Legislature(2023 - 2024)DAVIS 106

03/22/2023 06:00 PM House WAYS & MEANS

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06:04:49 PM Start
06:05:55 PM Presentation(s): Tax Overview and Foundation
06:52:53 PM Presentation(s): New Revenue Options
07:41:18 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Scheduled but Not Heard
+ Presentations: TELECONFERENCED
- Tax Overview and Foundation
- New Revenue Options
by Department of Revenue
+ Bills Previously Heard/Scheduled TELECONFERENCED
                    ALASKA STATE LEGISLATURE                                                                                  
           HOUSE SPECIAL COMMITTEE ON WAYS AND MEANS                                                                          
                         March 22, 2023                                                                                         
                           6:04 p.m.                                                                                            
MEMBERS PRESENT                                                                                                               
Representative Ben Carpenter, Chair                                                                                             
Representative Jamie Allard                                                                                                     
Representative Tom McKay                                                                                                        
Representative Kevin McCabe                                                                                                     
Representative Cathy Tilton                                                                                                     
Representative Andrew Gray                                                                                                      
Representative Cliff Groh                                                                                                       
MEMBERS ABSENT                                                                                                                
All members present                                                                                                             
OTHER LEGISLATORS PRESENT                                                                                                     
Senator Robert Myers                                                                                                            
Representative Will Stapp                                                                                                       
Representative Jesse Sumner                                                                                                     
COMMITTEE CALENDAR                                                                                                            
PRESENTATION(S): TAX OVERVIEW AND FOUNDATION                                                                                    
     - HEARD                                                                                                                    
PRESENTATION(S): NEW REVENUE OPTIONS                                                                                            
     - HEARD                                                                                                                    
HOUSE BILL NO. 109                                                                                                              
"An Act reducing the corporate net income tax rate; and                                                                         
providing for an effective date."                                                                                               
     - SCHEDULED BUT NOT HEARD                                                                                                  
PREVIOUS COMMITTEE ACTION                                                                                                     
No previous action to record                                                                                                    
WITNESS REGISTER                                                                                                              
COLLEEN GLOVER, Director                                                                                                        
Tax Division                                                                                                                    
Department of Revenue                                                                                                           
Juneau, Alaska                                                                                                                  
POSITION  STATEMENT:   Co-presented the  PowerPoint presentation,                                                               
titled  "Tax  Programs  and  Tax  Exemptions;"  co-presented  the                                                               
PowerPoint presentation, titled "New Revenue Options."                                                                          
BRANDON SPANOS, Deputy Director                                                                                                 
Tax Division                                                                                                                    
Department of Revenue                                                                                                           
Juneau, Alaska                                                                                                                  
POSITION  STATEMENT:   Co-presented the  PowerPoint presentation,                                                               
titled  "Tax  Programs  and  Tax  Exemptions;"  co-presented  the                                                               
PowerPoint presentation, titled "New Revenue Options."                                                                          
ACTION NARRATIVE                                                                                                              
6:04:49 PM                                                                                                                    
CHAIR BEN  CARPENTER called the  House Special Committee  on Ways                                                               
and Means meeting to order  at 6:04 p.m.  Representatives Allard,                                                               
McKay, McCabe, Tilton, Gray, Groh,  and Carpenter were present at                                                               
the call to order.                                                                                                              
^Presentation(s): Tax Overview and Foundation                                                                                   
          Presentation(s): Tax Overview and Foundation                                                                      
6:05:55 PM                                                                                                                    
CHAIR CARPENTER announced that the  first order of business would                                                               
be a tax overview and foundation presentation.                                                                                  
6:06:33 PM                                                                                                                    
The committee took an at-ease from 6:06 p.m. to 6:07 p.m.                                                                       
6:07:34 PM                                                                                                                    
COLLEEN  GLOVER, Director,  Tax Division,  Department of  Revenue                                                               
(DOR),  began a  PowerPoint presentation  [hard copy  included in                                                               
the  committee packet],  titled  "Tax  Overview and  Foundation."                                                               
She  directed  attention  to  slide 1,  an  introduction  to  the                                                               
presentation,  which  will  be   a  high-level  overview  of  the                                                               
division's  tax  programs.    She said  this  will  also  include                                                               
information about examples of tax  exemptions, tax credits, motor                                                               
vehicle exemptions, and fisheries exemptions.                                                                                   
6:08:09 PM                                                                                                                    
MS.  GLOVER moved  to  slide  2 to  review  the  contents of  the                                                               
presentation, which  include the following: fiscal  year 2022 (FY                                                               
22)  tax revenue  collections; summary  of tax  programs and  how                                                               
resources are shared;  and tax exemptions.  She moved  to slide 3                                                               
to  address  FY  22  Tax   Division  collection  revenues.    She                                                               
explained that the  collections include:  all  amounts before any                                                               
sharing with  local governments;  all amounts before  any sharing                                                               
with   other  state   agencies;  and   all  amounts   before  any                                                               
distributions  to designated  and dedicated  funds, like  alcohol                                                               
and drug abuse  treatment and prevention funds  and the marijuana                                                               
education treatment  fund.  She  said that the  state administers                                                               
property tax revenues which are the  net of the credits for local                                                               
government  property taxes  paid  to local  municipalities.   She                                                               
noted that, due to the  COVID-19 pandemic, the collections do not                                                               
include any replacement of tax  revenues with the American Rescue                                                               
Plan Act of 2021 (ARPA) funds for fish and vessel taxes.                                                                        
6:09:34 PM                                                                                                                    
MS. GLOVER showed a chart that  provides a summary of all the tax                                                               
collections  in FY  22,  which  was a  significant  year for  the                                                               
division in tax  collections, and she reported  that $2.7 billion                                                               
was collected.   She noted the order  on the chart is  by size of                                                               
the  tax program's  collection amount,  and  the state's  largest                                                               
collections  program  is  on  oil  and  gas  production  tax  and                                                               
surcharges.   She said that  another large collection  program is                                                               
the corporate income tax.                                                                                                       
