Legislature(2015 - 2016)HOUSE FINANCE 519
02/10/2015 01:30 PM House FINANCE
| Audio | Topic |
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| Start | |
| Indirect Expenditure Report Discussion Related to Chapter 61, Sla 14 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| + | TELECONFERENCED |
HOUSE FINANCE COMMITTEE
February 10, 2015
1:31 p.m.
1:31:54 PM
CALL TO ORDER
Co-Chair Thompson called the House Finance Committee
meeting to order at 1:31 p.m.
MEMBERS PRESENT
Representative Mark Neuman, Co-Chair
Representative Steve Thompson, Co-Chair
Representative Dan Saddler, Vice-Chair
Representative Bryce Edgmon
Representative Les Gara
Representative Lynn Gattis
Representative David Guttenberg
Representative Scott Kawasaki
Representative Cathy Munoz
Representative Lance Pruitt
Representative Tammie Wilson
MEMBERS ABSENT
None
ALSO PRESENT
Dan Stickel, Assistant Chief Economist, Tax Division,
Department of Revenue; Mackenzie Merrill, Economist I, Tax
Economic Research Group, Department of Revenue; Brodie
Anderson, Staff, Representative Steve Thompson; Jerry
Burnett, Deputy Commissioner, Treasury Division, Department
of Revenue; David Teal, Director, Legislative Finance
Division.
SUMMARY
PRESENTATION: INDIRECT EXPENDITURE REPORT DISCUSSION
RELATED TO CHAPTER 61, SLA 14
Co-Chair Thompson reviewed the agenda for the day. He read
from a prepared statement:
The 28th Legislature passed legislation that requires
a creation of two reports to be produced on the
potential loss of foregone revenue known as "indirect
expenditures" and to provide a definition of the
indirect expenditures. The first report was produced
by the Department of Revenue (DOR). The second report
was produced by Legislative Finance building on the
report provided by DOR. Each report reflects the
required information laid out in the legislation.
Co-Chair Thompson introduced the presenters for the day.
^INDIRECT EXPENDITURE REPORT DISCUSSION RELATED TO CHAPTER
61, SLA 14
1:33:37 PM
DAN STICKEL, ASSISTANT CHIEF ECONOMIST, TAX DIVISION,
DEPARTMENT OF REVENUE, introduced the PowerPoint
presentation, "Indirect Expenditure Report Discussion
Related to Chapter 61, SLA 14."
Mr. Stickel revealed slide 2: "Note." He indicated that the
presentation focused on report methodology and substance,
not policy issues regarding specific indirect expenditures.
MACKENZIE MERRILL, ECONOMIST I, TAX ECONOMIC RESEARCH
GROUP, DEPARTMENT OF REVENUE, reviewed slide 3: "Overview":
Indirect Expenditure Report Legislation Overview
Bill provisions, DOR requirements, Legislative Finance
Division requirements
Process and methodology for producing the DOR Indirect
Expenditure Report
Overview of the DOR Indirect Expenditure Report
Future Plans
Ms. Merrill discussed the legislation overview in slide 5:
"Indirect Expenditure Report Legislation Overview":
Passed in 2014 and signed on July 7, 2014
The first DOR Indirect Expenditure Report was released
the day after the bill was signed, July 8, 2014
Requires DOR to submit a report to the Legislature
biennially on July 1 detailing indirect expenditures
of all agencies in the State (AS 43.05.095)
Requires the Legislative Finance Division to provide a
report to the Legislature on the indirect expenditures
of certain agencies before the start of Legislative
Session following the release of DOR's biennial report
Modifies or implements sunset dates on certain non-oil
and gas tax credits
Ms. Merrill touched on the original legislation that
created the report. She noted that in statue the report was
due on July 1, 2014. However, the report was not released
until July 8, 2014, the day following the signing of the
bill. She pointed out that the report was published every
two years. The Legislative Finance Division (LFD) was
required to provide an analysis of indirect expenditures of
specific agencies subsequent to the report's release.
