Legislature(2023 - 2024)DAVIS 106

04/12/2023 06:00 PM House WAYS & MEANS

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06:04:31 PM Start
06:05:13 PM HB109
07:09:18 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Overview: Long Term Fiscal Plan TELECONFERENCED
Scheduled but Not Heard
<Bill Hearing Canceled>
+ Bills Previously Heard/Scheduled TELECONFERENCED
Heard & Held
             HB 109-REDUCE CORP. NET INCOME TAX RATE                                                                        
[Contains discussion of HB 142.]                                                                                                
6:05:13 PM                                                                                                                    
CHAIR CARPENTER announced  that the only order  of business would                                                               
be HOUSE BILL NO. 109, "An  Act reducing the corporate net income                                                               
tax rate; and providing for an effective date."                                                                                 
6:05:24 PM                                                                                                                    
REPRESENTATIVE  MCCABE moved  to adopt  the committee  substitute                                                               
(CS)  for   HB  109,   labelled  33-LS0376\B,   Nauman,  4/12/23,                                                               
("Version B"), as a working document.                                                                                           
6:05:41 PM                                                                                                                    
REPRESENTATIVE GRAY objected.                                                                                                   
6:06:03 PM                                                                                                                    
KENDRA BROUSSARD, Staff, Representative  Ben Carpenter, on behalf                                                               
of  Representative  Carpenter,  prime  sponsor,  paraphrased  the                                                               
explanation of changes [included  in the committee packet], which                                                               
read as follows [original punctuation provided]:                                                                                
     New Title:  "An act  reducing the corporate  net income                                                                    
     tax rate; relating to a  sales and use tax; authorizing                                                                    
     the   Department  of   Revenue   to   enter  into   the                                                                    
     Streamlined Sales and Use  Tax Agreement; and providing                                                                    
     for an effective date."                                                                                                    
     The Committee  Substitute for  House Bill  109 combines                                                                    
     HB  109 REDUCE  CORP. NET  INCOME TAX  RATE and  HB 142                                                                    
     STATE  SALES  AND USE  TAX  Bill.  There are  no  other                                                                    
     changes  after the  title  except renumbering  sections                                                                    
     and combining effective date provisions.                                                                                   
     Section 1, 2                                                                                                               
     Sections 1 and 2 from HB 142                                                                                               
     Section 3                                                                                                                  
     Section 1 from HB 109                                                                                                      
     Sections 4,5                                                                                                               
     Sections 3, 4 from HB 142                                                                                                  
     Section 6                                                                                                                  
     Section 2 from HB 109                                                                                                      
     Section 7, 8                                                                                                               
     Sections 5, 6 from HB 142                                                                                                  
     Section 9                                                                                                                  
     Makes  the  corporate  income tax  reduction  effective                                                                    
     January 1, 2024.                                                                                                           
     Section 10                                                                                                                 
     Makes the sales and use tax effective January 1, 2025.                                                                     
6:07:07 PM                                                                                                                    
CHAIR CARPENTER stated that the proposed  bill is part of a long-                                                               
term fiscal  plan for the state.   He expressed the  opinion that                                                               
corporate income taxes harm businesses,  and a sales tax would be                                                               
stable, as  well as  less economically disruptive.   He  said the                                                               
proposed  bill  would  create incentives  for  municipalities  to                                                               
reduce property taxes,  and, coupled with a  corporate income tax                                                               
reduction,  the proposed  legislation would  replace the  current                                                               
tax structure  with a  more stable way  to fund  state government                                                               
and ensure permanent fund dividends (PFDs) would be kept.                                                                       
6:08:08 PM                                                                                                                    
REPRESENTATIVE  GRAY   pointed  out   that  during   the  initial                                                               
discussions  of HB  109,  it  was said  that  70  percent of  the                                                               
state's corporate income tax revenue  comes from oil and gas, and                                                               
there was  a suggestion that the  state might be able  to make up                                                               
losses in  revenue another  way.  He  expressed the  opinion that                                                               
the state  would be  giving a  tax break  to oil  companies while                                                               
