Legislature(2017 - 2018)CAPITOL 106

03/22/2017 08:00 AM EDUCATION

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08:04:30 AM Start
08:04:58 AM HB146
08:48:36 AM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
*+ HB 146 SCHOOL TAX; PFD PAYMENT FOR SCHOOL TAX TELECONFERENCED
Heard & Held
-- Testimony <Invitation Only> --
+ Bills Previously Heard/Scheduled TELECONFERENCED
**Streamed live on AKL.tv**
                    ALASKA STATE LEGISLATURE                                                                                  
               HOUSE EDUCATION STANDING COMMITTEE                                                                             
                         March 22, 2017                                                                                         
                           8:04 a.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Harriet Drummond, Chair                                                                                          
Representative Justin Parish, Vice Chair                                                                                        
Representative Zach Fansler                                                                                                     
Representative Ivy Spohnholz                                                                                                    
Representative Jennifer Johnston                                                                                                
Representative Chuck Kopp                                                                                                       
Representative David Talerico                                                                                                   
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Representative Lora Reinbold (alternate)                                                                                        
Representative Geran Tarr (alternate)                                                                                           
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
SPONSOR SUBSTITUTE FOR HOUSE BILL NO. 146                                                                                       
"An Act  imposing a  school tax on  certain income  of residents,                                                               
part-year  residents, and  nonresidents;  relating  to a  payment                                                               
against  the   school  tax  from  the   permanent  fund  dividend                                                               
disbursement; and providing for an effective date."                                                                             
                                                                                                                                
     - HEARD & HELD                                                                                                             
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
BILL: HB 146                                                                                                                  
SHORT TITLE: SCHOOL TAX; PFD PAYMENT FOR SCHOOL TAX                                                                             
SPONSOR(s): REPRESENTATIVE(s) CLAMAN                                                                                            
                                                                                                                                
02/24/17       (H)       READ THE FIRST TIME - REFERRALS                                                                        
02/24/17       (H)       EDC, FIN                                                                                               
02/27/17       (H)       SPONSOR SUBSTITUTE INTRODUCED-REFERRALS                                                                
02/27/17       (H)       READ THE FIRST TIME - REFERRALS                                                                        
02/27/17       (H)       EDC, FIN                                                                                               
03/22/17       (H)       EDC AT 8:00 AM CAPITOL 106                                                                             
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
REPRESENTATIVE MATT CLAMAN                                                                                                      
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Introduced SSHB 146 as the sponsor.                                                                      
                                                                                                                                
OWEN PHILLIPS, Staff                                                                                                            
Representative Matt Claman                                                                                                      
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION  STATEMENT:   Provided the  sectional analysis  for SSHB
146, on behalf of Representative Claman, sponsor.                                                                               
                                                                                                                                
KEN ALPER, Director                                                                                                             
Tax Division                                                                                                                    
Department of Revenue                                                                                                           
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:   Responded  to questions during  the hearing                                                             
of SSHB 146.                                                                                                                    
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
8:04:30 AM                                                                                                                    
                                                                                                                                
CHAIR  HARRIET  DRUMMOND  called  the  House  Education  Standing                                                             
Committee  meeting  to  order  at   8:04  a.m.    Representatives                                                               
Drummond,  Parish, Fansler,  Johnston,  Kopp,  and Talerico  were                                                               
present at the  call to order.   Representative Spohnholz arrived                                                               
as the meeting was in progress.                                                                                                 
                                                                                                                                
          HB 146-SCHOOL TAX; PFD PAYMENT FOR SCHOOL TAX                                                                     
                                                                                                                                
8:04:58 AM                                                                                                                    
                                                                                                                                
CHAIR DRUMMOND  announced that the  only order of  business would                                                               
be SPONSOR SUBSTITUTE FOR HOUSE BILL  NO. 146, "An Act imposing a                                                               
school tax  on certain income of  residents, part-year residents,                                                               
and nonresidents;  relating to a  payment against the  school tax                                                               
from the permanent fund dividend  disbursement; and providing for                                                               
an effective date."                                                                                                             
                                                                                                                                