1:36:45 PM
Ms. Merrill explained slide 6: "Indirect Expenditures
Defined":
Indirect expenditure: Any foregone revenue by the state
designed to encourage an activity to benefit the public
in the form of a credit, exemption, deduction, deferral,
discount, exclusion, or other differential allowance.
As defined by AS 43.05.095(d):
A tax credit or other credit
An exemption, but does not include federal tax exemptions
adopted by reference in AS43.20.021
A discount
A deduction, but does not include costs incurred in the
ordinary course of business that are deducted in the
calculation of a tax under this title or in the
calculation of a royalty or net profit share payment for
a lease issued under AS 38
A differential allowance
Ms. Merrill provided the definition of an indirect
expenditure and reviewed its importance. She noted that
many other states had tax expenditure reports. However, the
tax expenditures were typically tied directly to tax
systems. Alaska had many indirect expenditures that were
not directly linked to its tax system. The Department of
Revenue's (DOR) report included more variety and was much
more inclusive of expenditures outside of tax credits. She
cited the example of military discounts on hunting and
fishing licenses.
Ms. Merrill turned to slide 7: "DOR Indirect Expenditure
Report":
Released July 8, 2014 by DOR
Based in part on the 2013 Legislative Research report,
Indirect Expenditures, Provisions in Alaska Law
Provides details on 251 indirect expenditures across
11 departments and agencies, including 78 provisions
administered by DOR
A cooperative effort between the 10 other
participating agencies, coordinated by DOR
Ms. Merrill commented that the department maintained some
of the formatting from the 2013 Legislative Research
Report, a report that also provided some ground work for
departments that contributed to the DOR report. She
acknowledged the collaborative efforts of the report
contributors.
Ms. Merrill reviewed slide 8: "Credit Sunset Dates":
The Indirect Expenditure Report legislation modified
sunset dates on certain credits:
December 31, 2016 for the Winn Brindle Scholarship tax
credit and the salmon utilization tax credit
December 31, 2018 for the film production credit and
the education credit
December 31, 2020 for the salmon product development
credit and the Community Development Quote (CDQ)
credit
Ms. Merrill relayed that sunset dates allowed for a regular
review of tax credits which was a common practice in other
states that generated similar reports.
1:39:45 PM
Ms. Merrill pointed to slide 10: "Methodology -
Internally":
Internally:
Work began in April 2014 with a dedicated economist
and dedicated time from others, including:
Audit supervisors and staff
Accounting supervisors and staff
DOR IT
Other Economic Research Group Staff
Department of Law
Ms. Merrill presented the process and methodology that DOR
used for completing the 2014 Indirect Expenditure Report.
She mentioned there was a dedicated economist and time
dedicated by volunteers. She emphasized that Dan Stickel
had been very involved in reviewing drafts and helping to
coordinate with the Department of Law (DOL).
Ms. Merrill reported on slide 11: "Methodology -
Externally":
Externally:
DOR met with other departments and agencies and sent
out a survey for the report
Each agency examined their operations to identify
indirect expenditures and report the required
information
Many departments identified additional indirect
expenditures that needed to be added
Submissions from other departments and agencies are
not independently verified
Ms. Merrill explained that when DOR met with the
departments and agencies they laid out expectations. The
Department of Revenue also sent out a survey to solicit
information for the report. She reiterated that the
Legislative Research Report helped to lay the ground work
allowing for the department to identify additional indirect
expenditures. The Department of Revenue hoped that, going
forward, departments would improve on identifying indirect
expenditures within their operations.
Ms. Merrill scrolled to slide 12: "Reported Information":
Each department was required to report the following
information:
The name of the indirect expenditure
A brief description
The statutory authority
The repeal date, if applicable
The intent of the legislature in enacting the statute
authorizing the indirect expenditure
The public purpose served by the indirect expenditure
The estimated revenue impact of the indirect
expenditure for the previous five fiscal years
(excluding the fiscal year immediately preceding the
date the report is due)
The estimated cost to administer the indirect
expenditure, if applicable
The number of beneficiaries of the indirect
expenditure
Ms. Merrill commented that the list was laid out in
statute. The Department of Revenue also asked agencies to
provide the year in which each expenditure was enacted. She
observed that there were many enacted prior to statehood.
