Legislature(2001 - 2002)
03/25/2002 01:40 PM Senate JUD
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* first hearing in first committee of referral
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SJR 33-CONSTITUTIONAL AMENDMENT: TAX CAP
CHAIRMAN TAYLOR noted the committee received a letter from the
Commissioner of the Department of Revenue (DOR) that answers some
of the questions asked at the last meeting. He stated that he
prepared a sponsor substitute (SS) for SJR 33. The drafter had
sent along with it a resolution that provides for a title change.
He questioned why another resolution is necessary since SJR 33 is
a Senate resolution and, in addition, he has not seen any title
change in the sponsor substitute.
SENATOR AUSTERMAN also expressed confusion as to why a second
resolution accompanied SJR 33 and noted that he is not aware of
any title change.
CHAIRMAN TAYLOR and SENATOR AUSTERMAN then clarified the new
version is a committee substitute, not a sponsor substitute.
Senator Austerman prepared a sponsor substitute, but Chairman
Taylor changed it to a committee substitute so that the
resolution would not have to be re-read on the Senate floor.
SENATOR COWDERY asked if an accompanying resolution for a title
change would be required if the original resolution came from the
House.
CHAIRMAN TAYLOR said it would. He then said SJR 33 was introduced
on February 4, 2002 and was referred to the Senate Judiciary and
Finance Committees. He asked Senator Austerman if SJR 33 received
an additional referral.
SENATOR AUSTERMAN said it did not and noted that he submitted a
sponsor substitute to the Senate Judiciary Committee in error.
CHAIRMAN TAYLOR clarified that the version before members is not
a committee substitute for a sponsor substitute, it is a
committee substitute to the original resolution.
SENATOR COWDERY moved to adopt the proposed committee substitute,
Version F, as the work draft before the committee.
CHAIRMAN TAYLOR announced that without objection, Version F was
before the committee. He then moved to delete from the bill
heading the words "FOR SS" so that the title of the bill reads:
CS FOR SENATE JOINT RESOLUTION NO.33(JUD)
There being no objection, the motion carried.
SENATOR AUSTERMAN informed members that the only change in the CS
is that the word "retail" was added on page 1, line 12 before the
words "sales tax."
CHAIRMAN TAYLOR noted that change was made to clarify that the
provision does not apply to wholesale sales. He pointed out that
Mr. Persily answered the committee's questions about what
adjusted gross income means, about what the percentage would be
and the amount that percentage would generate. He expressed
concern that the limiting factor of five percent of the federal
adjusted gross income is hardly a limit. That amount would
probably generate about $550 to $600 million.
MR. LARRY PERSILY, Deputy Commissioner, Department of Revenue,
explained that Chairman Taylor's estimate is correct and that
amount would go a long way in solving Alaska's fiscal problems.
SENATOR COWDERY noted that Mr. Persily defined "federal taxable
income" as income remaining after itemizing deductions. He asked
if earnings from another state would be considered an itemized
deduction. He said that if an individual had income derived from
another state with an income tax, the individual might be able to
deduct them, but if the income was derived in a state without an
income tax, those wages would have to be included in the federal
return.
MR. PERSILY clarified that federal taxable income would include
income from all sources. If Alaska had an income tax and part of
one's income was earned in Washington, which has no personal
income tax, Alaska could impose an income tax on all of the
income earned in Washington state because that individual's
domicile is in Alaska. If Washington had an income tax and one-
third of the individual's earnings were from Washington, Alaska
could tax two-thirds. He stated an individual would never pay
taxes to two states on the same income.
SENATOR COWDERY pointed out Alaska would draw in the income
derived from other states with no income tax.
MR. PERSILY said the state could benefit by taxing the earnings
of its residents where those earnings are earned in states
without a personal income tax.
SENATOR AUSTERMAN said that works both ways as Oregon residents
who earn their wages in Alaska are taxed by Oregon.
SENATOR COWDERY said that is the point he has a problem with. He
said he believes an Alaska income tax should be based on Alaska
income.
SENATOR THERRIAULT referred to the limit of 5 percent and
questioned whether Alaskans would see it as a cap since it is at
the upper limit. He asked Senator Austerman if he feels strongly
about the five percent.
SENATOR AUSTERMAN said his only thought is if the legislature
asks the public to vote on a constitutional amendment, it should
allow the public the latitude of future growth. He said if it
reads two or three percent, a future legislature will probably
have to go back to the public for another vote. He noted that he
anticipates that Alaska will have a broad based tax structure in
the not-too-distant future but he does not believe it will be
just an income tax and sales tax. He also anticipates the
permanent fund will be part of the solution so he does not
believe the five percent cap will be reached for a very long
time. He maintained that is a policy call the legislature will
have to make.
CHAIRMAN TAYLOR said the overall policy call reaches far beyond
the numbers. His concern is that today, under Alaska's
Constitution, people are not afforded an opportunity to vote on
the budget or to vote on the level of taxation that the
legislature chooses to impose. He thought it would be a good idea
to have a cap or limit on taxation, but expressed concern that
placing a cap in the Constitution creates a significant policy
shift. The Constitution was originally designed so that questions
of revenue would be left up to the legislature and that
initiative petitions could not be brought to amend the
Constitution. In addition, one of the things the framers truly
isolated at the state and municipal levels is that the public
does not have a vote on that. By putting any number in the
Constitution, that number can only be changed by a public vote.
He said he believes that is a major shift within the framework of
Alaska's Constitution.
SENATOR COWDERY noted the title does not say that an income and
sales tax will be implemented, it only says if the legislature
decides to impose one, it must be limited to five percent so it
is moot until a tax is in place.
SENATOR AUSTERMAN said that is correct and stated, "The whole
issue, and I believe the courts have upheld also, like you
indicated, the initiative process, they cannot set the budget by
initiative process but this is not necessarily setting a rate,
but it's setting the maximum at this point in time that the
public would feel comfortable with."
CHAIRMAN TAYLOR asked Senator Therriault his thoughts on three
percent, which would generate almost $400 million.
SENATOR THERRIAULT said he prefers 2.5 percent. He then moved to
replace the word "five" on page 1, line 10 with "2.5."
CHAIRMAN TAYLOR asked Senator Therriault if it is his intent to
make the same change on lines 7 and 12.
SENATOR THERRIAULT clarified that he would take Chairman Taylor's
suggestion to make the same change on line 7 to be a friendly
amendment to his amendment, but it is not his intent to make the
same change on line 12 as that applies to a sales tax.
CHAIRMAN TAYLOR asked if there was objection to adopting the
amendment and then objected for the purpose of allowing Senator
Austerman time to review the amendment.
SENATOR AUSTERMAN thanked Chairman Taylor.
CHAIRMAN TAYLOR announced that with no further objection, the
amendment was adopted.
CHAIRMAN TAYLOR moved to replace "five" on page 1, line 12, with
2.5 to limit the percent of sales tax that could be levied by the
state to 2.5. He noted that without objection, the motion
carried.
There being no further testimony, SENATOR COWDERY moved CSSJR
33(JUD) as amended from committee with individual
recommendations.
CHAIRMAN TAYLOR announced that without objection, the motion
carried.
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