8:05:28 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  MATT CLAMAN,  Alaska State  Legislature, sponsor,                                                               
introduced  SSHB 146,  paraphrasing  from  a prepared  statement,                                                               
which read as follows [original punctuation provided]:                                                                          
                                                                                                                                
     Alaska faces major financial challenges.  Our goal in                                                                      
     proposing [Sponsor Substitute for] House Bill 146, a                                                                       
     School Tax, is a responsible  action plan to meet those                                                                    
     challenges.    The  Alaska Constitution,  Article  VII,                                                                    
     Sec.  1  requires  the legislature  to  "establish  and                                                                    
     maintain  a  system  of public  school."    The  public                                                                    
     supports  a   strong  public  school  system,   and  an                                                                    
     investment  in our  students is  an  investment in  our                                                                    
     future.                                                                                                                    
                                                                                                                                
     When  asked  about  the possibility  of  a  broad-based                                                                    
     school tax, many people wanted  to know what such a tax                                                                    
     would look like.   The School Tax in HB  146 sets a tax                                                                    
     based on  adjusted gross income on  federal tax returns                                                                    
     for  every person  who  earns income  in  Alaska.   All                                                                    
     Alaskans and out-of-state residents  who work in Alaska                                                                    
     would  help  solve  our   financial  challenges.    The                                                                    
     minimum tax  would be $100  a year, for those  who make                                                                    
     $20,000  or less.    In  this way,  the  school tax  is                                                                    
     similar  to the  school head  taxeveryone  contributes.                                                                    
     The tax  then increases on  a graduated scale  based on                                                                    
     income.   Those  making between  $50,000 and  $75,000 a                                                                    
     year  would pay  a school  tax  of $750.   The  revenue                                                                    
     collected from  the school tax  would be  designated to                                                                    
     support  public  education in  Alaska.    It is  not  a                                                                    
     dedicated   tax   fund,   which   would   violate   our                                                                    
     constitution.   (Because  it is  well below  the budget                                                                    
     amount,   there  would   be  no   need  to   argue  the                                                                    
     designation as well.)                                                                                                      
                                                                                                                                
     The  values of  the tax  range  from 1%  in the  lowest                                                                    
     bracket to  3.4% at  the uppermost  bracket.   There is                                                                    
     also  a  cap  on  the  uppermost  level,  allowing  the                                                                    
     highest earners to reinvest in  the economy and support                                                                    
     a positive investment climate.                                                                                             
                                                                                                                                
     We  based  our  values   off  a  $1000  permanent  fund                                                                    
     dividend.    Everyone  is  able  to  contribute,  while                                                                    
     individuals  who  depend on  the  PFD  still receive  a                                                                    
     reasonable  portion.    To  make  payment  of  the  tax                                                                    
     simple, the  bill includes a provision  allowing use of                                                                    
     future Permanent Fund Dividends to pay the tax.                                                                            
                                                                                                                                
     I would  like to close  by saying that this  school tax                                                                    
     bill responds  to public concern  about the  funding of                                                                    
     education in  challenging times.   It is  a transparent                                                                    
     way  to produce  new revenue  and create  a responsible                                                                    
     action plan  for Alaska.   At full  implementation, the                                                                    
     school  tax bill  is projected  to raise  $540 million                                                                     
     approximately  one  third  of  the  state  funding  for                                                                    
     education.   We believe that  if the public has  a more                                                                    
     direct  investment  in  funding  education,  they  will                                                                    
     become more involved in the  education that we deliver.                                                                    
     The school tax is not  a proposal to increase education                                                                    
     funding.  The intent is  to raise revenue to help close                                                                    
     the budget  deficit, designate  those funds  to support                                                                    
     education,  and reduce  the  undesignated general  fund                                                                    
     appropriation  for  education  on  a  dollar-for-dollar                                                                    
     basis.                                                                                                                     
                                                                                                                                
8:08:31 AM                                                                                                                    
                                                                                                                                
OWEN PHILLIPS,  Staff, Representative  Matt Claman,  Alaska State                                                               
Legislature,  provided  the  sectional  analysis  for  SSHB  146,                                                               
paraphrasing  from a  prepared statement,  which read  as follows                                                               
[original punctuation provided]:                                                                                                
                                                                                                                                