Ms. Merrill advanced to slide 13: "Review and
Coordination":
Before release, DOR methodology and report drafts were
reviewed by:
Contributing agencies and departments
Legislative Finance Division
The Office of Management and Budget
The Bill Sponsor's staff
Ms. Merrill offered that DOR wanted to make sure all
parties involved understood the process and methodology.
Feedback was provided in the report to the extent possible
given the compressed timeframe.
1:43:40 PM
Ms. Merrill explained slide 15: "Overview of DOR's Indirect
Expenditure Report":
Introduction, discussing the purpose of the report,
what is included in the report, and an explanation
of the limitations of the report
The indirect expenditures are organized by:
Departments, alphabetically
Divisions, alphabetically
Grouped by Program Name (if applicable)
Ms. Merrill discussed the contents of the report including
how the indirect expenditures were organized. She gave the
example of multiple programs within the tax division of the
Department of Revenue.-
Ms. Merrill talked about slide 16: "Limitations of DOR's
Indirect Expenditure Report":
Due to the short time constraints:
There is some missing or unverified information
"Cost to Administer" is limited
The "Legislative Intent" section of many indirect
expenditures was incomplete
In some cases "Number of Beneficiaries" required
additional work to ascertain the impact of the
indirect expenditure
More time was needed to carry out in-depth analysis
Ms. Merrill mentioned that looking forward DOR wanted to
establish a concrete definition of "cost to administer' in
order to be consistent across departments. She indicated
that the department would be meeting with stakeholders to
set a definition. She asserted that DOL was helpful in
trying to determine legislative intent. She reported that
DOR would be examining some of the expenditure history. She
pointed out the need for additional time to be able to
conduct a more in-depth examination. The next report was
due in July 2016 which would allow for the needed time for
further analysis.
1:46:48 PM
Ms. Merrill slide 18: "Future Plans":
Reaching out to the University of Alaska and the
Alaska Railroad for inclusion in future reports
Reaching out to the Office of Management and Budget,
the Legislative Finance Division, and the Bill Sponsor
concerning the next Indirect Expenditure Report in
2016
Refining definitions of "Cost of Administration" and
"Legislative Intent" by working with stakeholders
Integrating DOR Indirect Expenditure Report reporting
with the new Tax Revenue Management System
Compiling feedback and suggestions which may be
incorporated into the next report in summer 2016
Ms. Merrill informed the committee that DOR was looking to
include additional departments and agencies in the next
report. She relayed that DOR would be conducting a dry run
of indirect expenditure reporting in the state's new tax
revenue management system to ensure that any needed
information could be extracted from it. She stressed that
DOR welcomed any feedback or suggestions to make the report
a useful and effective document.
Co-Chair Neuman asked Mr. Stickel for his view of the
recommendations made in the indirect expenditures report.
Specifically, he wanted Mr. Stickel's take on potential
economic impacts on Alaskan communities. Mr. Stickel asked
if Co-Chair Neuman was referring to the recommendations for
each indirect expenditure.
Co-Chair Neuman responded in the affirmative and referenced
Mr. Stickel's comments in the comment section of the
report. Mr. Stickel replied that DOR's report stated the
facts including a list of indirect expenditures and their
corresponding revenue impacts. The Legislative Finance
Division analyzed some of the indirect expenditures and
made recommendations to keep, modify, or eliminate them.
Co-Chair Neuman clarified that Mr. Stickel looked at the
expenditures then categorized them. Mr. Stickel explained
that DOR had not made any recommendations about the
indirect expenditures.
1:50:49 PM
Representative Guttenberg asked about unverified
information from agencies and departments. He wondered if
Mr. Stickel would go back to verify information at a later
time. Ms. Merrill responded that DOR assumed they were
looking at the best information possible. In future reports
DOR wanted to be a resource if a department was having
issues finding information or needed clarification.