6:10:25 PM                                                                                                                    
MS. GLOVER  moved to  slide 5  to present  a graph  of FY  22 tax                                                               
programs ranked  by total number  of taxpayers.  She  pointed out                                                               
that  the  corporate  income tax  program  contains  the  largest                                                               
number  of taxpayers,  which totals  20,152  and represents  85.8                                                               
percent of  the division's  total taxpayers.   She said  that the                                                               
revenues  collected come  from a  broad range  of programs.   She                                                               
directed attention to charitable  gaming, which, while having the                                                               
second highest  number of  taxpayers, is one  of the  smallest in                                                               
tax revenue.                                                                                                                    
6:11:34 PM                                                                                                                    
REPRESENTATIVE  GRAY  asked  why  the  number  of  taxpayers  for                                                               
tobacco taxes is listed as 50.                                                                                                  
MS. GLOVER answered that tobacco tax  is a wholesale tax, and not                                                               
a retail  tax.  She said  that some local jurisdictions  may have                                                               
similar taxes but are at the retail level.                                                                                      
6:12:19 PM                                                                                                                    
BRANDON  SPANOS, Deputy  Director,  Tax  Division, Department  of                                                               
Revenue, explained  that whoever  filed the  tax return  would be                                                               
considered the taxpayer.                                                                                                        
6:12:35 PM                                                                                                                    
MS. GLOVER moved to  slide 6 and slide 7 to  provide a summary of                                                               
the DOR's tax  programs.  She said that  collections from natural                                                               
resources  were the  largest  group by  amount,  with about  $2.3                                                               
billion  in  total collections.    She  continued that  this  was                                                               
followed  by   taxes  in  the  following   categories:  business,                                                               
utilities,   tobacco,   alcohol,   and  gambling   (sin   taxes),                                                               
fisheries, and tourism and transportation.                                                                                      
6:13:39 PM                                                                                                                    
MS. GLOVER  moved to slide 8  to expand on the  natural resources                                                               
tax program,  specifically the oil  and gas production tax.   She                                                               
said  the  production  tax,  which  does  not  apply  to  royalty                                                               
barrels, is taxed  at the segment level.  For  example, the North                                                               
Slope is one segment for tax  purposes, while Cook Inlet is taxed                                                               
by  fields,  and  this  creates   multiple  tax  segments.    She                                                               
explained that the program contains  a 35 percent net profits tax                                                               
with a  4 percent  gross minimum  tax floor.   She said  the last                                                               
major  statutory change  was made  under Senate  Bill 21  [passed                                                               
during the  Twenty-Eighth Alaska  State Legislature],  with other                                                               
changes made  under Senate  Bill 138  [passed during  the Twenty-                                                               
Eighth Alaska  State Legislature], House Bill  247 [passed during                                                               
the Twenty-Ninth  Alaska State Legislature],  and House  Bill 111                                                               
[passed  during the  Thirtieth Alaska  State  Legislature].   She                                                               
noted  that  Senate  Bill 38  [passed  during  the  Twenty-Eighth                                                               
Alaska State  Legislature] had delayed the  provision to separate                                                               
gas  into a  13  percent gross  tax, and  this  went into  effect                                                               
January 1, 2022.                                                                                                                
MS. GLOVER explained that oil and  gas property taxes are paid by                                                               
oil and gas  property owners and operators at a  rate of 20 mils,                                                               
or 2  percent of  assessed value.   She said  that municipalities                                                               
can levy property  taxes at the same rate as  all non-oil and gas                                                               
property,  with credit  towards  state  tax.   She  said the  tax                                                               
program was enacted and has gone unchanged since 1973.                                                                          
6:16:24 PM                                                                                                                    
MS.  GLOVER moved  to  slide  9 to  further  discuss the  natural                                                               
resource tax  programs.  She pointed  to a chart on  the right of                                                               
the slide that  shows the income tax brackets  and the respective                                                               
rates.  She said the brackets  are the same regardless of whether                                                               
the  company is  a petroleum  company.   The  mining license  tax                                                               
program is  a net income  tax on  net income and  royalties above                                                               
$40,000, and she  said that the tax had been  enacted in 1913 and                                                               
has remained unchanged  since 1955.  She noted that  the tax also                                                               
exempts the first three years of when mining activity starts.                                                                   
6:17:40 PM                                                                                                                    
MS. GLOVER  moved to slide  10 to  present a historical  graph of                                                               
the division's  tax program  revenues.  She  pointed to  the blue                                                               
line,  which represents  oil and  gas production  and surcharges,                                                               
showing the  variation of  the revenue  from year  to year.   The                                                               
gray line is the  oil and gas income tax, which  she said is also                                                               
volatile.   She said that  the orange line, representing  oil and                                                               
gas  property taxes,  is stable  in  revenues, as  is the  mining                                                               
license tax.                                                                                                                    
6:18:48 PM                                                                                                                    
MR.  SPANOS moved  to  slide 11  to talk  about  non-oil and  gas                                                               
corporate income tax  and other regulatory cost charges.   On the                                                               
non-oil corporate  tax, he said  that the  tax is paid  on Alaska                                                               
net taxable  income.  He  pointed out the multistate  tax compact                                                               
and Alaska's adjustments to the  multistate tax compact.  He said                                                               
the compact  strives to tax the  income of a corporation  in only                                                               
one way,  instead of multiple  times.   He said that  states have                                                               
created  the Uniform  Division  of Income  for  Tax Purposes  Act                                                               
(UDITPA), which  outlines that every  state can receive  "a piece                                                               
of one pie," and  no state can have "a pie and a  half."  He said                                                               
this  was  created  because  states were  taxing  more  than  100                                                               
percent of  the income of  a multi-state corporation.   He stated                                                               
that receiving  a portion  is based  on three  factors: property,                                                               
payroll, and sales.   He explained that this  means the property,                                                               
payroll,  and  sales  in  a single  state  versus  the  property,                                                               
payroll, and  sales everywhere.   He explained  that oil  and gas                                                               
companies  have  a  different apportionment  factor:    property,                                                               
sales, and  extraction.   He said the  non-oil and  gas corporate                                                               
income tax was  first enacted in 1949, and the  tax brackets were                                                               
last changed in 2013.   He addressed regulatory cost charges, and                                                               
said the division does not  administer tax, rather the revenue is                                                               
collected  and  shared.    He  said  the  division  collects  the                                                               