     First,  I  would  like to  provide  a  brief  sectional                                                                    
     analysis of the  bill.  Please note that  while this is                                                                    
     a  Sponsor   Substitute,  the  only  change   from  the                                                                    
     original  bill is  the title.   The  old title  did not                                                                    
     include out-of-state residents or specify income.                                                                          
                                                                                                                                
     Section 1  concerns the  use of  the permanent  fund as                                                                    
     payment  for  the  tax.     This  section  directs  the                                                                    
     department  of revenue  to prepare  the permanent  fund                                                                    
     application to allow an applicant  to hold their PFD to                                                                    
     pay the tax.                                                                                                               
                                                                                                                                
     Section  2 is  the  meat  of the  bill.   Its  features                                                                    
     include:                                                                                                                   
                                                                                                                                
          Requiring residents and  non-residents with income                                                                    
     from a source in state to pay the school tax.                                                                              
                                                                                                                                
          A  school  tax  based on  adjusted  gross  income,                                                                    
     broken into progressive levels.   The lowest, less than                                                                    
     $20,000,  are  still  required to  pay  $100this   will                                                                    
     include those individuals  who only collect a  PFD.  At                                                                    
     the  top of  the scale,  there is  a cap  for taxpayers                                                                    
     whose adjusted  gross income is greater  than $250,000.                                                                    
     This  cap will  allow  individuals to  reinvest in  the                                                                    
     economy, making a positive investment climate.                                                                             
                                                                                                                                
     For the  purposes of this  bill, adjusted  gross income                                                                    
     for a  resident is  their total adjusted  gross income,                                                                    
     whereas non-residents or  part-time resident's adjusted                                                                    
     gross  income is  calculated from  that earned  from an                                                                    
     in-state source.                                                                                                           
                                                                                                                                
     The tax is assessed per  tax return, meaning that joint                                                                    
     filers will pay based on total adjusted gross income.                                                                      
     The bill allows the  department of revenue to establish                                                                    
     procedures  for   collection  of  the   tax,  including                                                                    
     regulations for use of the PFD.                                                                                            
                                                                                                                                
     There  are also  lines that  explain repercussions  for                                                                    
     failure to pay  on time and a  procedure for requesting                                                                    
     extensions.                                                                                                                
                                                                                                                                
     Regulations include:                                                                                                       
                                                                                                                                
     Annual interest rate of 18% on delinquent taxes                                                                            
                                                                                                                                
     Assessment  of  fees up  to  $2,500  for collection  of                                                                    
     delinquent taxes                                                                                                           
                                                                                                                                
     90-day extension, with departmental discretion                                                                             
                                                                                                                                
     Determination  of  adjusted   gross  income  for  joint                                                                    
     filers who are not both state residents                                                                                    
                                                                                                                                
     Section  3 allows  the department  of revenue  to adopt                                                                    
     regulations to implement this act.                                                                                         
                                                                                                                                
     Section 4 sets an  immediate effective date for section                                                                    
     3.                                                                                                                         
                                                                                                                                
     Section 5  sets an  effective date of  Jan 1,  2018 for                                                                    
     the rest of  the act, which includes  the tax component                                                                    
     of  the bill.   I  will note  that this  effective date                                                                    
     accounts  for  the  lower revenue  calculation  in  the                                                                    
     first year  of implementation  on the fiscal  note from                                                                    
     the DOR, OMB: 2476.                                                                                                        
                                                                                                                                
8:12:15 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOHNSTON said she has heard holders of fishing                                                                   
permits are concerned that the state may view them as tax                                                                       
collectors [should the bill become law].                                                                                        
                                                                                                                                
REPRESENTATIVE CLAMAN said a payroll tax is not part of SSHB
146.  The bill would impose a single payment, based on income,                                                                  
and  would  establish  collection  fees of  up  to  $2,500,  plus                                                               
interest for nonpayment;  fishing boat owners would  not be asked                                                               
to collect the school tax [from their employees].                                                                               
                                                                                                                                
