Legislature(2021 - 2022)BUTROVICH 205

09/09/2021 03:30 PM Senate RESOURCES

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03:38:37 PM Start
03:39:46 PM SB3002
05:06:05 PM Presentation: Tax Overview: Motor Fuels, Corporate Income, and Per Barrel Credits
06:07:52 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
-- Testimony <Invitation Only> --
**Streamed live on AKL.tv**
           SB 3002-TAX: MOTOR FUEL, CORP. INCOME, O&G                                                                       
3:39:46 PM                                                                                                                    
CHAIR JOSH REVAK  announced the consideration of  SENATE BILL NO.                                                               
3002 "An  Act establishing an  income tax on certain  entities in                                                               
the  state;  relating   to  the  motor  fuel   tax;  relating  to                                                               
nontransferable tax  credits against  the oil and  gas production                                                               
tax; and providing for an effective date."                                                                                      
3:41:02 PM                                                                                                                    
SENATOR  TOM BEGICH,  Alaska State  Legislature, Juneau,  Alaska,                                                               
stated that SB  3002 seeks to establish an income  tax on certain                                                               
entities relating to a motor  fuels tax and a nontransferable tax                                                               
credit against  the oil  and gas production  tax. He  stated that                                                               
the Fiscal  Plan Working Group  of 2021 was historic  because two                                                               
members  from   the  House   Majority,  House   Minority,  Senate                                                               
Majority,  and  Senate  Minority  worked  together  to  create  a                                                               
bipartisan  revenue plan.  The plan  received widespread  support                                                               
from the public, administration, and legislators.                                                                               
SB 3002 addressed  a portion of the working  group's revenue plan                                                               
by increasing revenue  from three sources. He  expressed a desire                                                               
for SB 3002  to move to the next committee  of referral since the                                                               
Senate previously heard or passed the proposals in the bill.                                                                    
3:44:30 PM                                                                                                                    
Using the estimates  assumed by the working group,  SB 3002 would                                                               
increase revenue  by $195 million;  $110 million would  come from                                                               
the change  to the per  barrel tax credit structure,  $18 million                                                               
from  the motor  fuel tax  adjustment, and  $67 million  from the                                                               
expansion of  corporate income tax structure  to capture excluded                                                               
3:45:06 PM                                                                                                                    
SENATOR  BEGICH opined  there is  a need  for a  revenue bill  to                                                               
advance to the finance committee for exploration.                                                                               
He said the oil and gas  industry will object to SB 3002 claiming                                                               
lack  of  competition  and  that   additional  taxation  will  be                                                               
harmful.  Yet, Alaskan  citizens  have contributed  $2 billion  a                                                               
year of  expected permanent  fund dividend  income over  the past                                                               
five years.                                                                                                                     
SENATOR STEVENS asked  how much revenue would come  from taxing S                                                               
SENATOR BEGICH answered $67 million in the first year.                                                                          
3:47:21 PM                                                                                                                    
MERCEDES  COLBERT,  Staff,  Senator   Tom  Begich,  Alaska  State                                                               
Legislature,  Juneau, Alaska,  presented  the sectional  analysis                                                               
for SB 3002 on behalf of the sponsor:                                                                                           
     Section 1: Adds a new  section to the Alaska Net Income                                                                    
     Tax  Act. This  section establishes  a new  tax of  9.4                                                                    
     percent for  certain corporations  earning at  least $4                                                                    
     million  on  qualified  net taxable  income.  This  tax                                                                    
     applies  to  sole   proprietorships,  partnerships,  or                                                                    
     federally defined  S and  C corporations,  not publicly                                                                    
SENATOR  BEGICH interjected  that a  company with  net income  of                                                               
$4.1 million  would pay 9.4  percent tax  on the amount  above $4                                                               
million, which would be $100,000.                                                                                               
SENATOR REVAK asked how the $4 million threshold was determined.                                                                
SENATOR BEGICH  responded that the  $4 million cut-off  came from                                                               
proposed legislation from Senator Wielechowski.                                                                                 
MS. COLBERT added that the  legislation set the $4 million amount                                                               
with a specific entity in mind.                                                                                                 
SENATOR VON IMHOF questioned why  the percentage rate jumped from                                                               
0 to 9.4 percent.                                                                                                               
3:49:58 PM                                                                                                                    
SENATOR  BEGICH  responded  that  9.4  percent  mirrors  existing                                                               
legislation  for corporate  income tax,  which stair-steps  up to                                                               
9.4 percent for  companies earning over $220,000  in net profits.                                                               
The threshold  is set at $4  million for S corporations  to avoid                                                               
hurting mom-and-pop  businesses. Some corporations chose  to be S                                                               
corporations and avoid Alaska's state corporate tax.                                                                            
SENATOR BEGICH  stated that British Petroleum  divested itself of                                                               
