Legislature(2005 - 2006)BELTZ 211
04/13/2005 01:30 PM COMMUNITY & REGIONAL AFFAIRS
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|Taxation of Mining Property; Contracts Approved by Municipalities for Payment in Lieu of Taxes|
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
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.