Legislature(2015 - 2016)HOUSE FINANCE 519
04/05/2016 05:00 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB319 | |
| HB250 | |
| HB249 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HB 319 | TELECONFERENCED | |
| *+ | HB 250 | TELECONFERENCED | |
| + | HB 249 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE BILL NO. 250
"An Act relating to the taxation of income of
individuals; repealing tax credits applied against the
tax on individuals under the Alaska Net Income Tax
Act; and providing for an effective date."
5:41:59 PM
RANDALL HOFFBECK, COMMISSIONER, DEPARTMENT OF REVENUE,
introduced himself. He recognized the bill was one of the
most controversial piece of legislation. He explained that
why an income tax was chosen over other taxes. The bill
would establish a personal income tax equal to six percent
of taxpayers total federal tax liability for Alaska
residents and nonresidents with income from a source in the
state. Because the tax that would be established by the
bill is calculated based on federal tax liability and not
on income, the bill effectively incorporates federal
brackets and exemptions and so permits this bill, and the
personal income tax system it would create to be as simple
and transparent as possible.
5:46:31 PM
BRANDON S. SPANOS, DEPUTY DIRECTOR, TAX DIVISION,
DEPARTMENT OF REVENUE, introduced the PowerPoint
Presentation: "Individual Income Tax: HB 250."
Mr. Spanos addressed slide 2: "Individual Income Tax."
"An Act relating to the taxation of income of
individuals; repealing tax credits applied against the
tax on individuals under the Alaska Net Income Tax
Act; and providing for an effective date."
Mr. Spanos reviewed slide 3: "Income Tax History."
Began in 1949 at 10 percent of federal tax liability
By 1961, the tax was 16 percent of federal tax
liability
In 1975, Alaska switched from federal tax liability to
its own tax brackets
Ranged from 3 percent to 14.5 percent on taxable
income
Alaska repealed personal income tax in 1980 after oil
revenue boom
Mr. Spanos turned to slide 4: "Tax Proposal."
Creates a tax on an individual's income. The proposed
rate is 6 percent of a person's federal income tax
liability
Mr. Spanos explained slide 5: "Income Tax Proposal
(Continued)." He stated that the slide addressed the
current federal tax brackets.
Vice-Chair Saddler looked at the third column and wondered
whether that was taxable income, or gross income.
Mr. Spanos responded that it was taxable income.
Mr. Spanos slide 6: "Income Tax Proposal (Continued)."
Tax applies to nonresidents' income from a source in
Alaska
Residents receive credit for taxes paid in other
states
Provides for employers to withhold taxes and remit
them to the state
5:50:11 PM
Representative Guttenberg asked how he defined resident.
Mr. Spanos responded that in the bill the term "resident"
was defined several times.
Representative Wilson wondered if the $3 billion of "out of
state" workers were defined as residents or nonresidents.
Mr. Spanos stated that the $3 billion was wages earned in
Alaska by nonresidents. He understood that there may be
other nonresidents who may receive the Permanent Fund
Dividend (PFD). He shared that there were other sources of
income, other than wages, that would be taxable for
residents.
Representative Wilson did not feel that the definition
would work.
Vice-Chair Saddler queried the amount of money earned in
wages by Alaska residents in Alaska, if $3 billion was
earned by non-residents.
Commissioner Hoffbeck would have to provide the information
at a later time.
Representative Pruitt wondered whether military personnel
would be taxed, or was it all the other individuals who
could receive the PFD but not live the state.
Mr. Spanos responded to the extent that the pay resident
tax, if they were to pay federal income tax.
Commissioner Hoffbeck stated that the income tax would be
based on their income in Alaska or from an Alaska source.
Representative Pruitt thought it was cumbersome to manage
the income tax, to require those living outside of the
state to pay the income tax on the PFD.
Commissioner Hoffbeck replied that their residency allowed
for a credit in other states against the Alaska tax. He
explained that some of the money earned in other states
could be transferred if the Alaska tax rate was higher than
the other state. He stated that the individual would need
to fill out a state income tax return.
Representative Pruitt asked about the cost to the state. He
was skeptical about really collecting any money.
Commissioner Hoffbeck agreed that all taxes would have to
be processed.
5:56:44 PM
Vice-Chair Saddler mentioned military members. He wondered
if those living outside the state, retaining residency, who
received a PFD would be required to pay the state income
tax.
Mr. Spanos replied that other states dealt with the same
issue. He stated that they would be required to pay the
taxes in their home state.
Vice-Chair Saddler surmised that they would be subject to
Alaska income tax.
Mr. Spanos agreed.
Representative Gara surmised that the tax was a percentage
of federal tax. He stressed that the state taxes were
deducted from the federal tax. He wondered how that loop
would be solved.
Mr. Spanos stated the IRS made it fairly simple with the
use of W-2's.
Mr. Spanos continued to discuss slide 6.
Mr. Spanos moved to slide 7: "Income Tax Estimates:
Estimated tax for married couple filing jointly with 2
children." He reported that he slide showed an example of
what an individual or family might pay in taxes.
Mr. Spanos provided another example on slide 8: "Income Tax
Estimates: Estimated tax for head of household with 2
children." He pointed out that the head of household had a
slightly different deduction allowance.