making up  the lost tax  revenue by  taxing residents.   He asked                                                               
why sales tax  is being paired with corporate  income tax, rather                                                               
than with the per-barrel tax credit.                                                                                            
CHAIR CARPENTER explained that the  choice to combine [HB 109 and                                                               
HB 142] was based  on the idea of a way to  move forward with the                                                               
fiscal plan.   He said the intent of the  committee meeting is to                                                               
combine  the two  bills, thereby  narrowing the  number of  bills                                                               
needed to move through the legislature as part of a fiscal plan.                                                                
6:10:29 PM                                                                                                                    
REPRESENTATIVE GROH  questioned what  the estimated  amount would                                                               
be by raising taxes on  essentials, like groceries, clothing, and                                                               
cleaning supplies.                                                                                                              
CHAIR  CARPENTER  responded that  an  estimate  is not  currently                                                               
REPRESENTATIVE  GROH  questioned  whether the  intention  of  the                                                               
proposed  legislation  would  be   to  tax  groceries  to  reduce                                                               
corporate income tax to about $350  million a year.  He suggested                                                               
that taxing groceries alone might total $350 million.                                                                           
CHAIR CARPENTER reiterated that there  is not an assessment as to                                                               
the amount  the individual sectors  of the state's  economy would                                                               
be   putting   into  a   sales   tax.      He   said  it   is   a                                                               
mischaracterization  to suggest  the bill  would offer  a tax  on                                                               
food  so a  corporate  income  tax reduction  could  happen.   He                                                               
explained  that other  sectors  of the  economy  would be  paying                                                               
sales tax as  well.  He concurred that having  the requested data                                                               
would be valuable.                                                                                                              
REPRESENTATIVE  GROH   pointed  out   there  are  17   sales  tax                                                               
exemptions being proposed, but food is not included.                                                                            
CHAIR CARPENTER said that, before  a fiscal plan is passed, there                                                               
would need  to be a conversation  on exemptions in the  sales tax                                                               
bill.  He stated that it would  be similar to an income tax bill,                                                               
where certain classes of people may be exempted.                                                                                
REPRESENTATIVE  GROH suggested  that  the  proposed reduction  in                                                               
corporate income tax would cost  the state $350 million annually.                                                               
He asked for data which  shows lowering corporate tax rates would                                                               
cause significant economic growth.                                                                                              
CHAIR  CARPENTER  responded  that  there are  examples  in  other                                                               
states where  tax reductions  had a  positive impact  on economic                                                               
REPRESENTATIVE GROH asked  whether the goal would be  to make the                                                               
state  more  attractive to  businesses.    He questioned  whether                                                               
other options were considered.                                                                                                  
CHAIR CARPENTER  said that the  legislation before  the committee                                                               
was  modeled off  the work  of  the Fiscal  Policy Working  Group                                                               
(FPWG).   He explained  that the base  student allocation  is not                                                               
before the  committee, and  this was not  a conversation  held by                                                               
FPWG, nor  would it  be something  in the  framework of  a fiscal                                                               
plan which addresses  the reduction of tax revenue  to the state.                                                               
He  said that  the proposed  corporation tax  reduction would  be                                                               
offset  by a  sales  tax and  create  a net  gain  of about  $700                                                               
million in tax revenue.                                                                                                         
REPRESENTATIVE GROH offered that the  tax would be paid mainly by                                                               
Alaskans  and some  by  tourists.   He  questioned  why the  $350                                                               
million in reductions would not go to the dividend payouts.                                                                     
CHAIR CARPENTER  responded that  this may be  a possibility.   He                                                               
expressed  uncertainty about  what corporate  interests would  do                                                               
with  the additional  revenue.   He expressed  the hope  that the                                                               
companies  would be  incentivized to  make money;  therefore, the                                                               
more  money companies  can  keep,  the more  likely  they are  to                                                               
invest in business growth.                                                                                                      
REPRESENTATIVE GROH,  regarding a  sales tax,  questioned whether                                                               
it would  affect rural communities  where the prices  are higher.                                                               
He inquired whether  exemptions or decreased rates  for goods and                                                               
services have been explored.                                                                                                    