revenue,  and it  is  shared with  the  Regulatory Commission  of                                                               
Alaska (RCA).                                                                                                                   
6:22:12 PM                                                                                                                    
MR. SPANOS  explained the electric  cooperative tax on  slide 12,                                                               
which has  17 taxpayers.   The tax is  based on the  per kilowatt                                                               
hour furnished  by qualified electric  cooperatives, and  the tax                                                               
rate is based on the years  of operation, with 100 percent of the                                                               
revenues  being shared  with municipalities.    On the  telephone                                                               
cooperative tax, there are seven taxpayers.   The tax is based on                                                               
gross revenue,  and the rate is  based on the number  of years in                                                               
service.  He said that 100  percent of the revenue is shared with                                                               
the municipality.   He pointed out that slide 13  shows the total                                                               
revenue from these programs.                                                                                                    
6:23:39 PM                                                                                                                    
MS.  GLOVER  moved to  slide  14  which  addresses the  taxes  on                                                               
tobacco, alcohol,  and gambling, or  sin taxes.  On  tobacco, she                                                               
said,  the tax  is paid  primarily by  distributors, wholesalers,                                                               
and retailers, with  tax rates determined by type.   She said the                                                               
last  major statutory  change  was  in 2004,  and  it applied  an                                                               
annual increase to  cigarette tax rates in 2005,  2006, and 2007.                                                               
Alcoholic beverage  tax is paid  by distributors  and wholesalers                                                               
with  rates determined  by type  and per  gallon.   She explained                                                               
that  in 2022,  Senate Bill  9 [passed  during the  Thirty-Second                                                               
Alaska  State  Legislature]  levied   a  new  direct  seller  tax                                                               
effective January  1, 2024.   She said  that marijuana  taxes are                                                               
paid  by  marijuana  cultivators  with the  rate  determined  per                                                               
ounce.   She explained  that the ballot  measure to  legalize and                                                               
tax marijuana  cultivation passed  in late  2014, with  the first                                                               
sales in FY 17.                                                                                                                 
6:25:18 PM                                                                                                                    
CHAIR  CARPENTER asked  if Ms.  Glover has  a projection  of what                                                               
Senate Bill 9 is anticipated to levy.                                                                                           
MS.  GLOVER  responded  that  she  would  follow  up  with  Chair                                                               
6:25:48 PM                                                                                                                    
MS. GLOVER  moved to slide  15 to address large  passenger vessel                                                               
gambling tax.   This tax was  enacted in 2006 and  paid by vessel                                                               
owners at  a rate of 33  percent of adjusted gross  income of the                                                               
gambling  activities   while  the  vessels  are   in  the  state.                                                               
Regarding charitable gaming tax and  fees, she said annual permit                                                               
fees are $20 to $100 and paid  by the permittees.  There are over                                                               
1,000  permittees,  and  when gross  receipts  are  greater  than                                                               
$20,000, 1 percent  of the net proceeds fee would  be paid by the                                                               
permittees.   She  said  that net  proceeds  to permittees,  like                                                               
charitable  organizations,   are  around  10  percent   of  gross                                                               
receipts.   She said there  is a 3  percent pull-tab tax  paid by                                                               
pull-tab distributors.  She said  the last major statutory change                                                               
was  in 1993,  and  another  in 2022,  which  allowed for  online                                                               
raffles and added a new game.                                                                                                   
6:28:10 PM                                                                                                                    
MS. GLOVER  moved to slide  16 to  show a graph  illustrating the                                                               
historical revenues  of the  sin tax programs.   She  pointed out                                                               
that the tobacco tax generates  the most revenues but dropped off                                                               
in FY  22 due  to unknown  reasons.  She  said that  the revenues                                                               
from alcohol  taxes have been steady  at about $40 million.   The                                                               
gray line,  which represents marijuana  tax revenue, saw  a large                                                               
increase  from 2017  to 2021.    This peaked  in FY  21 with  $30                                                               
million,  and then  decreased  in  FY 22  to  $28  million.   The                                                               
gambling tax program "dropped off  completely" in 2021 because of                                                               
the closure of the cruise industry;  this tax is recovering in FY                                                               
22 and  is expected  to return  to its  historical average  of $8                                                               
million.  She  said the gaming tax program collects  $3 million a                                                               
6:30:00 PM                                                                                                                    
MR. SPANOS moved to slide  17 to discuss fisheries-related taxes.                                                               
He explained  that the fisheries  business tax is  paid primarily                                                               
by  fisheries   businesses  and   persons  who   process  fishery                                                               
resources in  Alaska, or  export unprocessed  fisheries resources                                                               
from Alaska.   He said the tax  rate is 5 percent  for a floating                                                               
processor, 4.5  percent for a  salmon cannery, and 3  percent for                                                               
shore-based processing;  if it is a  developing fishery, however,                                                               
then  the rate  is 3  percent for  processors and  1 percent  for                                                               
shore-based  processors.     He  reported  that   the  number  of                                                               
taxpayers in  this program was 444  in 2022.  He  transitioned to                                                               
explaining the fisheries  resource landing tax, which  he said is                                                               
a  tax program  created to  capture  what could  be considered  a                                                               
loophole in the fisheries business  tax, in that the business tax                                                               
applies to fish  processed in Alaska, or  unprocessed fish landed                                                               
outside of Alaska, so the  loophole is unprocessed fish landed in                                                               
Alaska and then exported out of  the state.  He said the resource                                                               
landing tax  captures this tax.   There are 36 taxpayers  in this                                                               
6:31:42 PM                                                                                                                    
MR. SPANOS moved to slide  18 and further elaborated on fisheries                                                               
related  tax  programs.    He  explained  the  seafood  marketing                                                               
assessment and said that a tax  is levied on the value of seafood                                                               
products  produced in  Alaska  if  the value  of  the product  is                                                               
$50,000  or more  in a  calendar  year.   He said  there are  185                                                               
taxpayers  in this  program.   The  salmon enhancement  tax is  a                                                               
self-imposed tax  paid by  the fishermen and  remitted to  DOR by                                                               
the  buyers;  it  applies  to  Southern  Southeast  and  Northern                                                               
Southeast Alaska at 3 percent,  and to Prince William Sound, Cook                                                               
Inlet, Kodiak,  Chignik, and Yakutat at  2 percent.  He  said the                                                               
seafood development tax  is a self-imposed 1 percent  tax paid by                                                               
the fishermen and  remitted to DOR by the buyers,  and $3 million                                                               
was collected  in FY 22.   The tax applies to  Bristol Bay salmon                                                               
drift gillnets,  Prince William Sound salmon  drift gillnets, and                                                               
Prince William Sound salmon set gillnets.                                                                                       
6:33:30 PM                                                                                                                    
