. He had approached
DOR to discuss simplifying the tax to help solve the
problem. The department was cooperative and had discovered
that the tax brought in minimal revenue of approximately
$200,000 to $250,000 per year. There were approximately 180
firms required to file the tax, but because of their
operations only 17 paid the tax. He explained the tax had
been dubbed a nuisance tax. At DOR's recommendation, an
exemption had been agreed to by the industry; it was clear
that sand, gravel, quarry rock, and marketable earth used
in the aggregate industry were different than other
minerals. He explained that it was not possible to file a
claim for sand, gravel, or marketable earth on land that
was open to entry, but it was possible to file a claim for
gold, silver, coal, or zinc on that same land. The bill
provided a broad-based public benefit because currently the
public usually paid for the tax in the product cost.
Representative Guttenberg wondered why and when the tax had
been implemented.
Mr. MacKinnon believed the tax dated back to 1953. Sand and
gravel had been a major industry in the state, but most of
the processing that was done currently had not been done at
the time. He added that very few people had filed a return
at that time. Statute currently required businesses making
$40,000 or less to file, but exempted them from the tax. In
the past there had been an effort by DOR to get businesses
to file; the occurrence had created an uproar related to
the difficulty and effort that it took to file.
Representative Edgmon asked whether there was any
applicability to village corporation lands. He was a member
of a village corporation board that harvested and sold
gravel for public works projects.
Mr. MacKinnon responded in the affirmative. He explained
that regional corporations owned subsurface rights through
the Alaska Native Claims Settlement Act (ANCSA). The Act
provided the corporations with the ability to use a full
depletion allowance; therefore, they paid no taxes on the
mined gravel but were required to file a return. The bill
did not include a severance tax due to the impact it could
have had. He detailed that the regional corporations owned
the subsurface rights, the village corporations mined them,
and technically any operator or owner of a pit was required
to file a return. He communicated that the impact was
positive, not negative.
Co-Chair Stoltze did not like it when the state paid right-
of-way costs to DOT and another government entity charged
DOT. He opined the entities acted like private land owners
and added to the cost of construction projects. He thought
the situation was unreasonable unless it involved a
university lands trust or mental health trust that had a
responsibility to maximize. He noted that it would be
necessary to stretch scarcer money and that federal funds
were decreasing.
2:08:02 PM
Mr. MacKinnon replied that he spoken with Co-Chair Stoltze
about a number frustrating issues related to the cost of
public construction and dealing with other entities.
Co-Chair Stoltze CLOSED public testimony.
Representative Seaton explained that there had been a
concern that gravel islands built offshore for oil
exploration would use large quantities of gravel; however,
HB 298 did not apply because gravel islands used gravel
from leases. He clarified that there was no exemption for
large masses of gravel used for gravel islands.
Representative Neuman wondered how the legislation would
impact audits that were currently underway. Representative
Seaton replied that the updated fiscal note represented a
change from the fiscal year to the beginning of the
calendar year effective January 1, 2012.
Co-Chair Stoltze supported the effective date change.
Representative Seaton restated Representative Neuman's
question and answered that that the bill did not contain a
retroactivity to address current audits.
Representative Neuman expressed concern that audits
underway would still move forward. He believed existing
audits should be eliminated under the legislation.
Representative Seaton deferred the question to DOR or the
Department of Law. The DOR Tax Division had voiced its
opinion that the tax was a nuisance and that it would
prefer to spend staff time on more productive efforts, but
he did not know how it felt about existing audits.
2:12:28 PM
Representative Neuman suggested that the committee
recommend that any ongoing audits should be eliminated.
Co-Chair Stoltze thought that a letter of intent would be
more appropriate and could be offered on the House floor.
He directed that the drafting of a letter should be done in
collaboration with Representative Seaton if it was decided
that a letter was necessary.
2:14:33 PM
Co-Chair Thomas MOVED to report CSHB 298(FIN) out of
committee with individual recommendations and the
accompanying fiscal notes. There being NO OBJECTION, it was
so ordered.
CSHB 298(FIN) was REPORTED out of committee with a "do
pass" recommendation and with one new fiscal impact note
from the Department of Revenue and one previously published
zero fiscal note: FN1 (DNR).
| Document Name | Date/Time | Subjects |
|---|---|---|
| CSHB 298 (RES) Sponsor Statement.pdf |
HFIN 2/7/2012 1:30:00 PM |
HB 298 |
| Summary of Changes - HB 298 to CSHB 298 (RES).pdf |
HFIN 2/7/2012 1:30:00 PM |
HB 298 |
| GravelProducts.pdf |
HFIN 2/7/2012 1:30:00 PM |
HB 298 |
| HB 298 Support Letters.pdf |
HFIN 2/7/2012 1:30:00 PM |
HB 298 |
| NEW FN HB298CS(FIN)-DOR-TAX-02-07-12pdf.pdf |
HFIN 2/7/2012 1:30:00 PM |
HB 298 |
| HB298 FIN WORKDRAFT 27-LS1263-B.pdf |
HFIN 2/7/2012 1:30:00 PM |
HB 298 |