assets in Alaska to an  S corporation. Previous legislation tried                                                               
to  recapture  the  lost  $40 million  in  corporate  income  tax                                                               
revenue and remedy the loophole.                                                                                                
SB 3002  would begin  taxing S corporations  only on  net profits                                                               
exceeding $4 million.                                                                                                           
3:52:19 PM                                                                                                                    
SENATOR STEVENS asked  if individuals who own  S corporations pay                                                               
income tax instead of corporate state tax and what the rate is.                                                                 
SENATOR BEGICH replied  that owners of S  corporations pay income                                                               
tax if the  state has an income tax. An  S corporation owner does                                                               
not pay individual state income tax in Alaska.                                                                                  
SENATOR STEVENS  commented that the  $40 million in  lost revenue                                                               
is truly a loss.                                                                                                                
SENATOR BEGICH replied, correct.                                                                                                
3:53:47 PM                                                                                                                    
SENATOR VON IMHOF expressed concern  that a particular company is                                                               
being targeted for taxable revenue.  She asked for the definition                                                               
of the term "qualified taxable income in Section 1(c).                                                                          
SENATOR  BEGICH  responded that  Emily  Nauman  would answer  the                                                               
question. He commented  that the loss of  $40 million highlighted                                                               
a flaw  in Alaska's  revenue system. When  drafting SB  3002 with                                                               
Legislative Legal  Services (Leg  Legal), the  goal was  to close                                                               
the  loophole  without  destroying mom-and-pop  businesses;  that                                                               
threshold  was $4  million. He  opined that  upstanding corporate                                                               
companies   willingly  contribute   to   the  state's   corporate                                                               
3:55:48 PM                                                                                                                    
SENATOR REVAK  requested that questions  for [Leg Legal]  be held                                                               
until after  the presentation.  He asked  the sponsor  to confirm                                                               
that the tax  applies to S corporations,  LLCs, partnerships, and                                                               
other entities making over $4 million in net income.                                                                            
SENATOR   BEGICH  replied,   correct.  It   also  includes   sole                                                               
3:56:34 PM                                                                                                                    
MS. COLBERT resumed reading the sectional analysis                                                                              
     Section  2: Increases  the surcharge  from $0.0095  per                                                                    
     gallon  to  $0.015 per  gallon  on  refined fuel  sold,                                                                    
     transferred, or used in Alaska.                                                                                            
     Section  3: Increases  the tax  on motor  fuel sold  or                                                                    
     transferred within  the state  from $0.08 to  $0.16 per                                                                    
     gallon.  This section  also increases  motor fuel  sold                                                                    
     and transferred for  the use in and  on watercraft from                                                                    
     $0.05 cents to $0.10 per gallon.                                                                                           
     Section  4: Increases  the tax  on motor  fuel consumed                                                                    
     from  $0.08  to $0.16  per  gallon.  This section  also                                                                    
     increases the  tax on motor  fuel consumed for  the use                                                                    
     in  and on  watercraft from  $0.05 cents  to $0.10  per                                                                    
     Section  5: Amends  AS  43.40.030(a),  relating to  the                                                                    
     refund of  the motor fuel  tax for non-highway  use, by                                                                    
     increasing the fuel tax refund  from $0.06 to $0.12 per                                                                    
     gallon for  internal combustion  engines. Adds  a $0.05                                                                    
     per  gallon refund  eligibility for  commercial fishing                                                                    
3:58:04 PM                                                                                                                    
SENATOR  MICCICHE  stated that  with  the  increased use  of                                                                    
electric  vehicles  (EV)  nationwide,   there  has  been  an                                                                    
increase in tax legislation  aimed at capturing revenue from                                                                    
EV use to pay for highway  maintenance. He asked if that was                                                                    
considered in SB 3002.                                                                                                          
SENATOR BEGICH  answered that tax  on EVs was  considered in                                                                    
the  original motor  fuels bill.  It is  not included  in SB
3002 because  Leg Legal  advised it might  lead to  a single                                                                    
subject rule  violation. He  said he  is willing  to support                                                                    
standalone legislation  on an  EV tax but  does not  want to                                                                    
risk the integrity of SB 3002 by including it.                                                                                  
SENATOR  REVAK   asked  why  there   is  an   exemption  for                                                                    
commercial fishing vessels and how much it would be.                                                                            
4:00:13 PM                                                                                                                    
SENATOR  BEGICH  stated that  Leg  Legal  might be  able  to                                                                    
provide  the amount  of the  exemption.  He said  commercial                                                                    
fishing vessels were exempted because  they were exempted in                                                                    