MR.  SPANOS moved  to slide  19  and explained  the dive  fishery                                                               
management  assessment  program.    This tax  is  a  self-imposed                                                               
assessment  on  fisheries  resources  taken  with  dive  gear  in                                                               
designated areas.   There were 21 taxpayers in FY  22, which is a                                                               
standard figure, with $550,000 collected in  FY 22.  He said that                                                               
the common  property fishery assessment  is used only  for Hidden                                                               
Falls Hatchery and  allows for cost recovery of  the hatchery. He                                                               
moved to slide  20 and presented a historical graph  on the total                                                               
revenues of all the fishing programs.                                                                                           
6:34:52 PM                                                                                                                    
MR.  SPANOS  moved   to  slide  21  and   addressed  tourism  and                                                               
transportation related tax programs.   He said the motor fuel tax                                                               
and surcharge  has 110 taxpayers.   This  is an excise  tax, with                                                               
everyone in  the state paying.   He further explained  that, when                                                               
the fuel  comes to Alaska,  the wholesaler or distributor  is the                                                               
entity  which pays  the  tax.   He  noted that  this  tax is  the                                                               
smallest in the nation.  For  example, the highway motor fuel tax                                                               
is  8 cents  per gallon.   The  rates were  changed in  2004, and                                                               
again in  2015 by  the legislature  for cleanup  costs associated                                                               
with  fuel spills.    He talked  about  the commercial  passenger                                                               
vessel  tax,  a  tax  paid  on passengers  who  come  on  tourist                                                               
vessels.  The tax is $34.50  per passenger, per voyage, or $5 per                                                               
person per  seven ports of call.   He pointed out  when there are                                                               
seven ports of  call the state shares more than  it would receive                                                               
in revenue; however,  most vessels do not visit seven  ports.  He                                                               
said  that  Juneau  and  Ketchikan have  local  taxes  which  are                                                               
credits against the  state tax rates, and  the state constitution                                                               
requires   that  the   tax  collected   must   be  paid   towards                                                               
infrastructure  around the  ports which  benefit both  the vessel                                                               
and the  passengers.  For example,  there was a time  when a road                                                               
going  from a  port to  a  museum was  thought to  be a  benefit;                                                               
however,  it has  been decided  these  roads do  not benefit  the                                                               
vessel  directly.   He  said this  program varies  from  8 to  17                                                               
taxpayers a year.                                                                                                               
6:37:51 PM                                                                                                                    
MR. SPANOS  moved to  slide 22  to further  speak on  tourism and                                                               
transportation related tax programs.   He said the vehicle rental                                                               
tax, which has 257 taxpayers, is  paid by the owner of the leased                                                               
or  rented vehicle.   The  rate is  3 percent  of the  total fees                                                               
collected   on  a   recreational   vehicle.     He  offered   his                                                               
understanding that  the legislative  reasoning for this  was that                                                               
the 3  percent rate netted the  same revenue as a  10 percent tax                                                               
on a rented car.  He spoke on  the tire fee tax program, which is                                                               
an excise tax paid primarily  by tire dealerships, of which there                                                               
are  72  taxpayers,   and  $1.6  million  in   revenue  has  been                                                               
collected.   The tax rate is  $2.50 per regular tire,  and $5 per                                                               
metal studded  tire.   He said  an exception to  this tax  is for                                                               
tires which  are sold  to federal and  local governments  and not                                                               
intended for use on public roads.                                                                                               
6:40:26 PM                                                                                                                    
MR. SPANOS  moved to slide 23  to show a historical  graph of tax                                                               
program  revenue  on transportation  and  tourism  programs.   He                                                               
pointed out that the commercial  passenger vessel tax in 2007 had                                                               
a 25  percent higher tax and  was originally a $46  tax per head,                                                               
but now this  take is $34.50 per head.   He further explained why                                                               
the  lower cost  occurred.   A statutory  change had  implemented                                                               
this tax  for only the vessels  which were in Alaska  for over 72                                                               
hours, and  this resulted  in a  drop in  revenue in  FY 12.   He                                                               
continued that, at  about the same time,  in FY 07 to  FY 12, the                                                               
legislature moved to suspend the motor fuel tax.                                                                                
6:41:45 PM                                                                                                                    
CHAIR  CARPENTER commented  that during  this time  Alaska had  a                                                               
large amount of revenue flowing into the state.                                                                                 
MR. SPANOS  confirmed that is correct.   He said that  instead of                                                               
giving a  payment for fuel,  the state  moved to suspend  the tax                                                               
for a period.                                                                                                                   
6:42:06 PM                                                                                                                    
MR. SPANOS  moved to slide 24  to explain the state's  newest tax                                                               
programs over  the last several  years.   He pointed out  that an                                                               
alcohol tax  applied to alcohol  purchased and shipped  to states                                                               
where there  are no wholesalers was  in Senate Bill 9,  with [the                                                               
final effective date of] 2024.   He explained that the motor fuel                                                               
tax surcharge  was enacted  in 2015, the  marijuana tax  in 2014,                                                               
and the large passenger vessel gambling  tax in 2006.  He pointed                                                               
out that many of the tax  programs have provisions for sharing or                                                               
are designated funds.                                                                                                           
6:44:04 PM                                                                                                                    
MS.  GLOVER moved  to slide  25 and  slide 26  to talk  about tax                                                               
exemptions.    She  explained   that  indirect  expenditures  are                                                               
defined as foregone revenue to  the state because of tax credits,                                                               
exemptions,  discounts, deductions,  and other  provisions.   She                                                               
shared that  an indirect expenditure  report is published  by DOR                                                               
every  two  years,  and  there  are  indirect  expenditure  books                                                               
published by  Legislative Finance  Services every other  year for                                                               
specific  departments  on a  six-year  cycle.   The  most  recent                                                               
report data  spanned from FY 17  to FY 21 and  was published last                                                               
year.    She moved  to  slide  27 to  show  a  table of  indirect                                                               
expenditure value  reports by individual state  departments.  The                                                               
total is about $1 billion  from 263 specific indirect expenditure                                                               
items.  She said DOR processes  80 percent of the $1 billion that                                                               
is collected, as the items are from within the department.                                                                      
6:46:25 PM                                                                                                                    
MS. GLOVER moved to slide 28  to show the first top 10 exemptions                                                               
within DOR, based on value.   The first three programs listed are                                                               
oil  and gas  production taxes.   The  first listed  is the  per-                                                               
taxable-barrel  credit   for  non-gross  value   reduction  (GVR)                                                               
