Legislature(2005 - 2006)BELTZ 211
04/13/2005 01:30 PM Senate COMMUNITY & REGIONAL AFFAIRS
| Audio | Topic |
|---|---|
| Start | |
| SB161 | |
| SB120 | |
| Taxation of Mining Property; Contracts Approved by Municipalities for Payment in Lieu of Taxes | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| * | SB 120 | ||
| * | SB 161 | ||
SB 161-BOROUGH SALES TAX EXEMPTIONS
CHAIR GARY STEVENS announced SB 161 to be up for consideration.
2:21:05 PM
DAVE STANCLIFF, Staff to Senator Therriault, said the Fairbanks
North Star Borough has requested the ability to exempt the city
within borough boundaries from duplicative taxation. The borough
doesn't want to stack taxes, but a current court case suggests
that they don't have that latitude; the Legislature hasn't given
sufficient statutory direction one way or another.
SB 161 would clarify that local governments have maximum
flexibility with regard to taxation. Fairbanks North Star
Borough Attorney, Renee Broker, is available if there are
technical legal questions.
2:22:21 PM
CHAIR GARY STEVENS asked for an example.
MR. STANCLIFF said if there is a tax at the city and the borough
level, the borough should have the ability to exempt the
municipal part of the tax to avoid double taxation. SB 161 would
clarify that the authority exists within the borough boundaries.
CHAIR GARY STEVENS asked if this would affect the cap on
education in any way.
MR. STANCLIFF said that is a question for Ms. Broker, but for
the record he would read from the case that caused the sponsor
to introduce the bill. He read:
Case law and code law have not varied in the 13 years
since this court interpreted AS 04.21.010 (c) (2).
It's never a sure thing to bet that the Legislature is
satisfied with the state of the law because it has
done nothing. It his worth noting, however, that this
is the longest interval in the state's history in
regulation of municipal taxation of alcoholic beverage
sales during which the operative language of AS
04.21.010 (c) (2) has not been the subject of
interpretation by either state lawmakers or the
state's highest court.
2:26:35 PM
SENATOR THOMAS WAGONER said doing this creates two different
classes of citizens. One class is comprised of borough residents
living outside the municipality that have to pay sales tax for
borough services and the other is the people living in the
municipality that are exempted.
MR. STANCLIFF replied the concept is that no one should pay
double tax. If it takes an exemption to prevent a double tax,
then this would grant the explicit authority to make the
exemption.
CHAIR GARY STEVENS said this could create a number of problems
and he wasn't sure he understood the full ramifications.
MR. STANCLIFF said a residual concern is that this could spill
over into issues other than alcohol tax. For instance it could
spill over to the bed tax and jeopardize some of that funding.
SENATOR KOOKESH asked whether the parties in the court case had
commented on the legislation.
MR. STANCLIFF said they haven't received comments from the
petitioner and they have asked for clarification from the
borough.
SENATOR KOOKESH suggested they get clarification from both
parties because the Legislature certainly doesn't want to get in
the middle of a lawsuit unless both parties agree that would
solve the problem.
2:29:50 PM
RENEE BROKER, Borough Attorney for the Fairbanks North Star
Borough, explained that the borough assembly adopted sales tax
in the form of a bed tax and an alcoholic beverage tax. When the
assembly adopted those taxes, they used their general exemption
power to exempt transactions that were already taxed within the
borough. This was done to ensure that those two items would be
equally taxed throughout the borough. The purpose was to
maintain a level playing field throughout the borough.
A group brought suit claiming that an exemption to avoid
stacking taxes is illegal. They argue that current state law
requires the borough to stack sales taxes and effectively double
the tax burden within the city. The case is before the Alaska
Supreme Court now and if it is successful, the borough will have
just two options. They could eliminate the tax and forgo $3.2
million in annual revenue or could stack the tax and subject the
citizens and visitors to double taxation within the city.
The borough supports the legislation because the parties don't
agree on the legislative intent and this would make it clear.
The plaintiff argues that the legislative intent is to require
boroughs, as a condition of adopting a sales tax, to stack
taxes. The bill not only clarifies the intent, it also supports
the public policy expressed in the constitution, which is
against duplication of tax levy in jurisdictions.
CHAIR GARY STEVENS said the bill doesn't mention duplicate
taxation; it talks about allowing a borough to make its own
decision.
MS. BROKER replied the borough makes its own decision by wholly
or partially exempting a transaction that is already being taxed
by a city.
CHAIR GARY STEVENS said although that might be the outcome, the
bill isn't asking the Legislature to take a position on
duplication of taxes.
MS. BROKER agreed; the request is to allow the borough to give
the exemption.
SENATOR WAGONER reiterated this creates two different groups
within the borough and gives them different treatment.
MS. BROKER respectfully disagreed. It would be true if it was a
property tax, but this is a sales tax. People don't necessarily
shop where they live. If you shop within the borough, regardless
of whether you live within or outside the city, you will pay the
same amount of tax. Before the borough tax was imposed, one
group didn't pay tax and the other did.
SENATOR WAGONER asked if this is an overall sales tax.
