02/20/2013 03:15 PM House LABOR & COMMERCE
| Audio | Topic |
|---|---|
| Start | |
| HB68 | |
| HB9 | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 68 | TELECONFERENCED | |
| *+ | HB 9 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
HOUSE LABOR AND COMMERCE STANDING COMMITTEE
February 20, 2013
3:24 p.m.
MEMBERS PRESENT
Representative Kurt Olson, Chair
Representative Lora Reinbold, Vice Chair
Representative Mike Chenault
Representative Bob Herron
Representative Charisse Millett
Representative Dan Saddler
Representative Andy Josephson
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
HOUSE BILL NO. 68
"An Act relating to the computation of the tax on the taxable
income of a corporation derived from sources within the state."
- MOVED HB 68 OUT OF COMMITTEE
HOUSE BILL NO. 9
"An Act relating to secured transactions under the Uniform
Commercial Code and to the regulation of funds transfers,
including remittance transfers, under the Uniform Commercial
Code and federal law; and providing for an effective date."
- MOVED HB 9 OUT OF COMMITTEE
PREVIOUS COMMITTEE ACTION
BILL: HB 68
SHORT TITLE: CORPORATE INCOME TAX
SPONSOR(s): REPRESENTATIVE(s) HUGHES
01/16/13 (H) READ THE FIRST TIME - REFERRALS
01/16/13 (H) L&C, FIN
02/20/13 (H) L&C AT 3:15 PM BARNES 124
BILL: HB 9
SHORT TITLE: SECURED TRANSACTIONS AND FUNDS TRANSFERS
SPONSOR(s): REPRESENTATIVE(s) GRUENBERG
01/16/13 (H) PREFILE RELEASED 1/7/13
01/16/13 (H) READ THE FIRST TIME - REFERRALS
01/16/13 (H) L&C, JUD
02/20/13 (H) L&C AT 3:15 PM BARNES 124
WITNESS REGISTER
REPRESENTATIVE SHELLEY HUGHES
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Testified as sponsor of HB 68.
GINGER BLAISDELL, Staff
Representative Shelley Hughes
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Testified on behalf of the sponsor of HB
68, Representative Shelley Hughes.
JOHANNA BALES, Deputy Director
Tax Division, Anchorage Office
Department of Revenue (DOR)
Anchorage, Alaska
POSITION STATEMENT: Testified and answered questions during the
discussion of HB 68.
ROBYNN WILSON, Income Audit Manager
Tax Division, Administrative Services Division
Department of Revenue (DOR)
Anchorage, Alaska
POSITION STATEMENT: Answered questions during the discussion of
HB 68.
REPRESENTATIVE MAX GRUENBERG
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Testified as sponsor of HB 9.
MILES BROOKES, Staff
Representative Max Gruenberg
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Testified on behalf of the sponsor of HB 9,
Representative Max Gruenberg.
DEBORAH BEHR, Chief Assistant Attorney General
Legislation and Regulations Section, Civil Division (Juneau)
Department of Law (DOL;
Chair; Alaska Uniform Law Delegations
National Conference of Commissioners on Uniform State Laws
(NCCUSL)
Juneau, Alaska
POSITION STATEMENT: Testified and answered questions on HB 9.
VICKY BACKUS, State Recorder
State Recorder's Office
Division of Support Services (DSS)
Department of Natural Resources (DNR)
Anchorage, Alaska
POSITION STATEMENT: Answered questions during the discussion of
HB 9.
WILLIAM HENNING, L.L.M., Uniform Law Commissioner;
Professor, University of Alabama, School of Law
Tuscaloosa, Alabama
POSITION STATEMENT: Testified in support of HB 9.
LUKE FANNING, Vice-President
First National Bank;
Member; Alaska Bankers Association (ABA)
Anchorage, Alaska;
POSITION STATEMENT: Testified in support of HB 9
STACY SCHUBERT, Director, Government Relations
Alaska Housing Finance Corporation (AHFC)
Anchorage, Alaska
POSITION STATEMENT: Testified in support of HB 9.
ACTION NARRATIVE
3:24:08 PM
CHAIR KURT OLSON called the House Labor and Commerce Standing
Committee meeting to order at 3:24 p.m. Representatives Herron,
Millett, Reinbold, Saddler, Josephson, and Olson were present at
the call to order. Representatives Chenault arrived as the
meeting was in progress.
HB 68-CORPORATE INCOME TAX
3:24:53 PM
CHAIR OLSON announced that the first order of business would be
HOUSE BILL NO. 68, "An Act relating to the computation of the
tax on the taxable income of a corporation derived from sources
within the state."
3:25:05 PM
REPRESENTATIVE SHELLEY HUGHES, Alaska State Legislature,
speaking as the bill sponsor, remarked that this bill is overdue
since corporate tax rates were set in 1981. She related that
Alaska levies corporate income tax on corporations doing
business in Alaska. The tax is a graduated tax, which means it
increases incrementally based on the amount reported income.
She explained the corporate income tax rate schedule is broken
into ten levels, with the top level taxed at the highest rate,
9.4 percent, on federal taxable income of $90,000 or more, based
on gross income minus allowable deductions.
REPRESENTATIVE HUGHES characterized HB 68 as a rational way to
get cash back into the hands of Alaskans, which would create a
stronger economy and, in turn, would also enhance overall taxes
in the long run.