eligible  production,   of  which  80  percent   of  the  state's                                                               
production falls within  this program.  She  explained the credit                                                               
ranges and said that the  number of beneficiaries is between four                                                               
and  eight companies,  which is  a limited  number of  taxpayers.                                                               
Because of  confidentiality in  reporting, the  division combined                                                               
the  total credit  values for  the following:  alternative credit                                                               
for exploration,  the qualified  capital expenditure  credit, the                                                               
carried-forward annual  loss credit,  the well  lease expenditure                                                               
credit, and the  small producer credit.  She said  that all these                                                               
credits in  total amount to $48  million.  She said  that because                                                               
of legislative changes  over several years, these  credits are in                                                               
the process of expiring.  She  spoke on the indirect exposure for                                                               
GVR,  which reduces  the  tax bases  per barrel.    She said  the                                                               
program is  limited to the  first seven years of  production, and                                                               
the benefit  would end  early if the  average Alaska  North Slope                                                               
price  exceeds  $70 for  3  years.    She  said this  program  is                                                               
designed  to  provide  a  tax   break  for  new  oil  fields  and                                                               
participating areas.   She said  there are  limited beneficiaries                                                               
in the program,  and there was a revenue impact  of $23.2 million                                                               
in FY 21.                                                                                                                       
6:49:20 PM                                                                                                                    
MS. GLOVER  moved to slide 29  and showed the second  part of the                                                               
table on the top 10 exemptions,  which are all motor fuel related                                                               
tax exemptions.   She said  all the  programs listed on  slide 29                                                               
add up  to $50 million; however,  she indicated that there  is no                                                               
information on the number of beneficiaries.                                                                                     
6:49:53 PM                                                                                                                    
MR.  SPANOS pointed  out that  some  of the  programs listed  are                                                               
required by  federal law.   He said  a change was  attempted when                                                               
the  surcharge  was  approved,  but  there  was  no  interest  in                                                               
exempting  anything  under  the  surcharge.    For  example,  the                                                               
foreign commerce  clause is  applied to fuel  used on  flights to                                                               
foreign  countries,  which  dictates  that this  fuel  cannot  be                                                               
6:50:18 PM                                                                                                                    
MS. GLOVER  moved to slide  30 to  point out the  various reports                                                               
made available by DOR.                                                                                                          
6:51:13 PM                                                                                                                    
CHAIR  CARPENTER  asked  for tax  information  about  the  Willow                                                               
MS.  GLOVER answered  that the  project is  not an  exemption; it                                                               
will be  under the  corporate income tax,  as well  as production                                                               
tax.   In terms of  spending, she  said, the Willow  Project will                                                               
qualify for gross  value reduction, which provides  a discount on                                                               
the tax base.                                                                                                                   
6:52:19 PM                                                                                                                    
REPRESENTATIVE GRAY  referred to  slide 23  and talked  about the                                                               
large dip depicted  in motor fuel tax revenues.   He urged future                                                               
legislators to not stop taxing, but rather to save money.                                                                       
^Presentation(s): New Revenue Options                                                                                           
              Presentation(s): New Revenue Options                                                                          
6:52:53 PM                                                                                                                    
CHAIR CARPENTER announced that the  final order of business would                                                               
be a presentation on new revenue options.                                                                                       
6:53:36 PM                                                                                                                    
COLLEEN GLOVER,  Director, Tax  Division, Department  of Revenue,                                                               
began  a  PowerPoint  presentation  [hard copy  included  in  the                                                               
committee  packet], titled  "New Revenue  Options."   She brought                                                               
attention to  slide 1  and noted  that the  presentation contains                                                               
information the committee has requested  and does not reflect the                                                               
viewpoint  of the  administration.    She said  the  items to  be                                                               
presented today are options that  the Department of Revenue (DOR)                                                               
and the division have reviewed for years in case it is needed.                                                                  
6:54:42 PM                                                                                                                    
MS. GLOVER  moved to slide  2 which addresses the  state's broad-                                                               
based tax  options.  She said  that a sales tax  is a broad-based                                                               
tax on goods and services, and  she relayed that 45 states have a                                                               
statewide sales tax.  She  explained that most states collect the                                                               
tax  on  behalf  of  local   jurisdictions,  to  which  they  are                                                               
dispersed;  however,  Alaska is  unique  because  there are  some                                                               
local sales  taxes but no  statewide sales  tax.  She  noted that                                                               
sometimes the  term "use  tax" is  applied to  a sale  in another                                                               
state for use  in the customer's home state.   She moved to slide                                                               
3 and said an example the  division examined was in South Dakota,                                                               
which is considered to have a  broader tax when compared to other                                                               
states, as  the tax is  not only on  goods but also  services, as                                                               
well as  business-to-business transactions.  She  said that South                                                               
Dakota  has a  4.5  percent  sales tax,  but  for consistency  in                                                               
presenting  the state's  hypothetical  new  revenue options,  the                                                               
division  created an  option  where  the tax  is  based on  South                                                               
Dakota's broad  sales and  use-tax rate of  4 percent,  which she                                                               
said  could generate  $1.83 billion  in revenue  if initiated  in                                                               
Alaska.   She  said that  the division  has researched  sales tax                                                               
implementation  and its  impact on  the division.   The  division                                                               
currently  has 96  employees and  administering  a South  Dakota-                                                               
style sales tax would require 74  additional staff.  She said the                                                               
division's  sales  tax  model  was   reviewed  by  a  third-party                                                               
consultant, who suggested that the  division's models were not as                                                               
accurate as  the division  indicated, so the  numbers on  slide 3                                                               
were adjusted after the consultant's review.                                                                                    
6:58:20 PM                                                                                                                    
MS. GLOVER,  in response to  Representative McCabe  regarding the                                                               
term "first  full-year impact," explained  that it is  when there                                                               
would  be a  full year  of  collections.   She further  explained                                                               
that,  if a  broad-based statewide  sales  tax were  to pass,  it                                                               
would take the division a year  to implement and would take place                                                               
the year after passage.                                                                                                         