the bill from which it was drafted. The motor fuels tax                                                                         
portion of SB 3002 is taken from the final House version of                                                                     
Senate Bill 115.                                                                                                                
4:00:58 PM                                                                                                                    
MS. COLBERT continued reading the sectional analysis:                                                                           
     Section   6:  Amends   AS  43.55.024(j),   relating  to                                                                    
     nontransferable  oil   production  tax   credits.  This                                                                    
     section  repeals the  $8,  $7, and  $6  per barrel  tax                                                                    
     credits, effectively capping the  per barrel tax credit                                                                    
     at  $5 per  barrel if  the average  gross value  at the                                                                    
     point of  production for  the month  is less  than $110                                                                    
     per barrel.                                                                                                                
     Section  7:  Applies  the   new  corporate  income  tax                                                                    
     established in section  1 of this bill to  the tax year                                                                    
     beginning  on or  after January  1, 2022.  32-LS1152/B|                                                                    
     9.9.2021 | 2                                                                                                               
     Section 8:  Transition language  for the  Department of                                                                    
     Revenue  to adopt  regulations  necessary to  implement                                                                    
     this bill if passed into  law. Regulations may not take                                                                    
     effect before January 1, 2022.                                                                                             
     Section 9: Immediate effective  date for the Department                                                                    
     of Revenue  to begin work on  regulations as authorized                                                                    
     under Section 8.                                                                                                           
     Section  10:  Except for  Section  9,  this bill  takes                                                                    
     effect January 1, 2022                                                                                                     
4:02:06 PM                                                                                                                    
SENATOR BEGICH added that his  hope is that the finance committee                                                               
makes passage of SB 3002  contingent upon legislation relating to                                                               
a change in the dividend statute.                                                                                               
CHAIR REVAK  asked if the purpose  of SB 3002 is  to increase the                                                               
permanent fund dividend.                                                                                                        
SENATOR BEGICH replied  that the purpose of SB 3002  is to ensure                                                               
the  state  has  an  acceptable comprehensive  fiscal  plan.  The                                                               
fiscal plan working  group identified that a plan  must include a                                                               
constitutional percent of market  value, finality to the dividend                                                               
question, revenue for a balanced  budget, and spending review. SB
3002  addresses  two elements  suggested  by  the working  group.                                                               
Legislators must be  willing to make painful changes  if they are                                                               
serious about establishing a state fiscal plan.                                                                                 
4:04:03 PM                                                                                                                    
SENATOR MICCICHE asked  if the surcharge increase  from $0.95 per                                                               
gallon to $1.05 in Section 2  was calculated to capture the Spill                                                               
Prevention and Response (SPAR) funding  gap and if the Department                                                               
of Environmental Conservation (DEC)supports it.                                                                                 
SENATOR BEGICH  answered that it  does meet the  amount discussed                                                               
in the DEC subcommittee meeting.  He does not know DEC's position                                                               
but  his belief  is that  the department  was in  support of  the                                                               
SENATOR  KIEHL  commented  that it  seems  counterintuitive  that                                                               
Section 6  proposes deleting the  per barrel tax credit  at lower                                                               
net oil prices but keeps them  at higher net oil prices. He asked                                                               
why this approach  was taken and if he would  be receptive to the                                                               
existing approach.                                                                                                              
SENATOR  BEGICH stated  he is  amenable to  change and  explained                                                               
that the approach in SB 3002  was selected because it seemed less                                                               
damaging to the oil industry.  Garnering less opposition from the                                                               
oil  industry is  favorable to  the  state. The  proposal was  an                                                               
attempt to  compromise. He stated  his preference for  a property                                                               
tax on  oil company land  use because  it would net  more revenue                                                               
and  be  stable.  However,  the   idea  of  a  property  tax  met                                                               
opposition from  the oil industry.  He stated his desire  for the                                                               
legislature to find the least painful means to compromise.                                                                      
SENATOR VON  IMHOF asked  what evaluation  was done  to determine                                                               
that  the oil  tax  credit  proposal in  SB  3002  would be  less                                                               
damaging to the oil industry,  aside from comparing it to Senator                                                               
Wielechowski's bill, which eliminates all tax credits.                                                                          
4:07:33 PM                                                                                                                    
SENATOR BEGICH  replied that Senator Wielechowski's  bill was the                                                               
comparison. It  is more damaging  to the oil industry  to provide                                                               