Representative Guttenberg asked how unverified information
would be dealt with in the future. Mr. Stickel responded
that DOR would be looking at things like "cost to
administer." He would make sure that each of the agencies
was using the same definitions for what they were reporting
to DOR.
1:53:03 PM
Vice-Chair Saddler asked if it would be easy to integrate
the Indirect Expenditure Report into the tax reporting
management system (TRMS). Mr. Stickel responded that he
anticipated a straight forward integration. He pointed out
that the report requirement legislation passed while the
revenue management system project was already underway. He
also stated that the reports had to be set up in the system
in order to generate information. The department would be
setting up reports in the upcoming summer.
Vice-Chair Saddler understood that it was the first
indirect expenditure review required. He asked Mr. Stickel
to discuss the most surprising thing uncovered in the
process. Mr. Stickel responded that the most interesting
item was the significant number of indirect expenditures.
He acknowledged that there were many indirect expenditures.
Representative Edgmon asked if the Indirect Expenditure
Report had any role in reviewing state agency performance.
He continued that many programs were not tied to a
particular department that might be able to be incorporated
into the review process in the future.
1:55:41 PM
BRODIE ANDERSON, STAFF, REPRESENTATIVE STEVE THOMPSON,
began his presentation of the Legislative Finance Report
Overview and a summary of findings. He pointed to the
goldenrod book entitled, "Indirect Expenditure Report." He
read from a prepared statement:
Like mentioned previously in the DOR presentations,
once an agency's report is finished it is provided to
the Legislature and the Legislative Finance Division.
At the start of every new Legislature, every two
years, the Legislative Finance Division delivers a
report analyzing the Department of Revenue's indirect
expenditure report from the specific agencies to the
chair of the finance committee in each house. The
first review was completed for 2015 for the 29th
Legislature and included the following:
Department of Commerce, Community, and Economic
Development,
Department of Fish and Game,
Department of Health and Social Services
Department of Labor and Workforce Development,
Department of Revenue
The next report will come out in 2017 for the 30th
Legislature and that will include:
Alaska Court System
Department of Administration
Department of Education and Early Development
Department of Environmental Conservation
Department of Natural Resources
Department of Transportation and Public
Facilities
Finally in 2019 for the 31st Legislature the report
will review:
All remaining agencies
Subsequent reviews of each agency will occur every six
years from the previous review so the departments
reviewed in the current year in the 2015 Indirect
Expenditure Report will cycle for review by
Legislative Finance Division in 2021 for the 32nd
Legislature.
The Legislative Finance Division Indirect Expenditure
Report is required to provide the following
information and answer specific questions:
An estimate of the revenue foregone by the state
because of the indirect expenditure;
An estimate of the monetary benefit of the indirect
expenditure to the recipients of the benefit of the
indirect expenditure;
A determination of whether the legislative intent of
the expenditure is being met;
A recommendation as to whether each indirect
expenditure should be continued, modified, or
terminated, and a basis for the recommendation;
The expected effect on the economy of the state if
the state recommendation is executed;
An explanation of the methodology and assumptions
used in preparing the report.
The Legislative Finance Division Report Summary:
The report's introduction provides an explanation
of the methodology and the assumptions used to
make the recommendations presented
On the second page of the introduction which is
not identified with page numbers.
The actual indirect expenditure report begins on
page 3.
The Page layout for each indirect expenditure:
Above the divider line reflects the Department of
Revenue submission of the indirect expenditure.
Below the line are answers to questions the
Legislative Finance Division is required to
provide.
Legislative Finance Division's recommendations can be
grouped in the following way:
Termination the indirect expenditure
Reconsideration the indirect expenditure
Review the indirect expenditure
Continue the indirect expenditure
The final recommendations which is not a
recommendation
Indirect expenditure listed might not actually
be an indirect expenditure by the definition
Or no recommendation due to recent legislative
activities
2:00:44 PM
Mr. Anderson continued reading from a prepared statement:
The report recommends a total of 17 terminations to
certain indirect expenditures:
Two in Commerce Community and Economic Development
Small Loan Company Exemption
Citing it is obsolete and ineffective
Page 3
Property Tax Equivalency Payment (Renters rebate)
Citing it is not meeting legislative intent
due to the lack of appropriations since 2000
so the program may be obsolete
Page 9
Three termination recommendations are in Fish and
Game
All of terminations are in the Commercial
Fisheries Entry Commission.