CHAIR  CARPENTER  answered that  the  current  proposal does  not                                                               
contain  exemptions  and reiterated  he  is  open to  having  the                                                               
conversation on  exempting certain  populations before  action is                                                               
taken on any tax proposals.                                                                                                     
REPRESENTATIVE GROH  said, according  to the Institute  of Social                                                               
and  Economic  Research  (ISER)   at  the  University  of  Alaska                                                               
Anchorage,  70  percent of  Alaskans  would  do better  under  an                                                               
income tax  instead of a sales  tax.  He reiterated  that a sales                                                               
tax would significantly impact rural  communities, as well as the                                                               
communities which already have a sales tax.                                                                                     
CHAIR  CARPENTER responded  that while  any new  tax is  going to                                                               
fall on some Alaskans, the sales  tax would fall on all Alaskans.                                                               
He  said that  the  current alternative  being  discussed in  the                                                               
legislature is no  taxes.  This is other than  a reduction of the                                                               
PFD,  something that  ISER said  is  the most  regressive tax  on                                                               
Alaskans.  He  expressed the opinion that the sales  tax would be                                                               
fair  for all  Alaskans, and  it  would have  the possibility  of                                                               
passing through the legislature.                                                                                                
REPRESENTATIVE GROH stated that another  income tax bill has been                                                               
referred  to the  committee, and  he expressed  the understanding                                                               
that part of this would be  a consideration of a high-earner tax.                                                               
Demonstrating other  alternatives, he pointed out  that there are                                                               
two more oil tax bills, one in the Senate and one in the House.                                                                 
6:21:16 PM                                                                                                                    
REPRESENTATIVE  MCCABE  commented  that   money  going  into  the                                                               
private  economy has  a return  of  around 9  times, while  money                                                               
going to government has a return  of around 1.2 times.  Regarding                                                               
the lowering  of corporate  income tax, he  said that,  while the                                                               
state may  lose money,  it is  not pointed  to the  oil companies                                                               
which are already in the state,  rather it is designed to attract                                                               
businesses.   He  expressed the  opinion that  the oil  companies                                                               
would be ambivalent  about getting a 7 percent  gain in corporate                                                               
tax  because they  already  know  how to  operate  under the  9.2                                                               
percent  rate.   He  suggested  that a  2  percent corporate  tax                                                               
decrease would be a larger  "carrot" for those initially starting                                                               
a business.   He stressed that  tourists would also pay  into the                                                               
statewide sales tax.                                                                                                            
REPRESENTATIVE  GROH explained  that he  spoke to  businesspeople                                                               
who would  be in favor  of having greater amenities,  like having                                                               
adequate roads.   He said  that a  substantial bulk of  the sales                                                               
tax would be  paid by Alaskans because Alaskans are  in the state                                                               
year-round, while the  tourists are in the state a  small part of                                                               
the year.                                                                                                                       
6:26:11 PM                                                                                                                    
REPRESENTATIVE ALLARD  offered her understanding that  tourism is                                                               
either second  or third in  terms of revenue  to the state.   She                                                               
said that,  while groceries are  expensive in  rural communities,                                                               
these  communities do  not  pay property  taxes.   She  explained                                                               
that, with the  offset in corporate taxes, the  state must entice                                                               
the oil companies.                                                                                                              
6:27:48 PM                                                                                                                    
REPRESENTATIVE  GRAY  referred  to  Section 2,  Line  7,  of  the                                                               
proposed  legislation  and  requested an  explanation  about  the                                                               
"grievance process."                                                                                                            
MS.  BROUSSARD  said  she  could  follow  up  after  the  meeting                                                               
regarding the question.                                                                                                         
6:29:10 PM                                                                                                                    
CHAIR  CARPENTER explained  that this  section would  establish a                                                               
process for  when the department  revokes or suspends  a seller's                                                               
REPRESENTATIVE  GRAY  questioned  the definition  of  a  seller's                                                               
6:30:44 PM                                                                                                                    
CHAIR  CARPENTER  said that  the  verbiage  before the  committee                                                               
states that  before a  person engages in  business in  the state,                                                               
