Legislature(1993 - 1994)
03/31/1994 08:00 AM House STA
Audio | Topic |
---|
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
CSHB 226: "An Act relating to the rate of interest and service charges in the state; relating to interest rates and calculation of interest under certain judgments and decrees and on refunds of certain taxes, royalties, or net profit shares; and providing for an effective date. CHAIRMAN VEZEY opened HB 226 for discussion. He recognized the committee substitute, version E, before the committee and asked if there was a motion to adopt it for consideration. Number 073 REPRESENTATIVE GARY DAVIS so moved. Number 076 CHAIRMAN VEZEY, hearing no objection, adopted CSHB 226, version E. Number 087 DEBORAH VOGT, ASSISTANT ATTORNEY GENERAL, addressed HB 226 requested by the Governor. She had not had access to CSHB 226, therefore she addressed the original HB 226. She stated the Governor requested HB 226 to address two problems. First, the interest rates of both pre and postcivil judgments are a set statutory 10.5 percent. This 10.5 percent does not fluctuate with market, therefore it is sometimes grossly disproportionate to what the state, a corporation, or an individual can earn to represent the time value of money while litigation is pending. The Administration believes interest on judgments should not be an incentive for one party to settle, or for the other party to delay the litigation. The rate should fluctuate with the market and represent the time value of the money. MS. VOGT stated the second purpose of HB 226 is to address the problem with back taxes and royalties. She noted the interest rate for those payments was amended in the 1991 legislative session to be a floating market interest rate, with an 11 percent floor. The interest rate on underpayment is the same as the interest rate on overpayment. Therefore, if a company overpays its taxes or royalties, it will be entitled to the same interest today from the state that the state would have collected, had the party underpaid. She believed the considerations for interest are substantially different for taxes and royalties from civil litigation. She noted concern that the legislation has had the unintended effect of setting up the possibility that an individual or corporation might overpay their taxes or royalties, thereby entitled to an interest payment on a refund disproportionate to what the market would support. MS. VOGT commented the state is interested in these interest rates because it is a common litigant, much more as a defendant than a plaintiff. HB 226 proposes that both pre and postjudgment interests will be a floating market rate tied to the coupon yield equivalent of the sales of treasury bills. This market indicator was chosen because it is used by the federal courts and lawyers are at least partially familiar with it. Their intent was to find an indicator that was reasonably reflective of the true market and adopted into civil litigation. Interest rate simplicity is a concern with civil litigation. There needs to be an indicator that tracks the market and is simple enough that civil litigants understand and apply it. MS. VOGT stated the Administration chose the coupon yield equivalent as of January 1 for the preceding 52 weeks. The indicator would change each year, not each month. MS. VOGT addressed the amendments proposed by the Administration to the original HB 226. Regarding civil litigation, they suggest an amendment to the effective date making those parts of HB 226 effective as of January 1, 1995, rather than immediately. This would ease both the private sector and the state court system. MS. VOGT referred to a sentence regarding the tax and royalty provisions in both the committee substitute and the original HB 226, which reads, "However, if the overpayment is the result of a correction made by the department, the amount overpaid bears interest at the rate, and in the manner provided in (d) of this section." This language was intended to make a distinction between overpayments which are the fault of Department of Natural Resources or the Department of Revenue, versus the fault of the tax or royalty payer. She stated this language would be extremely difficult to apply; therefore, it should be omitted from both the tax and royalty sections. Number 258 CHAIRMAN VEZEY asked MS. VOGT to clarify which version she was referring to. MS. VOGT clarified she was addressing the original HB 226. She stated the Administration would oppose CSHB 226 because it does fulfill the intentions of the Administration. Referring to CSHB 226, the market indicator chosen for civil litigation is five points above the federal reserve discount rate. This would be significantly higher than the rate set out in the original HB 226. She distributed and outlined a comparison chart for the committee. (A copy of the chart is on file.) Number 293 CHAIRMAN VEZEY clarified the federal discount rate has been constant since July 1, 1992 at three percent. He noticed her report showed the rate at 3.5 percent in 1992. Number 297 MS. VOGT responded she received the figures from the Department of Revenue and they had simply conveyed the figures were from "January." Therefore, she assumed they meant "January, 1, 1992." She did not dispute that the rate changed to three percent in July. MS. VOGT redirected to the report and examined the difference between the middle column, portraying the CSHB 226 discount rate plus five percent and the far right column, portraying the HB 226 coupon yield equivalent. She submitted that the coupon yield equivalent numbers were more reflective of the time value of money. MS. VOGT addressed CSHB 226 as it deals with provisions on taxes and royalties. She stated CSHB 226 raises the interest rate the state would pay on overpayments back up to five points above the federal discount rate. Except for the 11 percent floor, it would be the same rate the state charges for royalty and taxpayers for underpayment. The point of the original HB 226 was to make a difference between underpayment and overpayments; similar to federal procedure. The 11 percent floor is also removed from the interest on overpayments in CSHB 226. MS. VOGT pointed out the tort reform legislation which has been proceeding through the legislature, also has interest on judgments provisions in it. She noted those provisions were more similar to CSHB 226, except that they are three percent, instead of five percent above the federal discount rate. The legislature would have to choose which type of legislation it would like to follow since there are two similar pieces flowing through the process. Number 345 CHAIRMAN VEZEY asked her to clarify which two pieces of legislation. MS. VOGT clarified the tort reform legislation with interest on pre and postcivil judgment provisions. Number 351 CHAIRMAN VEZEY commented "the Governor's proposal to tell people that their money is worth 3.49 percent, or slightly above that discount rate, is license of steel." Therefore, he held CSHB 226 in committee for further consideration.
Document Name | Date/Time | Subjects |
---|