Legislature(1997 - 1998)
04/02/1997 03:23 PM House L&C
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
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= bill was previously heard/scheduled
HB 72 - SERVICE OF PROCESS ON NONRES TAXPAYERS Number 747 CHAIRMAN ROKEBERG announced the committee would hear HB, 72 "An Act repealing certain filing statements and bonds for enforcement and collection of certain taxes and license fees; relating to service of process on nonresident taxpayers; and providing for an effective date," sponsored by Rules by request of the Governor. BOB BARTHOLOMEW, Deputy Director, Income and Excise Audit Division Department of Revenue, came before the committee to explain the bill. He said his division is responsible for administering what is called the nonresident tax affidavit bond program. Mr. Bartholomew pointed out that currently in statute is a program that was established in 1955 to try to give the state some additional tools in collecting tax liabilities. It effects nonresident corporations, which is any business whose primary headquarters is not registered in Alaska. It could be fish processors in Seattle or the oil companies on the West Coast. They have to annually file a two or three page affidavit and form with the Department of Revenue. The department's staff processes it. They have to go to an insurance company and get a bond or pledge real estate to cover their tax liability. Mr. Bartholomew said in all the years the department has been administering this, staff can't remember ever using the affidavits or the bonds to secure tax liabilities. He said the department basically goes against their bank accounts or they take away their business license. He said the department hasn't used this tool and are spending about 800 hours a year, between three people in the department's compliance unit, to administer the program. He said the department feels it has enough tools to collect taxes and the businesses haven't seen a benefit from this program. MR. BARTHOLOMEW said a similar piece of legislation made it through the Senate, but there wasn't time for it to move through the House. He noted the Senate bill has been heard in two Senate committees this year and moved with all "do pass" recommendations. He also noted there is a zero fiscal note and the reason for that is the department has been taking budget reductions every year for the last three years and they are trying to catch up. They have more work that bodies. Mr. Bartholomew informed the committee they also receive a lot of complaints from businesses, whether they are motor fuel, tax payers or fishery business tax payers, that they are paying their taxes and they want to make sure the other guy is too. They want the department to increase compliance. He said the department knows they won't get new positions and they are looking at ways to do it and that is why they are trying to refocus the 800 hours that go into processing this tax bond. Number 996 CHAIRMAN ROKEBERG said, "That was certainly one of mine that relates to the fiscal note because it should be a negative fiscal noted, if you will. But that's where you're redirecting the 800 hours. Is that the $30,000." MR. BARTHOLOMEW explained it is about 800 staff hours, so it is the equivalent personal services that would cover and then there are some mailing costs that they would no longer be incurring. He informed the department has tried several ways to beef up compliance. They have implemented a new computer system two years ago to try and automate a lot of in-house analysis before they decide where there might be trouble or who might not be paying taxes. Number 1047 REPRESENTATIVE COWDERY asked, "How does this differ from in-state to out-of-state people? How does it differ?" MR. BARTHOLOMEW pointed out that the statute only requires the Department of Revenue to administer this for nonresident corporations. So if you are a 100 percent Alaska corporation and your incorporation paperwork states "Alaska," then you are not subject to this requirement. If your official headquarters is Washington, Oregon, California, New York, then you come under this act and have to fill out the paperwork and register with the department in addition to normal tax filings. Mr. Bartholomew said people in the department spoke with the Anchorage Chamber and the State Chamber and there was the issue of, "Is there something here that we don't want to do that would disadvantage in-state businesses?" They also went to the small business development program and the university and all three of them felt that from a business perspective it was in the best interest of all businesses to eliminate a layer of paperwork. At this point, in-state are not effected and wouldn't be if the bill passes. Number 1128 REPRESENTATIVE COWDERY asked if the information that is provided by outside corporations is confidential or public information. MR. BARTHOLOMEW said the way the statute is structured is any information that is provided on a tax return is confidential. He noted any information provided on a business license application is public information and would continue to be public information. REPRESENTATIVE HUDSON asked if there are other areas, in statute, that require a bond posting. He also asked if the legislature has ever acted on those. MR. BARTHOLOMEW said the other area that his division is involved in relates to fisheries. He said some fishery businesses do post a bond and the reason that has been required was that