zero tax credits than some tax credits.                                                                                         
The goal  of SB 3002  is to  initiate solutions to  state revenue                                                               
needs.  Any bill  that  adds  an industrial  tax  burden will  be                                                               
viewed unfavorably by the industry.  Likewise, a reduction in the                                                               
dividend  check will  damage  the  individual. The  comprehensive                                                               
fiscal plan was  designed in the spirit of compromise  to get the                                                               
legislature discussing revenue.                                                                                                 
When discussing an  overall fiscal plan, there must  be a revenue                                                               
element, or it  is not a fiscal plan. If  legislators are serious                                                               
about doing a  comprehensive plan, it must have  revenue. SB 3002                                                               
was  designed to  get members  into a  discussion on  revenue. He                                                               
said  he is  hopeful members  will move  SB 3002  to the  finance                                                               
committee for further analysis.                                                                                                 
4:09:25 PM                                                                                                                    
SENATOR  VON IMHOF  surmised that  SB 3002  was not  economically                                                               
evaluated  to   determine  its   potential  effect   on  Alaska's                                                               
investment in the  North Slope, which is the  largest employer in                                                               
the state and provides competitive jobs.                                                                                        
She  opined  that  revenue  would  not  be  addressed  until  the                                                               
permanent dividend issue was solved.  The state needs to know how                                                               
revenue will  be spent  in order to  have a  comprehensive fiscal                                                               
plan.  Large dividends  should not  be paid  at the  exclusion of                                                               
Alaska's needs.                                                                                                                 
4:10:51 PM                                                                                                                    
SENATOR BEGICH responded that passing  SB 3002 is contingent upon                                                               
the  dividend statute  being  changed. All  measures  need to  be                                                               
considered simultaneously. He opined  that an overall fiscal plan                                                               
could  not  be  achieved  if   revenue  discussions  on  industry                                                               
continue to be delayed.                                                                                                         
He agreed  that the oil  industry is critically important  to the                                                               
state;  however, the  fishing industry  is the  largest employer.                                                               
The  next largest  is  the  State of  Alaska,  followed by  local                                                               
government. The  largest single private  employer may be  the oil                                                               
industry regarding  salaries earned.  Yet, many employees  do not                                                               
live  in Alaska,  which results  in uncaptured  revenue. A  state                                                               
income tax would not necessarily capture this revenue if passed.                                                                
He reiterated  that SB  3002 is trying  to balance  resources and                                                               
interests for individuals and industries.  It is an all-inclusive                                                               
bill where everyone pays something.                                                                                             
He  stated that  the issues  of revenue  and dividend  change had                                                               
been discussed  and debated. There  will be no  definitive answer                                                               
if  the  legislature does  not  address  them simultaneously.  He                                                               
recognized that  members want to  defend their  interests. Still,                                                               
he implored  them to consider  revenue alongside  dividend change                                                               
to achieve  a comprehensive  fiscal plan for  the benefit  of the                                                               
4:13:35 PM                                                                                                                    
CHAIR  REVAK  commented that  the  $4  million threshold  is  not                                                               
difficult to achieve for many  businesses. He asked if industries                                                               
or businesses other than fishing were considered for exemption.                                                                 
4:14:21 PM                                                                                                                    
SENATOR BEGICH replied  that members could adjust  the $4 million                                                               
threshold,  although constituents  expressed concern  about taxes                                                               
affecting small businesses. He reiterated  that the tax is on net                                                               
income above $4 million, not gross income.                                                                                      
He stated  the portion of SB  3002 dealing with a  motor fuel tax                                                               
is the  same language used in  a bill that passed  the Senate and                                                               
stood  a   good  chance  of   passing  the  House  but   for  the                                                               
interruption caused by COVID.                                                                                                   
SENATOR BEGICH  called SB  3002 a plagiarist's  bill since  it is                                                               
comprised of previously heard bills that had broad consensus.                                                                   
4:16:55 PM                                                                                                                    
MS.  COLBERT began  the presentation  on slide  3 that  shows the                                                               
legislative history on corporate tax.  She noted that many of the                                                               
concepts  have been  discussed in  the last  four or  five years.                                                               
Some bills  applied only to  S or C corporations,  others applied                                                               
to both,  and some applied only  to oil and gas  companies. Since                                                               
2017,  five bills  have been  introduced  regarding the  S and  C                                                               
corporate income tax loophole. None  of the recent bills that are                                                               