6:59:04 PM                                                                                                                    
BRANDON  SPANOS, Deputy  Director,  Tax  Division, Department  of                                                               
Revenue,  added  that  the  effective   date  on  legislation  is                                                               
typically  placed in  the middle  of the  fiscal year;  thus, the                                                               
division would look at the whole fiscal year.                                                                                   
6:59:12 PM                                                                                                                    
MS. GLOVER noted that, from  the division's perspective, most tax                                                               
years  are  calendar years,  so  converting  to fiscal  years  is                                                               
MR.  SPANOS said  that a  sales  tax is  a monthly  tax, and  his                                                               
comments concerned fiscal years would  apply to an income tax but                                                               
not a sales tax.                                                                                                                
MS. GLOVER  moved to  slide 4  and showed  a scenario  similar to                                                               
Wyoming's state sales  tax and use-tax program, which  is also at                                                               
4 percent.  She said this tax is  broad but not as broad as South                                                               
Dakota's sales  tax, and  she pointed  out another  difference is                                                               
the  business-to-business  transactions.    She  noted  that  the                                                               
modeling on this slide shows the  revenue impact of the sales tax                                                               
and does  not consider if business-to-business  transactions were                                                               
taxed.  She noted that the  cost of implementing the tax would be                                                               
the same as  implementing the South Dakota tax and,  after a full                                                               
year of collections, would generate $600 million in revenue.                                                                    
7:01:24 PM                                                                                                                    
REPRESENTATIVE  GRAY  noted  that  the  South  Dakota  sales  tax                                                               
carries  few  exemptions,  and the  presenters  did  not  mention                                                               
groceries.  He asked if the tax  applies to all food and if there                                                               
truly are no exemptions on groceries.                                                                                           
MS. GLOVER expressed the belief that this is the case.                                                                          
7:01:59 PM                                                                                                                    
REPRESENTATIVE  GROH  commented  that  there is  a  $1.2  billion                                                               
difference in  revenue between  the two  sales tax  scenarios, so                                                               
far.  He  asked if the presenters know whether  groceries make up                                                               
the bulk of the $1.2 billion difference.                                                                                        
MS. GLOVER answered  that the South Dakota sales tax  is not just                                                               
on  groceries   but  on  all   business-to-business  transactions                                                               
because  of the  tax's limited  exemptions, whereas  Wyoming does                                                               
not apply those same taxes.                                                                                                     
REPRESENTATIVE GROH  expressed interest in receiving  a breakdown                                                               
of the $1.2 billion difference.                                                                                                 
MR. SPANOS added that such information needs business input.                                                                    
7:03:22 PM                                                                                                                    
MS. GLOVER  moved to  slide 5  to discuss a  4 percent  sales tax                                                               
with a  narrower tax  base.   She said  this option  excludes all                                                               
services and  targets online and  brick and mortar  retail sales.                                                               
This tax would generate $358  million in revenue, lower than both                                                               
the South Dakota and Wyoming structures.                                                                                        
7:04:21 PM                                                                                                                    
MR. SPANOS  picked up the presentation  at slide 6 to  talk about                                                               
income tax  scenarios.  He noted  the population of the  state is                                                               
750,000.   He said the tax  would be on wages,  tips, and incomes                                                               
earned  in Alaska  by individuals,  levied  at 1  percent of  the                                                               
Federal Adjusted  Gross Income  (AGI) via  employer withholdings.                                                               
He noted that  this tax would include business  income from pass-                                                               
through entities.   He pointed out Alaska is the  only state that                                                               
does  not have  one of  the three  major tax  types of  property,                                                               
sales, and  individual income.  He  said this tax would  bring in                                                               
about $337 million  in revenue, which would be 11  percent of the                                                               
taxes collected  in FY  22.   The cost  to implement  the program                                                               
would  be  lower, requiring  just  45  additional people  and  $8                                                               
million in  annual administration costs;  this lower cost  is due                                                               
to  the work  being conducted  with the  public rather  than with                                                               
retailers.   He  said the  cost also  includes a  new online  tax                                                               
filing system for citizens to use.   He shared that, thanks to an                                                               
appropriation from the  legislature, the division is  moving to a                                                               
new system where taxes can be filed via cell phone.                                                                             
7:08:31 PM                                                                                                                    
MR. SPANOS, in  response to a question  from Representative Groh,                                                               
confirmed  that most  other states  have a  state income  tax and                                                               
sales tax,  but he expressed uncertainty  concerning whether two-                                                               
thirds  of the  states have  both.   In response  to a  follow-up                                                               
question regarding income  tax, he said the state  would have the                                                               
authority to  collect it, and if  income is earned in  the state,                                                               
then the state would have the authority to tax this income.                                                                     
7:10:31 PM                                                                                                                    
MS. GLOVER interjected that the  division's modeling assumes some                                                               
of the revenue from an income tax would come from nonresidents.                                                                 
REPRESENTATIVE GROH said  he has heard higher  figures around the                                                               
actual income  earned by nonresidents.   For example,  he pointed                                                               
out  the  workers  in  the   North  Slope,  commercial  fisheries                                                               
workers, and nonresident medical professionals.                                                                                 
7:11:19 PM                                                                                                                    
CHAIR  CARPENTER  stated  that   getting  the  numbers  right  is                                                               
important,  and  if Representative  Groh  has  data suggesting  a                                                               
larger number, then it should be brought before the committee.                                                                  
7:11:36 PM                                                                                                                    
MR.  SPANOS,  while   still  on  slide  6,   clarified  that  the                                                               
division's modeling  uses federal data published  by the Internal                                                               
Revenue  Service (IRS)  and  includes residents  of  Alaska.   He                                                               
expressed  the understanding  that  assumptions must  be made  on                                                               
ascertaining the  other figures.  If  Alaska were to have  a tax,                                                               
employers would file 1099, W-2  forms with the state, which would                                                               
enable  the division  to have  a clearer  picture of  nonresident                                                               
7:12:17 PM                                                                                                                    
MR. SPANOS moved to slide 7  and addressed a different income tax                                                               
option,  which would  be a  tax  on individual  wages, tips,  and                                                               
incomes earned  in Alaska by  individuals.  This would  be levied                                                               
at  1 percent  of  federal individual  income  tax liability  via                                                               