MS. BROKER replied within the Fairbanks North Star Borough the
discussion is with regard to alcoholic beverages and bed tax.
The research the borough did indicates that not many boroughs
stack taxes.
SENATOR WAGONER remarked tax stacking is commonly done
throughout the state and this is asking for an exception to the
rule in Alaska.
MR. STANCLIFF said the term "may" makes this permissive. This
doesn't create a new policy. It has been done and it was
sustained by the lower court ruling. He suggested that it's
appropriate that the Legislature weigh in to clarify what the
latitude should be for borough governments.
SENATOR BERT STEDMAN asked what the alcohol tax is in Fairbanks.
MS. BROKER replied the alcohol tax is 5 percent and the bed tax
is 8 percent. With the exemption in effect, the bed tax is 8
percent in the city and outside the city.
The litigation relates to legislative intent so the borough is
asking the Legislature to clarify the intent when it authorized
the borough to give exemptions.
SENATOR STEDMAN asked if the borough gets any of the 8 percent
bed tax that's paid in the city and vice versa.
MS. BROKER said no, it's exempt in both cases.
CHAIR GARY STEVENS asked what happens to the money that's
collected in the borough.
MS. BROKER said it is primarily used for economic development
for the city and the borough.
SENATOR KOOKESH reiterated the committee should hear from both
the defendant and plaintiff before moving forward. He asked why
the plaintiff wasn't represented here.
MS. BROKER said she wasn't speaking for the plaintiff, but she
thought the committee could accurately predict that the
plaintiff would agree that this would resolve the issue, but
that they wouldn't agree that this is the way the issue should
be resolved. Their goal is to force the borough to stack taxes
within the city.
SENATOR WAGONER asked the name of the plaintiffs.
MS. BROKER said it's a local group called ICHRRA [Interior
Cabaret Hotel, Restaurant and Retailers Association]. They are a
group of individuals, bar owners, and corporations that sell
alcoholic beverages.
SENATOR WAGONER stated he would like to talk to communities in
his district that have a similar sales tax to find out if this
would have any affect on their tax structure. He cautioned that
the issue could be larger than anticipated.
SENATOR STEDMAN said he too was reluctant to jump in because of
the litigation.
CHAIR GARY STEVENS noted the hesitation around table and said it
wasn't his intent to move the bill that day. More scrutiny was
in order.
LINDA ANDERSON, Lobbyist for the Fairbanks North Star Borough,
acknowledged this does affect all second-class boroughs and she
understands the hesitation. However, this isn't the first time
the Legislature has addressed an issue that was in the courts to
try to prevent something that might be catastrophic. If the
borough were to lose the case because the Legislature decided
not to give second-class boroughs the powers to partially or
wholly exempt, the Fairbanks borough would have to undo millions
of dollars of damage. If a second-class borough were not able to
equalize taxes if they choose to do so, it would jeopardize
millions of dollars in the various boroughs.
CHAIR GARY STEVENS asked if there might not be grounds for a
lawsuit either way.
MS. ANDERSON replied the city has economic development powers.
MS. BROKER added the borough has an agreement with the city to
mutually share the power to benefit all citizens.
MS. ANDERSON noted legislation was passed several years ago so
cities and boroughs can agree to exchange powers and use
revenues between the two. Title 29 sets up the structure to do
that.
SENATOR WAGONER noted the law was amended several years ago to
allow the Fairbanks North Star Borough and the city to share in
those funds jointly. He recalled they were the only borough to
utilize that power.
MS. ANDERSON said when the Fairbanks citizens voted to raise the
bed tax the intent was not to end up with a 16 percent bed tax
in the city and 8 percent in the borough.
CHAIR GARY STEVENS asked if there is an upper limit on the tax
that could be charged.
MS. BROKER said she didn't know because there is no general
sales tax in Fairbanks, but there is no upper limit on the bed
or alcoholic beverage taxes.
SENATOR WAGONER said he didn't understand why the local ICHRRA
would want to force a different level of taxation in the city
unless there is a business advantage to do that.
MS. BROKER speculated that if ICHRRA believes this would make
the tax more expensive then the citizens wouldn't vote to impose
that tax.
SENATOR STEDMAN said it's a local issue and the two bodies
should work it out.
MS. ANDERSON said the two bodies did get together and made the
decision that they don't want to impose a higher tax in the city
than in the borough. The court case challenges the local
government's authority to partially or wholly exempt a city.
SENATOR WAGONER asked if the borough has discussed the issue
with the Alaska Municipal League, the Kenai Peninsula Borough
attorney or any others.
MS. BROKER replied yes; the Alaska Municipal Attorneys
Association discussed the issue and a number of other municipal
attorneys expressed interest in the resolution. They all see the
public policy benefit of equalizing tax and working with cities
even if you aren't a unified municipality. Specifically they
have been working with Kodiak because they do the same thing
with their bed tax. They exempt their cities from the bed tax.
This would clarify the issue for them too.
SENATOR WAGONER reiterated he wanted time to consult with
community leaders in his district.
CHAIR GARY STEVENS announced he would hold SB 161 in committee
and schedule it at a future time.
| Document Name | Date/Time | Subjects |
|---|