REPRESENTATIVE PARISH  noted that  the delinquent  tax collection                                                               
fee of  not more than $2,500,  plus an 18 percent  interest rate,                                                               
seems   very  "aggressive."     He   asked  whether   alternative                                                               
disincentives have been considered.                                                                                             
                                                                                                                                
REPRESENTATIVE CLAMAN explained the sponsors  of the bill did not                                                               
wish to  establish a monthly  payroll tax collected  by employers                                                               
and administered  through the Department  of Revenue  (DOR), thus                                                               
the proposed  penalty is a meaningful  consequence of nonpayment.                                                               
He  pointed  out one  could  avoid  payment  of  the tax  by  not                                                               
applying  for a  Permanent Fund  Dividend (PFD)  [administered by                                                               
the Permanent Fund Dividend Division, DOR].                                                                                     
                                                                                                                                
REPRESENTATIVE  PARISH observed  residents' PFDs  are already  in                                                               
the  possession  of the  state,  which  provides a  mechanism  of                                                               
collection prior  to the  issuance of  the dividend,  and thereby                                                               
voids the  need for a  stiff penalty  and interest.   Further, he                                                               
suggested the  penalty should  be relative  to a  person's annual                                                               
income, and  free from  manipulation by  officials.   He proposed                                                               
that in place  of a penalty plus interest, a  future PFD could be                                                               
garnished with an interest rate of not more than 10 percent.                                                                    
                                                                                                                                
REPRESENTATIVE CLAMAN  pointed out  the bill provides  the option                                                               
to pay the  school tax through one's PFD, which  would negate any                                                               
inability  to  pay  and  no penalty  or  interest  would  accrue.                                                               
Nonpayment would occur if a  resident declined the deduction from                                                               
his/her PFD.                                                                                                                    
                                                                                                                                
REPRESENTATIVE PARISH related  the time value of money  can be of                                                               
particular concern for  someone "living sort of  at the margins,"                                                               
and suggested  one may  have an urgent  need for  one's dividend.                                                               
To  allow  for  the  unexpected  that  happens  to  families  and                                                               
individuals, he  urged for  a mechanism to  defer the  payment of                                                               
penalties and interest to a future PFD.                                                                                         
                                                                                                                                
8:20:50 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  KOPP recalled  Alaska used  to have  an education                                                               
head tax.   He expressed concern  about enacting an income  tax -                                                               
during a time  the state is experiencing a recession  - and asked                                                               
how the structure  of the bill as an income  tax would strengthen                                                               
the state's  economy.  Further,  he asked whether the  bill would                                                               
replace general funds  (GF) for education on a  dollar for dollar                                                               
basis, or add $500 million for education.                                                                                       
                                                                                                                                
REPRESENTATIVE  CLAMAN responded  that the  bill differs  from an                                                               
income tax in three areas:                                                                                                      
                                                                                                                                
   • the bill is modeled after the previous school head tax, to                                                                 
     which everyone contributed, beginning at a minimum amount                                                                  
     of $100                                                                                                                    
   • at an income level of $250,000, unlike an income tax, there                                                                
     is a cap which would make capital more available for                                                                       
     reinvestment into the economy                                                                                              
   • the bill provides a plan to help close the state's deficit                                                                 
     by infusing new revenue                                                                                                    
                                                                                                                                
REPRESENTATIVE   KOPP  surmised   funding   from   the  bill   is                                                               
permissive,  to avoid  the state's  constitutional dedication  to                                                               
provide  public education,  and the  legislature could  spend the                                                               
funding as needed.                                                                                                              
                                                                                                                                
REPRESENTATIVE  CLAMAN  agreed  and   added  the  bill  does  not                                                               
represent  an  increase in  education  funding.   Presently,  the                                                               
state's   undesignated   GF    contribution   to   education   is                                                               
approximately  $1.4  billion-$1.5  billion, but  the  bill  would                                                               
establish a  designated general  fund, reducing  the undesignated                                                               
allocation on  a dollar for  dollar basis, and ensure  members of                                                               
the  public  their  school  taxes  would  be  applied  to  public                                                               
education.                                                                                                                      
                                                                                                                                