employer  withholding.    He  said  there  has  been  legislation                                                               
proposed in the  past to implement this tax;  however, the actual                                                               
implementation of the tax would  be complicated because there are                                                               
certain incomes  which the state cannot  tax.  He said  that, for                                                               
example, a  state revenue bond  is untaxable but is  "wrapped up"                                                               
in the tax computation and would  have to be backed out from AGI.                                                               
He  said that  in  the first  full year,  $264  million would  be                                                               
collected  under the  program,  with the  cost of  implementation                                                               
being the same as the program on slide 6.                                                                                       
7:14:06 PM                                                                                                                    
MS. GLOVER added that the  division has sophisticated modeling on                                                               
general personal  income taxes and  reiterated that the  data the                                                               
division  uses is  from the  IRS.   She said  that an  adjustable                                                               
model can  be shared  with members.   In  response to  a question                                                               
from Chair Carpenter, she stated  that the models are static, and                                                               
modeling on behavior is complicated.                                                                                            
7:15:20 PM                                                                                                                    
MR. SPONOS  said there  are economic costs  to taxes  which would                                                               
change behavior.   He said that if the state  were to tax out-of-                                                               
state income, for  example, then there might be  fewer people who                                                               
work  for the  state.    Conversely, if  the  state  were to  tax                                                               
resident income, then a resident may  say, "Well, I don't want to                                                               
live here anymore."                                                                                                             
CHAIR CARPENTER  clarified that these questions  would be applied                                                               
to any broad-based tax.                                                                                                         
7:15:53 PM                                                                                                                    
MR. SPANOS, in  response to a question  from Representative McKay                                                               
about possible sales  tax on goods bought via  the internet, said                                                               
that the states  with a sales tax for many  years have dealt with                                                               
this  issue.   He explained  that traditional  purchases made  in                                                               
brick-and-mortar buildings  would be taxed, but  with court cases                                                               
against  companies  like Wayfair  Inc  and  Amazon.com, the  U.S.                                                               
Supreme  Court  decided  the states  can  tax  transactions  from                                                               
nonresidents.  He said that  the past "taxing nexus" involved the                                                               
person being  physically in  the state,  but now  if a  person is                                                               
taking  advantage of  a  market, this  is  considered the  taxing                                                               
nexus.   He said the sales  tax models have accounted  for online                                                               
MR. SPANOS,  in response to  Representative McKay,  explained the                                                               
reason for  the difference between  the modeled sales  and income                                                               
taxes mentioned for South Dakota.                                                                                               
7:18:41 PM                                                                                                                    
CHAIR  CARPENTER asked  what the  average income  tax rate  is in                                                               
states with income taxes.                                                                                                       
MR.  SPANOS   responded  that  he   would  follow  up   with  the                                                               
7:18:59 PM                                                                                                                    
MR. SPANOS, in  response to a comment  from Representative Allard                                                               
regarding the effect  of a federal tax  on retirement, reiterated                                                               
that  the model  within  the presentation  does  not account  for                                                               
these  sorts  of factors,  and  a  non-biased approach  has  been                                                               
taken.    He  said  that any  legislation  could  exempt  federal                                                               
retirees  or social  security.   He  stated that  this  is why  1                                                               
percent  of  federal  tax  liability  is  complicated,  not  only                                                               
because some  of it is not  taxable, but because states  want the                                                               
ability  to  choose rates  and  exemptions.    In response  to  a                                                               
follow-up  request,  he  said modeling  showing  the  impacts  of                                                               
losing 10 percent of Alaska's  resident military population could                                                               
be provided.                                                                                                                    
7:21:21 PM                                                                                                                    
MR. SPANOS,  in response to Representative  McKay, confirmed that                                                               
the state  would have the ability  to not tax certain  items.  He                                                               
advised that an  exemption should be considered in  terms of what                                                               
is fair  rather than what  is constitutional.   He said  that the                                                               
state has the  constitutional authority to tax  its residents and                                                               
all  income earned  within its  borders, and  this would  include                                                               
resident retirees.                                                                                                              
7:22:10 PM                                                                                                                    
REPRESENTATIVE GROH  noted that  the Tax Foundation  has reported                                                               
43  states  and  the  District   of  Columbia  have  income  tax;                                                               
therefore,  while some  states  do not  have  income taxes,  most                                                               
states do.                                                                                                                      
7:22:28 PM                                                                                                                    
REPRESENTATIVE MCCABE shared that,  in reference to the military,                                                               
case  law relates  that,  as long  as a  person  never becomes  a                                                               
resident, even if  the person is earning money in  the state, the                                                               
state cannot tax this person's retirement.                                                                                      
7:24:06 PM                                                                                                                    
MS.  GLOVER said  that 1  percent is  a low  rate, and  sales tax                                                               
cannot  be  compared  to  an  income tax,  and  the  numbers  the                                                               
division is presenting  aim to give the committee  an idea around                                                               
the  taxes.    She  suggested that  setting  federal  income  tax                                                               
liability  from 1  percent to  2  percent would  be doubling  the                                                               
income.   She noted  that South  Dakota and  Wyoming do  not have                                                               
personal or  corporate income taxes; therefore,  these states are                                                               
similar to Alaska  because sales taxes are  these states' biggest                                                               
sources  of revenue  generation.   In response  to Representative                                                               
McCabe,  she  confirmed  that the  numbers  being  presented  are                                                               
calculations of  direct tax  income, not  the economic  impact of                                                               
these taxes.                                                                                                                    
7:25:34 PM                                                                                                                    
CHAIR CARPENTER  referred to Ms.  Glover's comments  that federal                                                               
income  tax  liability  at  2   percent  would  mean  double  the                                                               
estimated $264 million in revenue.   He pointed out this would be                                                               
assuming the  population in Alaska  would live under a  2 percent                                                               
income tax.                                                                                                                     
7:26:27 PM                                                                                                                    