Termination recommended based on low usage and
small benefit.
The largest share of termination recommendations, a
total of 12, are found in the Department of Revenue
The recommendations include oil & gas tax, state
royalty exploration credits, corporate income
tax, exemptions, fees, rates, and exclusions,
tobacco tax and discounts, motor fuel tax,
commercial vessel tax, and the tire tax.
It is difficult to assign a direct dollar amount to
the potential savings since there is not a true
dollar-to-dollar translation between what the state
forgoes versus what the state might collect.
Potential loss of foregone revenue is $446
thousand.
Not including five unknown costs estimates
One indeterminate
2:03:38 PM
Mr. Anderson further read from a prepared statement:
One of the potential terminations, the cigarette tax -
tax stamp discount found on page 142 of the Indirect
Expenditure Report. Below is a sample of portions of a
termination:
Department of Revenue Submission per AS 43.05.095
(1) Description of Provision
Gives a discount of up to $50,000 as compensation
for affixing stamps to packs of cigarettes.
(5) Legislative Intent
To provide a discount to compensate taxpayers for
the cost of affixing stamps to each pack.
Legislative Finance Analysis per AS 24.20.235
(1) Estimate of Annual Foregone Revenue is about
$313,192
(2) Estimate of Annual Benefit to Recipients
$24,092
(3) Legislative Intent Met: Yes`
(4) Should it be Continued, Modified or
Terminated? Recommend termination. The cost of
affixing stamps to packs of cigarettes should be
considered a cost of selling cigarettes in
Alaska.
Mr. Anderson continued reading from a prepared statement:
Another group of potential terminations is early
filing discounts. The policy discussion might be
whether or not the state continues to provide early
filing discounts versus a penalty for filing late.
The next block of recommendations come under two
recommendations; either reconsider or review.
Reconsider is more directed towards a critique of the
actual expenditure and the review is directed towards
the policy discussions and overall structure of where
the fee or indirect expenditure is located.
Reconsideration. The report recommends a total of 33
indirect expenditures be reconsidered:
1) Fourteen are in Commerce Community and Economic
Development:
a) Corporation filings and reporting recommendations
found on pages 13 through 18. The recommendation
was for reconsideration of the entire fee
structure to determine if Alaska's fee structure
is effective and competitive with other states.
b) Property tax exemption which has not been funded
since 1997.
2) There is one reconsideration for each of the
indirect expenditures found in the Department of
Fish and Game and in the Department of Health and
Social Services.
3) Department of Labor has four recommendations of
reconsideration.
a) Workers compensation, Alaska Vocational Technical
Education Center (AVTEC), and Occupational Safety
and Health Administration (OSHA) programs.
4) There are 13 recommendations in the Department of
Revenue for reconsideration:
a) Some of the highlighted reconsiderations are
corporation income tax fee and structure
regarding their effectiveness.
b) The state's motor fuel tax was recommended for
reconsideration.
5) There are $42 million of indirect expenditures that
were recommended for reconsideration.
Co-Chair Thompson used the indirect expenditure report as a
tool. Once he saw so many of the corporation income tax
fees and filings he submitted a request to the Legislative
Research department to conduct a project that compared
Alaska's corporate income tax structure to other states' in
the nation.
2:07:56 PM
Mr. Brodie continued reporting from a prepared testimony:
Review. The report recommends a total of 24 indirect
expenditures be reviewed:
1) The bulk of the recommended reviews suggested
involve the Department of Fish and Game licensing
fees:
a) Some of the highlighted reconsiderations include
a corporation income tax fee and the structure
regarding their effectiveness.
b) Insufficient funds to cover the annual operating
and capital costs
2) Total indirect expenditure that was recommended for
review is roughly $72 million.