8:26:57 AM                                                                                                                    
                                                                                                                                
CHAIR  DRUMMOND  asked whether  the  bill  has been  sufficiently                                                               
compared   to   HB  115   [passed   by   the  Alaska   House   of                                                               
Representatives 4/15/17  and failed  passage in the  Alaska State                                                               
Senate 5/12/17].                                                                                                                
                                                                                                                                
REPRESENTATIVE CLAMAN  advised SSHB 146  is an alternative  to HB
115.   The intent  of SSHB  146 is to  create a  tax that  is not                                                               
based on a formula and is collected by a different approach.                                                                    
                                                                                                                                
CHAIR DRUMMOND  observed for those  at a low [income]  level, the                                                               
proposed  tax functions  as a  head tax,  and asked  if children,                                                               
whose sole income is a PFD, would be assessed the tax.                                                                          
                                                                                                                                
REPRESENTATIVE CLAMAN  related his personal experience  that in a                                                               
family of  four, with two  children under  eighteen years-of-age,                                                               
if each child  filed separately and paid the  tax separately, the                                                               
husband and  wife would file jointly  and pay a school  tax based                                                               
on their  joint income.  If  the family were advised  to file one                                                               
tax return,  they would pay one  school tax based on  their joint                                                               
tax return.                                                                                                                     
                                                                                                                                
CHAIR DRUMMOND  directed attention to  the fact that  an increase                                                               
in income  from $100,000 to  $101,000 would cause the  school tax                                                               
to  increase from  $1,000 to  $2,500, and  an increase  in income                                                               
from $150,000 to $151,000 would  cause the school tax to increase                                                               
from $2,500 to  $5,000.  She questioned why the  increases do not                                                               
follow a curve.                                                                                                                 
                                                                                                                                
REPRESENTATIVE CLAMAN  stated one of  the goals for the  bill was                                                               
to create a simple mathematical  structure that is transparent to                                                               
the public.                                                                                                                     
                                                                                                                                
REPRESENTATIVE PARISH  surmised for  the purpose  of this  bill a                                                               
resident is  someone who collects  a PFD, and a  nonresident does                                                               
not; he inquired as to the status of a part-year resident.                                                                      
                                                                                                                                
REPRESENTATIVE CLAMAN  said DOR would address  this issue through                                                               
regulations, as  it does  for income that  is earned  by seasonal                                                               
employees.   He advised  the [Alaska Court  System] and  DOR have                                                               
defined  a  resident  for  the  purposes  of  the  PFD  based  on                                                               
residency  of  one  year;  however, he  predicted  that  for  the                                                               
purposes of  SSHB 146, the  tax would be  based on the  amount of                                                               
income earned in the state.                                                                                                     
                                                                                                                                
8:33:50 AM                                                                                                                    
                                                                                                                                
KEN  ALPER,   Director,  Tax  Division,   DOR,  in   response  to                                                               
Representative Parish, said the  most important definition within                                                               
the  bill is  not residency,  but "income  from a  source in  the                                                               
state."   He  clarified  for the  purpose of  the  school tax  it                                                               
doesn't matter  if a person is  a resident or a  nonresident; DOR                                                               
would  require  a mechanism  to  determine  the amount  of  one's                                                               
income that originated in Alaska,  and thus determine the bracket                                                               
upon which to base the tax.                                                                                                     
                                                                                                                                
REPRESENTATIVE PARISH directed attention to  [SSHB 146 on page 2,                                                               
lines 15-16] which read:                                                                                                        
                                                                                                                                
     (1) the adjusted gross income of a                                                                                         
          (A) resident is the total adjusted gross income                                                                       
          of the resident;                                                                                                      
                                                                                                                                
REPRESENTATIVE  PARISH  said  the  foregoing  language  does  not                                                               
stipulate  that the  total gross  income  must be  earned in  the                                                               
state.  He asked whether DOR  would agree that an Alaska resident                                                               
who  earns money  outside  of the  state would  be  taxed on  the                                                               
income earned outside the state.                                                                                                
                                                                                                                                