MR.  SPANOS returned  to  the  presentation on  slide  8 to  show                                                               
modeling if the state were to  expand corporate income tax to oil                                                               
and gas  pass-through entities.   He  explained that  most states                                                               
with a corporate  income tax also have an  income tax; therefore,                                                               
the state  is capturing all  income owned  in its boarders.   For                                                               
Alaska,  he  further explained,  the  state's  C corporation  tax                                                               
mimics other states, and since  the state adopted the multi-state                                                               
tax compact,  the tax would  apply only to C  corporations, which                                                               
would not pay a tax under an income  tax.  He advised that if the                                                               
legislature pursues pass-through entities,  this should not be in                                                               
combination  with  an income  tax,  because  then this  would  be                                                               
considered double taxation.  He  clarified that the C corporation                                                               
model scenario described  on slide 8 would apply only  to oil and                                                               
gas companies,  as they fall under  AS 43.55.  Using  the current                                                               
rate structure, he said, the  first full year would generate $131                                                               
million  in revenue.   He  noted  that there  are no  incremental                                                               
costs to implement the change.                                                                                                  
7:28:25 PM                                                                                                                    
MS. GLOVER moved  to slide 9 which showed modeling  of the amount                                                               
of the  maximum tax credit  for each  taxable barrel of  oil when                                                               
reduced from $8  to $5.  This would occur  when the average gross                                                               
value at the point of production  for the month is less than $110                                                               
a barrel.   The credit  would scale down  to zero if  the average                                                               
gross value at  the point of production for the  month is $150 or                                                               
more.   Based on  spring forecast information,  if such  a change                                                               
were to  be made, the revenue  generated for FY 24  would be $383                                                               
million, but would  be reduced over time.  She  said that in lieu                                                               
of  oil forecasts  going down  in the  future, this  change would                                                               
have a lower revenue impact in the out years.                                                                                   
7:30:30 PM                                                                                                                    
MS. GLOVER moved to slide 10  to share that the division's fiscal                                                               
plan models are available online.   She explained that the fiscal                                                               
plan  model provides  policymakers and  the public  users with  a                                                               
tool to model revenue and  spending options; provides flexibility                                                               
for users  to design solutions  with their  assumptions; provides                                                               
outputs  which  include  spreadsheets   and  graphs  of  critical                                                               
financial data; and presents current  updates after each official                                                               
forecast is released in the fall and spring.                                                                                    
7:32:13 PM                                                                                                                    
MS. GLOVER,  in response to  a question from  Representative Groh                                                               
regarding a  shift in mil rate,  said the total amount  the state                                                               
receives in oil and gas property  taxes is about $550 million, so                                                               
a  50 percent  increase  would be  in the  $200  million to  $270                                                               
million range.                                                                                                                  
7:33:50 PM                                                                                                                    
REPRESENTATIVE GRAY commented that  he had looked up California's                                                               
tax rates  and found  the state  has a  7.25 percent  state sales                                                               
tax, as well as a 12.3 percent  state income tax.  He relayed his                                                               
appreciation  to  the  presenters  for  using  South  Dakota  and                                                               
Wyoming as  conservative models to  show the impacts  of imposing                                                               
any of the different taxes.                                                                                                     
7:34:50 PM                                                                                                                    
REPRESENTATIVE MCCABE, referring to  slide 6 of the presentation,                                                               
questioned  the 1  percent gross  income base  and the  1 percent                                                               
federal  tax liability  base,  which Mr.  Spanos  called a  "flat                                                               
MR.  SPANOS   answered  that  adjusted  gross   income  would  be                                                               
considered a flat  tax because, as shown on slide  7, the federal                                                               
tax  brackets  have  already  been applied  to  the  federal  tax                                                               
REPRESENTATIVE MCCABE  sought clarification that the  federal tax                                                               
liability base would  already encompass the progressive  tax.  He                                                               
expressed surprise that the flat tax seems to earn more.                                                                        
MR.  SPANOS  responded, "It  is  apples  and oranges  that  we're                                                               
comparing."  He  explained that AGI is a much  larger number than                                                               
federal tax liability, which  is tax paid on the AGI,  so it is a                                                               
smaller number.                                                                                                                 
REPRESENTATIVE MCCABE,  referring to  the charts  on slide  6 and                                                               
slide  7, said  that a  flat tax  would be  a broad  tax, and  he                                                               
offered  his  understanding  that   the  slides  show  the  state                                                               
receives  more income  in tax  if the  tax is  spread across  the                                                               
entire cross section  of the population, instead  of depending on                                                               
the top 5 percent to handle the tax increase.                                                                                   
MR. SPANOS replied that AGI at  1 percent could be modeled, "with                                                               
AGI  but with  brackets."   He said  that was  not done  for this                                                               
presentation and would give a different number.                                                                                 
7:37:58 PM                                                                                                                    
MR.  SPANOS,  responding  to   remarks  by  Representative  McKay                                                               
regarding  C  corporations and  S  corporations,  noted that  the                                                               
latter is not public information and could not speak to it.                                                                     
7:39:09 PM                                                                                                                    
MS.  GLOVER, in  response  to Representative  McKay reviewed  the                                                               
topic of  legacy fields.   In response  to a  follow-up question,                                                               
she said  the division could provide  some historical information                                                               
regarding these fields.                                                                                                         
7:40:27 PM                                                                                                                    
MR. SPANOS added that, should the legislature choose to                                                                         
implement an income tax, the division will implement the tax.                                                                   
He reiterated that he does not speak for the administration.                                                                    
7:41:18 PM                                                                                                                    
There being no further business before the committee, the House                                                                 
Special Committee on Ways and Means meeting was adjourned at                                                                    
7:41 p.m.                                                                                                                       

Document Name Date/Time Subjects
HB0109A.PDF HW&M 3/22/2023 6:00:00 PM
HW&M 4/15/2024 6:00:00 PM
HB 109
HB 109 Bill Sponsor Statement.pdf HW&M 3/22/2023 6:00:00 PM
HW&M 4/3/2024 6:00:00 PM
HW&M 4/15/2024 6:00:00 PM
HB 109
HB 109 Sectional analysis.pdf HW&M 3/22/2023 6:00:00 PM
HW&M 4/3/2024 6:00:00 PM
HW&M 4/15/2024 6:00:00 PM
HB 109
HB 109 DOR Tax 3.17.23 Fiscal Note.pdf HW&M 3/22/2023 6:00:00 PM
HB 109
HB 109 Presentation.pdf HW&M 3/22/2023 6:00:00 PM
HW&M 4/3/2024 6:00:00 PM
HW&M 4/15/2024 6:00:00 PM
HB 109
H.W&M Tax Programs Presentation 03.22.23.pdf HW&M 3/22/2023 6:00:00 PM
H.W&M Revenue Options 03.22.23.pdf HW&M 3/22/2023 6:00:00 PM