the  individual would  need to  obtain a  seller's permit  so the                                                               
state knows it should be collecting sales tax.                                                                                  
6:31:36 PM                                                                                                                    
REPRESENTATIVE GRAY  pointed out that  Sections 1 and 2  are from                                                               
HB  142 while  Section  3 is  from  HB 109.    He continued  that                                                               
Sections 4  and 5  are from HB  142, while Section  6 is  from HB
109.    He expressed  confusion  concerning  the bill's  exchange                                                               
between corporate tax cuts and sales tax language.                                                                              
CHAIR CARPENTER explained  that there were two bills,  one was on                                                               
starting  a sales  tax and  the other  would lower  the corporate                                                               
tax.  He said the request  made to Legislative Legal Services was                                                               
to combine HB  142 and HB 109  into one bill.  He  added that his                                                               
office did not  request the bill to  be drafted in this  way.  He                                                               
said  that any  drafting questions  will have  to be  directed to                                                               
Legislative Legal Services                                                                                                      
REPRESENTATIVE GRAY  responded that  he would  print off  the two                                                               
bills and compare them.                                                                                                         
6:33:57 PM                                                                                                                    
MS. BROUSSARD  offered that there  would be a  sectional analysis                                                               
at a future meeting.                                                                                                            
6:34:07 PM                                                                                                                    
REPRESENTATIVE MCCABE commented that the  sections go in order of                                                               
the statutes.                                                                                                                   
CHAIR  CARPENTER stated  that Legislative  Legal Services  uses a                                                               
drafting manual, and the bill is written following this.                                                                        
6:34:58 PM                                                                                                                    
REPRESENTATIVE  GROH  asked  if  FPWG  recommended  lowering  the                                                               
corporate tax rate.                                                                                                             
CHAIR  CARPENTER answered  that  FPWG had  not;  however, he  had                                                               
added  the  economic  growth  element   because  it  was  in  the                                                               
committee  recommendations.   He stated  that a  corporate income                                                               
tax rate reduction was identified  as a way to encourage economic                                                               
growth.  He further clarified that  it was not added by FPWG, but                                                               
added to the generated report.                                                                                                  
6:35:59 PM                                                                                                                    
REPRESENTATIVE  GRAY  pointed  out quitting  businesses  and  the                                                               
successor's  liability  on  page  11, line  20  of  the  proposed                                                               
legislation.    Concerning  this  he questioned  the  process  of                                                               
filing a return for sales tax.                                                                                                  
CHAIR CARPENTER explained  that when a sales tax  is collected by                                                               
a business and remitted to  the jurisdiction, there is a document                                                               
showing the  business's sales.  He  said this is attached  to the                                                               
collection and  is considered  the tax  return.   He said  HB 110                                                               
would direct that,  if a business ceases, its  final action would                                                               
be a tax return to the state with a remittance of tax owed.                                                                     
REPRESENTATIVE GRAY  moved to  page 10  and asked  about language                                                               
which  directs that  a person  filing a  return may  deduct sales                                                               
found to be worthless.                                                                                                          
CHAIR CARPENTER  offered to follow-up  after the meeting  with an                                                               
6:38:25 PM                                                                                                                    
REPRESENTATIVE MCCABE  suggested that the language  within HB 110                                                               
is  "boilerplate," in  that, the  bill  language originates  from                                                               
other states  or organizations.   He said  bad debt  reduction is                                                               
CHAIR CARPENTER stated  that he does not mind  getting a taxation                                                               
attorney to assist the committee.                                                                                               
REPRESENTATIVE MCCABE  expressed his  concern that  the committee                                                               
may  be  getting too  involved  with  the  minutia of  the  bill;                                                               
however, he  stated that the  questions posed should  be answered                                                               
at some point.                                                                                                                  
6:40:05 PM                                                                                                                    
REPRESENTATIVE  MCKAY said  that  the essence  of the  discussion                                                               
focuses  on page  1 through  page 3,  as these  are the  sections                                                               