MR. ALPER  reminded the committee  the last income tax  in Alaska                                                               
was repealed  over 35  years ago,  thus the  tax division  has no                                                               
specific  expertise on  personal and  related income  taxes.   In                                                               
fact,  the  tax division  is  in  the  process of  assembling  an                                                               
implementation plan  and consulting  services as is  reflected in                                                               
the  Fiscal Note  Identifier:   HB146-DOR-TAX-03-17-17.   However                                                               
generally speaking, all  a resident's income would  be taxed, and                                                               
a credit  would be  given for  the state income  tax paid  by the                                                               
Alaska resident to a nonresident state.                                                                                         
                                                                                                                                
REPRESENTATIVE PARISH  expressed his understanding  a Californian                                                               
is taxed  on income  that is  earned while  he/she is  working in                                                               
both in Alaska and California.                                                                                                  
                                                                                                                                
MR.  ALPER explained  [the foregoing  statement is  true] because                                                               
Alaska doesn't  have a personal income  tax.  Were SSHB  146 or a                                                               
similar  bill  to pass  in  Alaska,  a California  resident  with                                                               
income earned  in Alaska would  receive a credit  against his/her                                                               
California  state  income  tax; comparably,  an  Alaska  resident                                                               
earning income in a state without  a personal income tax would be                                                               
taxed on his/her total income.                                                                                                  
                                                                                                                                
REPRESENTATIVE  PARISH  pointed out  the  bill  does not  collect                                                               
revenue from another state.                                                                                                     
                                                                                                                                
MR. ALPER remarked:                                                                                                             
                                                                                                                                
     I think  it's actually the opposite.   The [subsection]                                                                    
     you pointed  out -  [subsection] (c),  [paragraph] (1),                                                                    
     [subparagraph] (A)  - [directs  that] we would  tax the                                                                    
     resident's income  wherever it  was located.   What may                                                                    
     be  missing from  this bill  is the  mechanism for  the                                                                    
     credit for taxes paid to other states.                                                                                     
                                                                                                                                
REPRESENTATIVE PARISH  asked about the  language in the  bill [on                                                               
page 2,  beginning on  line 17,  [subsection (c),  paragraph (1),                                                               
subparagraph (B)] which read:                                                                                                   
                                                                                                                                
     (B) nonresident  or part-year resident is  the adjusted                                                                    
     gross income  of the nonresident or  part-year resident                                                                    
     that is attributable to a source in the state;                                                                             
                                                                                                                                
MR. ALPER  confirmed the  tax division does  not have  ability to                                                               
collect tax  on a  nonresident's out-of-state  income; similarly,                                                               
an Alaska resident  earning income in California  cannot be taxed                                                               
on his/her income earned in Alaska.                                                                                             
                                                                                                                                
8:39:12 AM                                                                                                                    
                                                                                                                                
MR.  ALPER directed  attention to  Fiscal Note  Identifier HB146-                                                               
DOR-TAX-03-17-17  and  informed the  committee  at  the time  the                                                               
fiscal note  was issued,  the tax division  was unaware  the bill                                                               
did not provide a payroll tax or a withholding component.                                                                       
Without  a payroll  tax or  withholding component,  the estimated                                                               
cost of  staffing will be  lower, and  there will not  be revenue                                                               
expected in the  amount of $270 million for Fiscal  Year 2018 (FY                                                               
18).   In response to Chair  Drummond, he said a  new fiscal note                                                               
is forthcoming.                                                                                                                 
                                                                                                                                
8:40:00 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOHNSTON asked for the  method of modeling used by                                                               
the tax division for the projected  revenues, and for the year on                                                               
which the labor force statistics were based.                                                                                    
                                                                                                                                
MR. ALPER  expressed his belief  the last complete  labor dataset                                                               
available  to the  tax  division was  based  on Internal  Revenue                                                               
Service  (IRS) tax  returns filed  by Alaskans  in 2014,  and the                                                               
same modeling  was used for  the Out-Year Cost Estimates  [for FY                                                               
19-FY  23]  analyses.   In  further  response  to  Representative                                                               
Johnston, Mr. Alper offered to confirm the foregoing.                                                                           
                                                                                                                                