Continuation. The report recommends a total of 37
indirect expenditures be allowed to continue:
1) Many of the reason way they recommended continuation
is because they are currently meeting legislative
intent and have a measurable benefit to the
recipients.
2) Required for compliance in federal law or a
necessary component of state operation
No recommendation. The report has a total of 20
indirect expenditures that have no recommendation:
1) The majority of the no recommendations are because
of recent legislative activity regarding that
expenditure
a) Includes the majority of the Oil & Gas Production
Tax
2) Many of the tax credits that had sunsets established
or changed through the legislation that created the
Indirect Expenditure report
Mr. Anderson continued reading from a prepared statement:
Removal from the Report. There are three indirect
expenditures that the Legislative Finance Division
thought did not fit the indirect expenditure
definition.
No action. Two indirect expenditure either expired or
are slated to expire and require no action since they
are not being utilized.
Action needed. One Indirect expenditure will need
passage of legislation to extend a sunset or the
credit will expire in 2016:
1) Winn Bridle Scholarship listed on page 180.
What is next:
1) Major legislation to repeal some of the indirect
expenditures that are recommended for termination.
2) Further legislative research to review tax rates,
exemptions, fees, discounts for effectiveness within
a certain department. In expectation a change in
policy through legislation or practices within
departments can reduce some of the indirect
expenditures that are costing more than the
perceived benefit.
3) Discussions of the overall direction of state
indirect expenditure policy, potentially limiting
the creation of new indirect expenditures.
4) Individual legislation to address specific indirect
expenditures like the cigarette tax stamp or
property tax exemption.
Representative Wilson wondered if the terminations could be
dealt with in one piece of legislation. Mr. Anderson
responded that the decision would be up to the legislature.
He commented that some terminations would fit well into an
omnibus bill and others would not.
Representative Wilson was not looking for a policy. She did
not know if, for example, terminations within the
Department of Commerce, Community and Economic Development
(DCCED) had to be kept separate from other agency related
terminations. She wondered if the cause for termination had
anything to do with dividing terminations into different
pieces of legislation. Mr. Anderson responded that he would
provide additional information to the chair of the
committee.
2:12:56 PM
Co-Chair Neuman offered that he had worked on another
project in which he had requested LFD review fiscal notes
from the previous ten years. He believed that it was good
public policy to work with the departments to see what laws
could be removed from the books. In the current fiscal
climate he wanted to closely examine which statutes were no
longer needed but continued to add to the state's operating
costs.
Representative Gara joined the committee.
Representative Edgmon asked about reporting mechanisms for
the indirect expenditures and whether there were printed
copies. Mr. Anderson deferred the question to DOR and LFD.
Representative Edgmon wondered about the fiscal impact
associated with all of the paper transactions having to do
with indirect expenditures. He supposed there was some
fiscal impact having to do with the related paper
transactions. Mr. Stickel confirmed that there were costs
connected to the paper transactions. He indicated that DOR
would be closely looking at administrative costs to be
included in the 2016 report.
2:15:25 PM
Representative Kawasaki asked about the estimate of revenue
foregone by the state because of indirect expenditures in
HB 306. He relayed that the bill did not have deductions
for costs that were incurred during the regular course of
taxation, mainly in the oil and gas tax section. He wanted
DOR to provide comments. Co-Chair Thompson reported that
oil and gas were specifically left out of HB 306 and were
not part of the review.
Representative Kawasaki asked if Co-Chair Thompson was
referring to all oil and gas. Mr. Anderson responded that
there was an exclusion for all indirect expenditures
related to Title 38 of the Alaska Statutes, which included
the oil and gas credits and expenditures.