listed have received hearings.                                                                                                  
She displayed  slide 4 of the  more recent history of  motor fuel                                                               
taxes. SB  3002 reflects a  bill currently in House  finance. She                                                               
noted  that Senate  Bill 115  was the  only motor  fuel tax  bill                                                               
heard during the  31  Legislature. It passed  the Senate and came                                                               
close to  passing in the  House but  was a casualty  of COVID-19.                                                               
During the  30   Legislature, two  bills were  heard but  did not                                                               
make it to the floor. They were introduced  during the 1  Special                                                               
Session but were  not heard. In the  29  Legislature  in 2015 and                                                               
2016, several bills  were heard; House Bill 4001  and Senate Bill                                                               
4001 were omnibus tax bills introduced in the  4  Special Session                                                               
that included taxes  on a number of industries.  She related that                                                               
the purpose  for listing these bills  is to show that  taxes have                                                               
been discussed on the record.                                                                                                   
4:19:42 PM                                                                                                                    
MS.  COLBERT  turned  to  slide   5  that  lays  out  the  recent                                                               
legislative  history  of  the  per   barrel  oil  production  tax                                                               
credits. She stated  that a bill aimed at the  per barrel oil tax                                                               
heard. This morning, the House  Ways and Means Committee held its                                                               
first hearing on  a bill similar to SB 3002.  Senate Bill 129 was                                                               
introduced in  the 31   Legislature but  not heard.  Changes were                                                               
passed into  law in the 30   Legislature, but per  barrel credits                                                               
were  unchanged.  A subsequent  bill  considered  changes to  per                                                               
barrel tax credits but did not  pass out of House finance. During                                                               
the 29   Legislature,  House Bill 247  considered changes  to the                                                               
per barrel tax  credit. Although it passed, the  changes were not                                                               
made. House  Bill 326 was  referred to House Resources  and House                                                               
Finance but received no hearing.  She added that this provides an                                                               
overview, not a comprehensive bill history.                                                                                     
4:21:13 PM                                                                                                                    
MS.  COLBERT reiterated  that SB  3002 uses  language from  bills                                                               
introduced in the recent past. It  would impose a 9.4 percent net                                                               
income   tax    to   sole   proprietorships,    partnerships,   S                                                               
corporations, and  C corporations that  make at least  $4 million                                                               
in profits.                                                                                                                     
MS. COLBERT said  that the State of Alaska has  not changed motor                                                               
fuel taxes since 1970. She read slide 7:                                                                                        
    • When enacted in 1970, $0.08 tax on motor fuel would                                                                       
        be worth $0.54 today.                                                                                                   
     • The average cost of a gallon of gas in the US was                                                                        
        $0.36 per gallon in 1970. As of 2021, it is $2.94                                                                       
        per gallon.                                                                                                             
        • Alaska's fuel tax has lost 85 percent of its                                                                          
        purchasing power to help pay for highway, ferry, and                                                                    
        harbor maintenance.                                                                                                     
MS. COLBERT stated  that slide 8 provides a brief  history of the                                                               
motor fuels tax.  In 1945 Alaska levied its first  motor fuel tax                                                               
at $0.01 per  gallon. In 1970 it established the  current rate of                                                               
$0.08. In 1977  the marine fuel tax was increased  to its present                                                               
value of $0.05  per gallon. In 1994 the aviation  tax was changed                                                               
to $0.047  per gallon, which SB  3002 does not change.  In 2015 a                                                               
surcharge for the  oil spill prevention and  response (SPAR) fund                                                               
was established.                                                                                                                
4:23:16 PM                                                                                                                    
MS. COLBERT moved  to slide 9 that compares  Alaska's motor fuels                                                               
tax to other states and read:                                                                                                   
      • Alaska ranks 50th in the nation for highway and                                                                         
        marine fuel tax rates.                                                                                                  
    • Passage of this bill would move Alaska up to 43rd in                                                                      
        the nation for highway fuel taxes and remain at 50th                                                                    
        for marine fuel taxes.                                                                                                  
     • The national average for State motor fuel taxes is                                                                       
        nearly 26 cents per gallon.                                                                                             
      • This bill does not impact aviation fuel. Alaska                                                                         
        remains competitive among the lowest in the nation                                                                      
        for aviation and jet fuel tax rates.                                                                                    
MS. COLBERT  said an outcry occurred  when a tax on  jet fuel was                                                               