6:01:10 PM
Mr. Spanos advanced to slide 9: "Relative Tax Rate":
43 states currently have an income tax
Among states with an income tax, Alaska's rate would
be lowest
North Dakota would be second-lowest
Average state income tax is about 30 percent of
federal liability, five times Alaska's proposed
rate
Six states would still have zero state income tax1
Two states tax only dividends and interest2
Mr. Spanos discussed slide 10: "Impacts of Tax Proposal":
Income from subchapter S corporations and partnerships
will be taxed
Taxed on income with a source in Alaska
Not currently subject to state Corporate Income
Tax
Income earned in Alaska by both non-residents and
residents will be taxed
Rough estimate: 20 percent - 30 percent of Alaskans
would pay zero tax
Mr. Spanos scrolled to slide 11: "Revenue Impact":
· DOR estimates $100 million in FY17 due to the tax
taking effect in January 2017
o This amount is from withholding
o No tax returns filed until April 2018
· DOR estimates $200 million in FY18 based on modeling
using aggregated federal income data for Alaska
residents
Mr. Spanos moved to slide 12: "Implementation Cost."
· Implementing an individual income tax in 18 months
will be a significant challenge
o Need to draft regulations
o Need to design, develop, and test technology to
administer tax that would have estimated 450,000
tax returns filed annually.
· Estimated $250,000 supplemental appropriation for a
contractor to work with DOR on an implementation plan
· Estimated $14,000,000 one-time capital appropriation
to build income tax into our current tax revenue
system
o Includes withholding and online filing
· Annual staffing cost of about $6,000,000 for 52 FTE
employees
6:04:43 PM
Commissioner Hoffbeck addressed slide 13: "Closing the
Budget Gap" and slide 14: "Closing the Budget Gap
(Continued)." The components used to close the budget gap
included the FY 17 baseline revenue (after proposed
legislation; FY 17 spending reductions; and new revenue
components.
Mr. Spanos asked if he should address the sectional
analysis.
Co-Chair Thompson replied in the negative and relayed it
could be taken up at a later date. He recalled that the
income tax in the 1960s was a one-page form and very
simple. He felt that the current system was too
complicated. He wondered if there was a simpler method.
Mr. Spanos replied that the form would still be simple, but
it was based on the complicated federal income tax. He
stated that the cost projection was based one-half
Montana's structure. He stated that Vermont had a similar
population as Alaska, so they had relayed that they belied
Alaska's proposal was reasonable. He stated that the
auditors and computer system were essential to processing
the system.
Co-Chair Thompson wondered whether the federal system would
be connected to the state's system.
6:07:46 PM
Mr. Spanos replied in the affirmative.
Representative Wilson pointed to slide 8, and surmised that
one would pay $7 dollars for a $40,000 income; and $97 for
$50,000.
Mr. Spanos replied in the affirmative.
Representative Wilson surmised that the state would have
someone do all of the paperwork for $7.00.
Representative Gattis referred to nonresident pilots flying
Alaskan routes and sports teams. She wondered if the state
would recoup any of those dollars.
Mr. Spanos replied that most states had some kind of daily
limit income earned in the state.
Representative Gattis hoped the state did not use
California as a role model.
6:10:09 PM
Vice-Chair Saddler queried the rates for those individuals
who earned higher than $100,000.
Co-Chair Thompson asked if he was referring to slide 5.
Commissioner Hoffbeck replied that the highest rate was
2.38 percent, and agreed to provide more information.
Representative Guttenberg referred to the state form that
specified how much state and federal taxes were paid.
Commissioner Hoffbeck replied that a person would pay
whatever their federal tax bracket and 20 percent of that
for state income tax.
Representative Munoz asked about auditors.
Mr. Spanos answered replied with a rough estimate and the
department relied on a contractor to see if they estimated
too high or low.
Representative Munoz wondered if the audits would be random
and meaningful.
Mr. Spanos replied in the affirmative.
6:13:39 PM
Representative Gara wondered if the state income tax was
deducted from the federal income tax.
Co-Chair Thompson replied in the affirmative.
Representative Gara requested a chart related to the
percentages related to what would actually be paid by the
individual.
Commissioner Hoffbeck agreed that the department could
provide the information.
Representative Gara wondered whether everyone had the
opportunity to take tax reductions or were itemizations
required.
Mr. Spanos responded that only those who itemized would
qualify for the reductions.
Representative Gara queried families and single people.
Commissioner Hoffbeck thought the information had been
provided previously.
Representative Munoz wondered why the fiscal note had a
smaller number of employees in the fiscal note.
Commissioner Hoffbeck replied that he limited the number of
employees.
6:16:39 PM
Vice-Chair Saddler asked whether someone under 16 would be
subject the taxes.
Mr. Spanos responded that it depended on their level of
income. He stressed that if they filed federally they also
must file for the state. He shared that the parents may
need to pay taxes if the minor earned at a certain level.
He agreed to provide more information.
Vice-Chair Saddler wondered whether the 20 percent of
Alaskans who would not pay were citizens or wage earners.
Mr. Spanos referenced the ISER report. He believed it was
wage earners.
Vice-Chair Saddler queried the standard deduction.
Mr. Spanos responded that it was $12,600 for a married
couple; and $6,300 for a single individual.
HB 250 was HEARD and HELD in committee for further
consideration.
6:19:00 PM
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 319 CS WORKDRAFT FIN v.H 4-1-16.PDF |
HFIN 4/5/2016 5:00:00 PM |
HB 319 |
| DOR Tax Division Presentation INCOME HB250 4-4-16 final.pdf |
HFIN 4/5/2016 5:00:00 PM |
HB 250 |
| HB 249 DOR Tax Division Presentation MOTOR FUEL HB249 4-5-16 final.pdf |
HFIN 4/5/2016 5:00:00 PM |
HB 249 |
| HB319 Supporting Documents - Dan Mayfield letter of support, 5 April 2016.pdf |
HFIN 4/5/2016 5:00:00 PM |
HB 319 |
| HB 249 DOT Response International Fuel Tax (5).pdf |
HFIN 4/5/2016 5:00:00 PM |
HB 249 |
| HB 250 DOR Response to House Finance - 4.14.16 Signed by RH.pdf |
HFIN 4/5/2016 5:00:00 PM |
HB 250 |