historically, there were certain situations where fishermen weren't getting paid for the fish. They would catch them, deliver them to a processor or an intermediate boat that hauled them off. There were situations where fishermen weren't paid so the legislature enacted a bond. He said he knows that probably several times a year they do pay on those bonds to fishermen. REPRESENTATIVE HUDSON asked how the department accesses those bonds. MR. BARTHOLOMEW said it generally requires a court action. The court would establish that there is a legal debt and that is all the department needs. He said the department either has an insurance bond or a cash bond. If it is cash, the department would then cut a warrant, via the court document, to the person claiming it. If it through an insurance company where a bond has been posted, it is his understanding that the person would work directly with the insurance company. Number 1297 CHAIRMAN ROKEBERG referred to information from 1996, which said that $2,119,584 was prepaid by 239 corporations and interest of approximately $58,000 was earned. He asked what the $2,119,584 was. MR. BARTHOLOMEW said, "There were 2,000 corporations that filed the affidavit, and of the 2,000, 239 of them rather than going to an insurance company and giving a bond, they actually put a cash deposit with the Department of Revenue. We collect that, we put it on account - we basically put it in the general fund and do an accounting of it. The state does earn interest on that. The money still belongs to the business and if they pay their taxes, we would pay them back their cash. As stated in that bullet, the state earned $58,000 in interest last year on that money. And it's the Department of Revenue's position that that is a loss of interest income, but that one that is probably more appropriately -- the businesses interest income and if they get to retain the cash, would earn the interest. And we feel that by redirecting the 800 hours that in our compliance work, we would more than recover what's lost in interest. That's another reason why we wanted to show the $58,000, but we didn't put it in a fiscal note because we feel that we're gonna collect more than that through the compliance efforts." Number 1418 REPRESENTATIVE HUDSON asked if current regulations restrict the manner in which the department can invest these kinds of deposits. He said he received a telephone call from somebody who said, "Do you realize that there is millions of dollars that are collected from contractors from all over the state of Alaska and, by law, they can only invest them in the lowest income producing mechanisms available, the IRAs or what ever they are." He said they also asked him if he would consider changing the law to provide for a better investment return on their money. Representative Hudson asked Mr. Bartholomew if he is involved in the investment of these kinds of monies. MR. BARTHOLOMEW said through the Department of Revenue, the Treasury Division does have the responsibility for investing all of the funds and there is quite an array of accounts and funds that are invested. In the general fund with all the subaccounts, which would include bonds or any other kinds of deposits on account, they would be invested by the Treasury Division. They do try to look at the individual accounts and what they are for. If a bond is on account, his assumption would be that they will only invest that in short-term. This is because they don't know when it will be called. If there was a problem where the bond was called, and whenever there is an uncertainty as to when it will be demanded, they put it into those short-term categories. Number 1516 REPRESENTATIVE RYAN said he understands if people overpay their taxes, they receive 11 percent interest on the overpayment. He asked where the difference comes between that and putting an amount of money on deposit with the state as a bond, etc. He asked where the distinction was made. MR. BARTHOLOMEW explained the distinction was actually made in the tax code and they do specifically address the overpayment of taxes or refunds due. He said, "The 11 percent, what it is is it's - we're gonna pay you a certain percentage over the federal discount rate or 11 percent, whichever is more. And at this point the federal rate is like around 5 percent or 5 and a 1/4. So the 11 percent is actually quite high compared to what you'd earn in the market, but it is also what taxpayers who are delinquent have to pay us. So they've kind of tied them together. And, again, we feel though we do pay out a little more than the market and we have a risk of people using us as a bank, it has been such a good tool for the department to encourage the larger taxpayers to come forward and not hold out and take everything through appeal and through the courts when they're having to pay us 11 percent. That's was part of the incentive during Governor Hickel's Administration we caught up on a lot of the old oil cases. They changed the law from what was 5 or 6 percent to 11 and it pretty amazing how many people stepped forward to payoff large tax liabilities rather than accrue that interest liability." CHAIRMAN ROKEBERG asked what the will of the committee is. Number 1629 REPRESENTATIVE HUDSON moved and asked unanimous consent to pass HB 72 out of committee with a zero fiscal note and individual recommendations. Hearing no objection, HB 72 was moved out of the House Labor and Commerce Standing Committee.
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