considered  because Anchorage  was  the fourth  or fifth  busiest                                                               
cargo airport.  The aviation  fuel tax was  not considered  in SB
3002 to keep Alaska competitive.                                                                                                
4:24:04 PM                                                                                                                    
MS.  COLBERT stated  that estimates  indicate  that Highway  fuel                                                               
revenue would  be $29.7  million to  $31.4. It  would be  used to                                                               
maintain roads and  is an account that  receives matching federal                                                               
dollars. Marine fuel would go  to the watercraft fuel tax account                                                               
that is used  for water and harbor  facilities maintenance, which                                                               
would be about $5.5 million  per year. The refined fuel surcharge                                                               
goes  to the  SPAR fund  and  is about  $3.5 million  a year.  As                                                               
currently drafted, the total annual  increase would be upwards of                                                               
$40 million a year.                                                                                                             
SENATOR  BEGICH  interjected  that  total  annual  revenue  would                                                               
increase from $38.5 million to $40.7 million.                                                                                   
MS. COLBERT  said the legislature  has discussed  AS 43.55.024(j)                                                               
at length  over the past  decade. It  establishes nontransferable                                                               
oil production tax credits. SB  3002 would remove the credit caps                                                               
of  $8,  $7,  and  $6   listed  in  AS  43.55.024(j)  (1-4).  The                                                               
established  new credit  cap  will be  at $5  per  barrel if  the                                                               
average gross  value at  the point of  production (GVPP)  for the                                                               
month is less than $110 per barrel.                                                                                             
4:26:10 PM                                                                                                                    
MS.  COLBERT turned  to slide  12 and  said the  oil tax  credit,                                                               
motor fuels tax, and expanded  corporate income tax are estimated                                                               
to bring  in $195  million by  fiscal year  2022. That  amount is                                                               
predicted to  increase to  over $500 million  per year  by fiscal                                                               
year  2030. These  amounts  were determined  by  the fiscal  plan                                                               
working group who  extrapolated figures from the  fiscal notes of                                                               
previous bills.                                                                                                                 
4:26:47 PM                                                                                                                    
SENATOR  BEGICH  asked if  there  were  any questions  about  the                                                               
SENATOR  STEVENS   asked  what  happened  to   the  lost  revenue                                                               
following the passage of Senate Bill 21 in 2013.                                                                                
MS. COLBERT  replied that the  Department of Revenue  (DOR) would                                                               
address that question.                                                                                                          
CHAIR  REVAK  requested  Leg Legal  address  questions  from  the                                                               
4:27:50 PM                                                                                                                    
EMILY NAUMAN,  Attorney, Legislative Legal  Services, Legislative                                                               
Affairs Agency, Alaska State  Legislature, Juneau, Alaska, stated                                                               
her understanding  that in Section  1 subsection(c)  was designed                                                               
to  avoid gaming  subsection  (a)  that puts  a  tax on  entities                                                               
having  taxable  income  of  $4   million.  That  subsection  was                                                               
designed  to give  the  Department of  Revenue  the authority  to                                                               
combine the income  of entities that appear to  be splitting into                                                               
smaller units to avoid reaching the $4 million cap.                                                                             
MS. NAUMAN stated that a low  to moderate single subject risk was                                                               
the reason for  not including an electric vehicle (EV)  fee in SB
3002. If included,  the bill adjoins taxes and  fees. In general,                                                               
fees go to  the department they originated from,  while taxes are                                                               
broadly  collected  and  serve  the general  fund.  SB  3002  was                                                               
drafted  to be  bulletproof. The  entire  bill would  fail if  it                                                               
fails the single subject test.                                                                                                  
4:29:36 PM                                                                                                                    
SENATOR  MICCICHE stated  the  motor fuels  tax  bill passed  the                                                               
Senate and advanced  partially through the House.  The EV portion                                                               
of that bill was segmented into SB  3002. He asked why there is a                                                               
single subject issue with SB 3002  but not the bill from which it                                                               
was drafted.                                                                                                                    
MS.  NAUMAN replied  that all  sections  of the  other bill  were                                                               
related to  motor vehicles. SB  3002 has provisions  about taxes,                                                               
so  the  single  subject  of  the bill  has  changed  from  motor                                                               
vehicles to taxes.                                                                                                              
4:30:42 PM                                                                                                                    
CHAIR  REVAK  recognized that  Representative  Cronk  was in  the                                                               
4:30:54 PM                                                                                                                    
SENATOR  KIEHL stated  he does  not recall  a distinction  in the                                                               
constitution  between taxes  and fees.  He used  the Division  of                                                               
Motor  Vehicles as  an example  of raising  more revenue  through                                                               
