Legislature(2005 - 2006)BELTZ 211


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02:20:11 PM Start
02:21:05 PM SB161
02:57:49 PM SB120
03:31:47 PM Taxation of Mining Property; Contracts Approved by Municipalities for Payment in Lieu of Taxes
03:33:23 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Moved SB 120 Out of Committee
Heard & Held
Senate Bill:
<Pending Introduction & Referral>
              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                                                               
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                                                               
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                                                               
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                                                               
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.                                                                                               

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