covering corporate tax rates and sales tax.                                                                                     
6:41:11 PM                                                                                                                    
REPRESENTATIVE GRAY pointed to page  13, line 20, of the proposed                                                               
legislation, which read as follows:                                                                                             
     The  department   shall  separately  account   for  the                                                                    
     revenue collected from the tax  under this chapter that                                                                    
     the  department  deposits  in  the  general  fund.  The                                                                    
     legislature   may  appropriate   half  of   the  annual                                                                    
     estimated balance  in the account to  municipalities. A                                                                    
     municipality  may receive  an appropriation  under this                                                                    
     section  if the  municipality does  not collect  an oil                                                                    
     and  gas production  tax or  gas pipeline  property tax                                                                    
     under AS 29.45.080.                                                                                                        
REPRESENTATIVE GRAY requested an explanation.                                                                                   
CHAIR CARPENTER answered that the  language would allow the state                                                               
to  share   50  percent  of   the  tax  collected   with  certain                                                               
municipalities  and  boroughs.   He  stated  that they  would  be                                                               
eligible for  sharing the sales tax  revenue if they have  a low-                                                               
mill property tax, do not have  oil and gas production, or do not                                                               
have gas pipeline  property tax.  Hypothetically,  he stated that                                                               
if a community  with a property tax of 20  mills wants to receive                                                               
a  portion of  the sales  tax  revenue generated,  then it  could                                                               
choose to reduce property tax to less than 10 mills.                                                                            
REPRESENTATIVE  GRAY expressed  doubt that  a municipality  would                                                               
reduce property  tax to 10  mills and  make up the  difference by                                                               
increasing  sales  tax.   He  commented  that with  the  proposed                                                               
statewide sales  tax on top of  a city sales tax,  the city might                                                               
end up  with a sizable overall  tax rate.  He  expressed the fear                                                               
that a city  would be lowering property taxes in  order to access                                                               
the statewide  sales tax fund, and  it would choose to  take from                                                               
the fund instead of raising its own municipal sales tax.                                                                        
CHAIR  CARPENTER expressed  the  opinion that  the only  scenario                                                               
where  this would  occur is  when the  sales tax  revenue sharing                                                               
amount is  greater than  the figure the  city would  receive from                                                               
the lost property tax revenue.   He pointed out that these cities                                                               
could reduce their property tax and raise their sales tax.                                                                      
REPRESENTATIVE GRAY  expressed the belief that  cities might want                                                               
to take advantage of "free money" from the state.                                                                               
CHAIR CARPENTER commented that cities  could do that now, and the                                                               
taxes paid at the local level are what the people want to pay.                                                                  
6:46:27 PM                                                                                                                    
REPRESENTATIVE GRAY maintained his objection.                                                                                   
6:47:21 PM                                                                                                                    
The committee took a brief at-ease.                                                                                             
6:47:54 PM                                                                                                                    
A  roll  call vote  was  taken.   Representatives  Allard,  Groh,                                                               
McKay, McCabe, Tilton,  and Carpenter voted in  favor of adopting                                                               
the  CS  for  HB 109,  labelled,  33-LS0376\B,  Nauman,  4/12/23,                                                               
Version  B as  a  working document.    Representative Gray  voted                                                               
against it.   Therefore, by a  vote of 6-2, Version  B was before                                                               
the committee.                                                                                                                  
6:49:04 PM                                                                                                                    
REPRESENTATIVE GROH expressed the opinion  that a sales tax would                                                               
be  inferior policy  compared to  other taxes.   Furthermore,  he                                                               
expressed his concern  about whether the state could  pay for the                                                               
corporate tax reductions.                                                                                                       
6:49:54 PM                                                                                                                    
REPRESENTATIVE   GROH,   in   response   to   a   question   from                                                               
Representative  Allard, explained  that  ISER  has studies  which                                                               
show that an income tax would  be better than a sales tax because                                                               
the bottom  80 percent of people  in Alaska would do  better.  He                                                               
said that the top 20 percent  of the residents in the state would                                                               
pay more, while the top 1 percent would pay substantially more.                                                                 