fees than it uses, which presents  the argument that all fees are                                                               
taxes. He asked if Alaska  courts have opined on this distinction                                                               
and its importance to the single subject rule.                                                                                  
MS.  NAUMAN answered  that the  courts  have not  opined on  that                                                               
specific  distinction. It  has been  discussed between  attorneys                                                               
and  the Leg  Legal  office.   It  was omitted  from  SB 3002  to                                                               
achieve zero risk of violating the single subject issue.                                                                        
SENATOR BEGICH  stated the intent of  excluding an EV tax  was to                                                               
remove the risk  of having SB 3002 struck down  after passing. He                                                               
relied on the advice of Leg Legal  to avoid the risk. He does not                                                               
object  to changes  but cautioned  against having  a bill  struck                                                               
down  for invalidation  reasons. He  said he  supports standalone                                                               
legislation on EVs.                                                                                                             
SENATOR KIEHL commented  that it seems unlikely SB  3002 would be                                                               
struck down  under the  single subject rule  for inclusion  of EV                                                               
4:33:15 PM                                                                                                                    
SENATOR BISHOP stated the genesis  behind the motor fuels tax has                                                               
not  changed.  Roads  need  to  be  maintained,  but  maintenance                                                               
stations  have closed  due  to a  lack of  funds.  He stated  his                                                               
support of the motor fuels tax has not changed.                                                                                 
SENATOR VON IMHOF stated that fairness  seems to be lacking in SB
3002.  Entities  are  excluded  from   the  motor  fuels  tax,  S                                                               
corporation tax, and per barrel  credit rollback. She opined that                                                               
a  lower broad-based  tax  bill  would be  better  and asked  why                                                               
exemptions were put forward instead.                                                                                            
4:36:16 PM                                                                                                                    
SENATOR  BEGICH  stated  he  favored   a  state  income  tax  and                                                               
introduced a broad-based income tax  bill that also captures out-                                                               
of-state  income.  He  welcomes  all members  to  co-sponsor  it.                                                               
However, the  governor indicated he  would not support  an income                                                               
SENATOR  BEGICH said  he would  support a  broad-based sales  tax                                                               
that exempted  clothing and food,  but it has not  been proposed.                                                               
Therefore, three previously heard  bipartisan bills were combined                                                               
into  one in  an attempt  to  pass the  Senate and  House with  a                                                               
simple majority. Combining  the bills appeared to  be the easiest                                                               
way to obtain  passage of a revenue bill and  bring resolution to                                                               
the dividend formula issue.                                                                                                     
SENATOR  BEGICH  reiterated that  SB  3002  was not  designed  to                                                               
single out any entity. To the extent  that it does is a result of                                                               
the legislative process.                                                                                                        
He encouraged members to change  SB 3002 or present a broad-based                                                               
bill that can garner enough support  to be passed because time is                                                               
of the  essence. He stated  his desire for  SB 3002 to  receive a                                                               
fair  hearing and  be  moved  to the  next  committee to  receive                                                               
4:39:30 PM                                                                                                                    
SENATOR  VON  IMHOF said  the  state  budget is  balanced  before                                                               
paying a dividend. New revenue is  only needed to pay a dividend.                                                               
Therefore, she  is opposed  to new revenue  being paid  towards a                                                               
dividend  until the  dividend calculation  is solved.  Alaska has                                                               
many  needs  and  the  assignment   of  tax  revenues  should  be                                                               
determinable. The cart is being  put before the horse. She stated                                                               
her belief  that the dividend  issue needs to be  resolved first,                                                               
and  then the  needs  of the  state  assessed before  discussions                                                               
about taxes happen.                                                                                                             
She  opined that  SB  3002 is  premature,  unfair, targeted,  and                                                               
would have  significant unintended economic consequences.  She is                                                               
not  interested  in  dissecting  or amending  a  bill  where  the                                                               
appropriation of revenue is unknown.                                                                                            
4:41:41 PM                                                                                                                    
SENATOR BEGICH  stated his  motivations are  purely to  solve the                                                               
problems presented by the fiscal plan working group.                                                                            
CHAIR REVAK warned against impugning any member's motives.                                                                      
4:42:28 PM                                                                                                                    
SENATOR MICCICHE  stated he has talked  about a tax plan  that is                                                               
low,  broad, and  as temporary  as possible  to address  Alaska's                                                               
fiscal  situation. He  opined that  the approach  to closing  the                                                               
fiscal gap  should be all-inclusive.  He acknowledged  the intent                                                               
of   SB  3002   as  a   conversation  starter   for  creating   a                                                               