Representative Kawasaki asked if the amount deducted was a
significant number. Mr. Stickel indicated that when looking
at taxes there was the issue of which deductions were part
of determining the tax base versus credits and exemptions
against the tax base. He commented that DOR primarily
looked at credits, exemptions, and deductions that occurred
after the tax base was calculated. He referred to page 3 of
the department's summary, which addressed the definition of
the indirect expenditures in more detail than in the
presentation. He also mentioned that there was a narrative
in the report that explained some of the decisions made by
the department.
Representative Kawasaki relayed that he would review the
narrative.
2:18:22 PM
Representative Guttenberg referred to page 97 of the
Indirect Expenditure Report under revenue where it
discussed exploration incentive credits. He wondered why
the exploration incentive credit was not considered a
direct expenditure. He furthered that the exemption for oil
and gas was a direct expenditure. He restated his question.
Ms. Merrill responded with the example of the exploration
incentive credit. She reported that the credit was foregone
revenue in the sense that the state was trying to
incentivize behavior without direct spending by the state.
For example, the credit could be applied against tax
liability. The intent of the credit was to encourage
geophysical work on state land so the state could manage
its lands more effectively. The state was not directly
giving anyone money but was reducing their tax liability.
She stated that based on the definition of an indirect
expenditure the credits were considered indirect.
Representative Guttenberg remarked that the exploration
incentive credit had not been used since 1978 [NOTE: Per
page 97 of the Indirect Expenditure Report the credit was
enacted in 1978 and was last used a decade ago]. He
wondered if there was a way to compare the use of the
exploration incentive credit to the use of the alternative
credit for exploration or if a comparison was already
available. Mr. Stickel responded that the department was
not ready to discuss specific policy decisions during the
current presentation, but could follow up with a comparison
of the two different incentives.
Representative Guttenberg replied that he would discuss a
comparison with Mr. Stickel at another time.
2:21:30 PM
Representative Gara referred to page 122 of the Indirect
Expenditure Report. He commented that under the state's
corporate tax there was a varied tax rate depending on how
much profit was made. The tax rate remained low up to a
certain amount of profit and increased above a certain
level of profit maxing out at approximately 9 percent for a
C corporation. If a business wanted to avoid taxes it could
become an S corporation. When the state used to have an
income tax all the other businesses paid taxes through the
owner's personal income tax. When the state terminated the
income tax all of the taxation of the other forms of
corporations disappeared. He opined that all a business had
to do was become an S corporation to avoid paying taxes.
The report suggested that the S corporation exemption be
lifted. He felt the committee should consider lifting the
exemption for those businesses with a profit of $200
thousand or more. He asked Mr. Stickel for his opinion
about the S corporation exemption.
Co-Chair Thompson commented that Florida was the only state
that taxed S corporations. Representative Gara furthered
that every state that had an income tax received its
revenue through an income tax.
Mr. Anderson interjected that Representative Gara's
question was an indicator that the Indirect Expenditure
Report was successful in pointing out items such as the S
corporation exclusion to help make better policy decisions.
Representative Gara added that the termination of the S
corporation exemption would affect him personally.
Representative Gara pointed to another expenditure
termination, the reduced rate for capital gains, listed on
page 124. He suggested that companies could turn a profit
into a capital gain through bookkeeping. The tax on income
classified as a capital gain was 4.5 percent versus 9
percent on income for an S corporation. He was not sure
about the particular effects of the termination and
surmised that the effect could be revenue neutral.
2:25:06 PM
Representative Munoz referred to page 98 of the Indirect
Expenditure Report. She reported that the tax credits under
the Alaska's Clear and Equitable Share (ACES) tax system in
FY 13 equated to $772 million. She asked whether the state
had further credits in FY 14. If so, she wanted to know the
amount. Also, she asked for the dollar amount generated in
FY 14 from the new tax credits under SB 21 [More Alaska
Production Act (MAPA) passed in 2013]. She wanted to know
how the two credits compared. Mr. Stickel responded that in
terms of the production tax credits in total for FY 14
there were $888 million in credits used against liability
and $593 million purchased by the state. The total for FY
14 included both the qualified capital expenditure credits
as well as other production tax credits. He stated that he
would be happy to follow up with additional detail.