CHAIR DRUMMOND asked  whether the bill puts  a significant burden                                                               
on the tax division.                                                                                                            
                                                                                                                                
MR. ALPER  said the tax  division currently administers  about 25                                                               
different tax programs; corporation  income taxpayers reflect the                                                               
largest  group  of  about  13,000,  many  of  which  are  type  S                                                               
corporations  that file  "information" returns.   SSHB  146 would                                                               
affect  approximately 350,000-400,000  taxpayers; therefore,  the                                                               
bill would create  "an order of magnitude change"  to the current                                                               
responsibilities of  the tax division.   Further, he  pointed out                                                               
at the  $250,000 income level,  the bill would garner  revenue in                                                               
an  amount similar  to HB  115; however,  SSHB 146  establishes a                                                               
capped tax  rate in that  the bill  does not capture  income from                                                               
the  higher income  earners.   Therefore, the  percentage of  the                                                               
total revenue coming  from very high income levels  is lower than                                                               
that of traditional income taxes.                                                                                               
                                                                                                                                
8:44:00 AM                                                                                                                    
                                                                                                                                
CHAIR DRUMMOND  assumed type  S corporations  would need  to file                                                               
Schedule C,  or similar, tax returns  in order to pay  the school                                                               
tax.                                                                                                                            
                                                                                                                                
MR. ALPER explained  a type S corporation does not  pay an income                                                               
tax because it does not legally  retain income, but its income is                                                               
distributed  to corporate  owners.   Individual  owners then  pay                                                               
personal  income  tax  based  on their  share  of  the  earnings;                                                               
although there have been attempts  to expand the corporate income                                                               
tax,  and  thereby   tax  type  S  corporations,   this  is  best                                                               
accomplished by an income tax.                                                                                                  
                                                                                                                                
CHAIR DRUMMOND  questioned the  status of  an owner  of a  type S                                                               
corporation who lives out-of-state.                                                                                             
                                                                                                                                
MR. ALPER clarified if the  income originates in Alaska, it would                                                               
be  taxable under  SSHB  146  or a  similar  bill;  [if the  bill                                                               
becomes  law],  the  tax  division  would  need  to  undertake  a                                                               
rigorous regulatory  process to  address all  the aspects  of the                                                               
legislation.                                                                                                                    
                                                                                                                                
CHAIR  DRUMMOND  questioned whether  the  bill  would impact  the                                                               
local share  that communities pay  into school  operating budgets                                                               
through property or sales taxes, or other means.                                                                                
                                                                                                                                
MR. ALPER said municipalities with  a property tax assess millage                                                               
rates  to support  school  district funding,  and  the amount  of                                                               
funding  is  adjusted  by  the foundation  formula.    He  opined                                                               
revenue  from SSHB  146 would  replace a  portion of  the general                                                               
fund   contributions,  following   along   the  current   formula                                                               
structure.                                                                                                                      
                                                                                                                                
8:47:56 AM                                                                                                                    
                                                                                                                                
[SSHB 146 was held over.]                                                                                                       
                                                                                                                                
8:48:36 AM                                                                                                                    
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being no  further business before the  committee, the House                                                               
Education Standing Committee meeting was adjourned at 8:48 a.m.                                                                 

Document Name Date/Time Subjects
HB146 ver D.pdf HEDC 3/22/2017 8:00:00 AM
HB 146
HB 146 Sectional Analysis 3.20.2017.pdf HEDC 3/22/2017 8:00:00 AM
HB 146
HB146 Sponsor Statement 3.20.2017.pdf HEDC 3/22/2017 8:00:00 AM
HB 146
HB146 Supporting Document - Letters of Support 3.20.2017.pdf HEDC 3/22/2017 8:00:00 AM
HB 146
HB146 Opposing Document - Letters of Opposition 3.20.2017.pdf HEDC 3/22/2017 8:00:00 AM
HB 146