comprehensive fiscal  plan. He  stated his  belief that  the fuel                                                               
tax  is unfair.  Commercial fishers  receive a  $0.05 per  gallon                                                               
holiday on  fuel, and aviation  is exempt even though  Alaska has                                                               
many airports  to maintain. He  asked why electric  vehicles, the                                                               
fishing industry,  and the aircraft  industry were  excluded from                                                               
the motor fuels section of SB 3002.                                                                                             
4:45:24 PM                                                                                                                    
SENATOR BEGICH explained  that SB 3002 was derived  from the last                                                               
version of the  motor fuels tax bill. Aviation  fuel was excluded                                                               
from the original  version because, in 2017,  there was testimony                                                               
presented to the  House Resources Committee on  the direct impact                                                               
the tax would have on the  ability of the Fairbanks and Anchorage                                                               
airports to be competitive in the world market.                                                                                 
Despite fairness, he  reminded members that SB  3002 includes the                                                               
motor fuels tax bill as it passed  in 2020. He does not know what                                                               
compromises occurred  before it  reached the Senate  floor. There                                                               
were elements  that Senators believed  should have  been included                                                               
that were not. He welcomed changes  to SB 3002 but cautioned that                                                               
additions could  make the bill  less likely  to pass. He  said he                                                               
would like the bill to be discussed so that it can be moved.                                                                    
4:47:32 PM                                                                                                                    
SENATOR  MICCICHE stated  he would  research competition  and its                                                               
relevance  to  the aviation  fuel  tax  and  other areas  of  the                                                               
economy  that may  be overlooked.  He  uses state  services as  a                                                               
commercial fisherman  and is unaware  of a reason to  be excluded                                                               
from the tax.                                                                                                                   
He concluded  that low,  broad, and as  temporary as  possible is                                                               
the  approach to  use in  the development  of a  fiscal plan.  He                                                               
opined that  taxes should  be temporary until  the growth  of the                                                               
permanent fund improves Alaska's  fiscal situation. He added that                                                               
a motor fuel tax was unlikely to be temporary.                                                                                  
4:49:20 PM                                                                                                                    
CHAIR REVAK asked if there  is research indicating how industries                                                               
would  be affected  by imposing  the  $4 million  net income  tax                                                               
SENATOR BEGICH replied he is not  aware of any studies, but there                                                               
could have been answers if  Senator Wielechowski's bills had been                                                               
heard.  He  reiterated  that  the   $4  million  threshold  is  a                                                               
presupposed  number that  can be  raised. He  appreciates members                                                               
hearing SB 3002.                                                                                                                
4:51:26 PM                                                                                                                    
CHAIR  REVAK  stated  it  is  important  for  resource  committee                                                               
members to know a bill's impact on resources.                                                                                   
4:52:01 PM                                                                                                                    
SENATOR KIEHL commented  that the idiom, putting  the cart before                                                               
the horse, does not reflect the  process of finding a solution to                                                               
Alaska's  fiscal  problem.  He  opined that  the  legislature  is                                                               
"nailing together a  cart while stitching a  harness and teaching                                                               
the  horse  to take  a  bit."  He  appreciates that  members  are                                                               
working to figure out a fiscal solution.                                                                                        
He  mentioned S  corporations and  said he  perceives a  fairness                                                               
discrepancy in the oil industry  tax structure of SB 3002 because                                                               
two  companies  that produce  the  same  resource from  the  same                                                               
basin,  under  the  same  lease terms,  and  the  same  workforce                                                               
structure pay materially  higher taxes than one  other company in                                                               
particular.  He asked  if that  is  a fairness  issue that  needs                                                               
4:53:22 PM                                                                                                                    
SENATOR  BEGICH  answered yes.  There  is  an unfair  competitive                                                               
advantage because  the income  tax requirement  is not  the same.                                                               
This scenario applies to any S  or C corporation with net profits                                                               
of $4 million  that circumvents its corporate  tax obligation. He                                                               
quipped  that Alaska  could have  all S  corporations and  a $200                                                               
million fiscal gap.                                                                                                             
4:54:25 PM                                                                                                                    
CHAIR REVAK held SB 3002 in committee.                                                                                          

Document Name Date/Time Subjects
SB 3002 Version A.PDF SRES 9/9/2021 3:30:00 PM
SB 3002 Sponsor Statement.pdf SRES 9/9/2021 3:30:00 PM
SB 3002 Sectional Analysis.pdf SRES 9/9/2021 3:30:00 PM
Presentation DOR & DNR - Taxes Overview 09.09.2021.pdf SRES 9/9/2021 3:30:00 PM
SB 3002 Letter of Support - PWSRCAC.pdf SRES 9/9/2021 3:30:00 PM
SB 3002 Letter of Opposition - Usibelli Coal Mine, Inc..pdf SRES 9/9/2021 3:30:00 PM
SB 3002 Presentation - Sen. Begich SRES PPT.pdf SRES 9/9/2021 3:30:00 PM