Representative Munoz responded that the information would
be helpful. She also asked if the $593 million was used to
purchase the old credits under the previous ACES system.
Mr. Stickel responded that the money was primarily the
qualified capital expenditure credits and net operating
loss credits.
Representative Munoz asked for a comparison of the two
credits and how they compare under ACES versus MAPA. Mr.
Stickel commented that the department was producing a few
work products that could be provided to the committee.
Co-Chair Thompson directed Mr. Stickel to provide the
information to his office.
Representative Kawasaki referenced the qualified capital
expenditure credit. He indicated that it was a substantial
number and that it had grown more than LFD had considered.
At the beginning of the current session LFD reported that
the number would decline due to SB 21. He commented that
the credit was primarily for investment and maintenance for
the existing infrastructure. However, he purported that it
did not make any suggestions or recommendations to apply
the tax to Cook Inlet. He wanted to know what percentage of
each of the years was applied to Cook Inlet versus the
North Slope.
Mr. Stickel responded that in terms of the credits used
against tax liability, it was applied primarily to the
North Slope. The credits purchased by the state were
divided about equally between the North Slope and non-North
Slope areas. There would be more detail in the information
he would provide to the committee. He reiterated that the
department's report provided a list of credits for the
legislature to consider.
Representative Kawasaki asked about the well lease
expenditure credit and noted the specific reference to Cook
Inlet and the lack of public information. He was concerned
with being able to make a qualified decision as to whether
legislative intent was met without having access to all of
the facts. He wondered if DOR had access to the
information. If so, he wanted to know how it would be
conveyed to the legislature.
Mr. Stickel responded that the department had some
confidentiality restraints in reporting certain credits. He
suggested if there was a tax credit in which only one tax
payer took the credit, the department would have to hold
that information in confidence. He pointed out that DOR had
made an extensive effort to ensure that the maximum level
of detail regarding the credits was provided to the
legislature. He reassured the committee that there would be
additional detail on some of the credits provided beyond
what was in the Indirect Expenditure Report.
2:30:16 PM
Representative Pruitt wondered how many people were
employed by the state to administer the tax credits. He
expressed his concerns about the related costs. Mr. Stickel
did not have the number immediately at hand. He deferred to
Mr. Burnett.
JERRY BURNETT, DEPUTY COMMISSIONER, TREASURY DIVISION,
DEPARTMENT OF REVENUE, reported that the department was in
the process of putting together the information for Co-
Chair Thompson for the subcommittee. He indicated that the
information would be available within a week.
Representative Pruitt asked Mr. Burnett about the relevance
of the report. He wanted to know if the department was
interested in taking the information that it gathered and
giving the legislature a starting point from which to work.
He believed that tax credits were not tax cuts. He asked if
the department would be willing to lead the state on the
issue.
Mr. Burnett responded that the department had been having
several internal discussions on the subject and would be
getting back to the committee. He furthered that the
department was not averse to providing some leadership in
certain areas.
Representative Pruitt appreciated Mr. Burnett's comments.
Co-Chair Thompson expressed his pleasure in seeing interest
in the legislation and the Indirect Expenditure Report. He
opined that the report would be a valuable reference. He
reviewed the schedule for the following day.
ADJOURNMENT
2:34:05 PM
The meeting was adjourned at 2:34 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| Chapter 61 SLA 15 HB0306Z.pdf |
HFIN 2/10/2015 1:30:00 PM |
|
| LINK to Indirect Expenditure Report.pdf |
HFIN 2/10/2015 1:30:00 PM |
|
| LINK-DOR Indirect Expenditure Preliminary Report.pdf |
HFIN 2/10/2015 1:30:00 PM |
|
| 2015 Indirect Expenditure Report Summary.pdf |
HFIN 2/10/2015 1:30:00 PM |
|
| HFinance DOR IER Presentation_MGM_20150210.pdf |
HFIN 2/10/2015 1:30:00 PM |
|
| DOR response HFIN Indirect Expenditure.pdf |
HFIN 2/10/2015 1:30:00 PM |