REPRESENTATIVE ALLARD questioned  the impact of an  income tax on                                                               
a family who makes $100,000  a year.  Furthermore, she questioned                                                               
whether retirement  income would  be a part  of the  state income                                                               
REPRESENTATIVE  GROH responded  that  he  supports a  high-earner                                                               
tax.  He  explained that in economic literature a  sales tax hits                                                               
harder  for most  economic levels  until  the top  20 percent  of                                                               
income earners is reached.                                                                                                      
REPRESENTATIVE ALLARD  requested a comparison between  the states                                                               
which do not have an income tax.                                                                                                
6:53:59 PM                                                                                                                    
REPRESENTATIVE  GRAY said  that  the proposed  tax  would be  for                                                               
those  making $20,000  or  more.   He pointed  out  that all  the                                                               
members are proponents  of bigger PFDs.  He  expressed the belief                                                               
that the budget should not be  balanced by cutting the PFD, and a                                                               
broad statewide  sales tax  would financially  impact individuals                                                               
in rural  communities more  than the gain  from receiving  a PFD;                                                               
therefore, the budget would be balanced off the PFD.                                                                            
CHAIR  CARPENTER  suggested  that  a per-capita  limit  could  be                                                               
REPRESENTATIVE GRAY  said that he  would like the  information to                                                               
cover more than just the large cities in Alaska.                                                                                
6:56:35 PM                                                                                                                    
REPRESENTATIVE  MCCABE  suggested   the  revenue  sharing  system                                                               
within HB 109  would benefit rural communities.   He advised that                                                               
a tax expert should be present  to help the committee through the                                                               
scenarios.   He  recalled that  FPWG had  compared an  income tax                                                               
with a sales tax,  and the issue with a high  earner tax had been                                                               
there are not many high earners in Alaska.                                                                                      
6:58:59 PM                                                                                                                    
REPRESENTATIVE GROH  said ISER  studies showed  that a  sales tax                                                               
would be  more expensive for  households whose incomes  are under                                                               
$125,000,  and this  would  cost more  than an  income  tax.   He                                                               
concurred that cutting the PFD  would be the most regressive tax,                                                               
which is  what makes  the issue more  complicated.   He expressed                                                               
willingness  to  work  with  the  committee to  come  up  with  a                                                               
comprehensive fiscal solution.                                                                                                  
7:01:20 PM                                                                                                                    
CHAIR  CARPENTER  opined that,  in  his  talks with  legislators,                                                               
there  is no  broad  support  for the  passage  of a  broad-based                                                               
income  tax.   In response  to sales  tax versus  income tax,  he                                                               
stated that  economic growth is  wealth creation;  therefore, the                                                               
companies are  the ones with  the resources to employ  people and                                                               
grow the economy.   He said there is a  balance to strike between                                                               
who pays  taxes and who  has the money to  grow the economy.   He                                                               
added that  the permanent  fund is  the only  thing growing.   He                                                               
suggested  that  the  state  needs   to  re-structure  taxes  and                                                               
spending to ensure that the PFD stays.                                                                                          
7:05:31 PM                                                                                                                    
REPRESENTATIVE  GRAY stressed  that Alaska  needs a  fiscal plan.                                                               
He   expressed  agreement   with  Representative   Groh  in   the                                                               
preference of income tax over  sales tax and with Chair Carpenter                                                               
that  a sales  tax could  make  it over  the "finish  line."   He                                                               
commented that  there could  be a sales  tax established  at zero                                                               
percent,  then  the  state  would have  the  tax  structure  when                                                               
needed.  He asked if there  would be opposition to a zero percent                                                               
income tax.                                                                                                                     
CHAIR CARPENTER  responded that modeling  for when the  state may                                                               
need  an income  tax is  possible.   He  suggested the  committee                                                               
should be open to discussing a stairstep tax approach.                                                                          
7:09:07 PM                                                                                                                    
[HB 109 was held over.]                                                                                                         

Document Name Date/Time Subjects
HB 109 - New CS v.B.pdf HW&M 4/12/2023 6:00:00 PM
HB 109
HB 109 - New CS v. B Explanation of changes.pdf HW&M 4/12/2023 6:00:00 PM
HB 109
HB109 CS(WAM)-DOR-TAX-04-14-23 Fiscal Note.pdf HW&M 4/12/2023 6:00:00 PM
HB 109