REPRESENTATIVE HUGHES reiterated the corporate income tax was
established in 1981 and this bill will adjust the incremental
brackets based on the consumer price index. She offered her
belief the rate changes are fair, since the proposed changes
would incentivize all industries. She stated that the tax is
limited to approximately 5,000 C corporations and would not
apply to the 25,000 limited liability corporations (LLCs) and
limited liability partnerships (LLPs) or to the 30,000 S
corporations. She referred to a memo in members' packets
entitled "Legislative Research Services, Research Brief" [from
Susan Haymes, Legislative Analyst dated February 5, 2013]. This
document refers to the companion bill, but applies to HB 68, she
said. She then referred to the current tax schedule on page 3
of the document which shows that most companies who filed earn
less than $10,000. She concluded that this would point to
numerous small businesses in the state. The other bulk of
filers represent middle-sized businesses, she stated. In short,
this bill would create relief for the small and medium-sized
businesses.
3:28:39 PM
REPRESENTATIVE HUGHES explained that the S corporation and LLCs
were established in the 1980s so Alaska has numerous pre-1980
small and medium-sized businesses that still fall under older
rules. This bill also would affect larger businesses in Alaska
and the Lower 48, but the tax does not apply to any out of state
income. She related that under the bill, the current income
bracket for over $90,000 would be increased to $222,000 or more
at a 9.4 percent tax rate. Essentially, the bill expands the
brackets structure, she said. Under the current structure, a
large company making $550,000 would pay $47,700 in taxes, but
under HB 68 would pay under $42,000 in taxes or approximately
$6,000 less. Further, a smaller company making $40,000 would
pay $1,250 in corporate income taxes, but under HB 68 would pay
approximately half the taxes or $650. She concluded this bill
would reduce the corporate taxes. She noted that she has
received letters of support from the State Chamber of Commerce,
and the Matanuska-Susitna Business Alliance.
3:31:00 PM
CHAIR OLSON remarked this bill has a zero fiscal note.
GINGER BLAISDELL, Staff, Representative Shelley Hughes, Alaska
State Legislature, on behalf of Representative Hughes, reported
the Juneau Chamber of Commerce and the Wasilla Chamber of
Commerce have also sent letters of support.
3:31:47 PM
REPRESENTATIVE MILLETT said she finds the corporate tax
structure with 10 tier brackets as too complex. She recalled
the two or three-tier brackets other states have in place, which
she suggested might be easier. She related the National
Conference of State Legislatures (NCSL) suggested this type of
structure could be burdensome to businesses.
REPRESENTATIVE HUGHES answered she held discussions with the
sponsor of the companion bill and the goal was to make a simple
change and not create a whole new system at this time. She
deferred to the Department of Revenue to respond.
3:33:33 PM
REPRESENTATIVE REINBOLD remarked that anything the legislature
can do to move from the 50th spot and become a friendlier place
to do business is welcome. She asked which types of industries
would be affected by the bill.
REPRESENTATIVE HUGHES answered that the change would affect a
broad spectrum of businesses and any long-time business might be
from any industry.
3:34:17 PM
REPRESENTATIVE REINBOLD asked who assesses the corporate income
taxes. Speaking from her own personal experience, she said she
has observed the person rings up zero when she pays in cash at a
nail salon. She asked whether this type of potential activity
is a state or federal issue. She further asked if this type of
business would typically be a C Corporation.
REPRESENTATIVE REINBOLD answered that the tax division has
investigators.
CHAIR OLSON related the department would be testifying later on.
3:35:25 PM
REPRESENTATIVE REINBOLD related her understanding that someone
else would bear the burden if the taxes were not collected.
REPRESENTATIVE HUGHES said she is a conservative and believes
that lower taxes strengthen the economy and increases the amount
of incoming taxes by growing businesses. In terms of the
overall budget, she suggested that $3.8 million less in revenue
is a small amount, but the legislature would need to review it.
She offered her belief this would be doable.
3:36:34 PM
REPRESENTATIVE HERRON asked whether the department could respond
to whether any unintended consequence would result from the
changes in the bill.
REPRESENTATIVE JOSEPHSON referred to the zero fiscal notes,
which he assumed meant the program change wouldn't cost anything
to administer. Still, he noted it would represent a loss of
revenue. He asked for further clarification.
CHAIR OLSON related the fiscal note would measure the direct
cost.
3:38:01 PM
REPRESENTATIVE JOSEPHSON acknowledged that 1981 was a long time
ago and he could see the need for some adjustment. He referred
to page 2 of the document entitled "Legislative Research
Services, Research Brief" that read, "Under the proposed
structure, a higher percentage of companies fall under the three
lowest tax brackets;, however, overall the tax liability would
be more evenly distributed through the middle tax brackets than
it is under the current tax structure." He asked whether the
effect is that the middle tax bracket wouldn't be any greater,
but due to the sum collected it ultimately would be greater.
REPRESENTATIVE HUGHES acknowledged that was her interpretation.
REPRESENTATIVE JOSEPHSON asked whether the middle tax bracket
should create a concern - the businesses between a mom and pop
store and ExxonMobil Corporation.
REPRESENTATIVE HUGHES related it is graduated so the lowest tax
bracket would see the greater benefits in percentages. She
offered her belief that it is reasonable and the businesses
would be better off under the bill than under the current
structure.
CHAIR OLSON remarked that ExxonMobil Corporation is paying
significant taxes.
3:39:48 PM
JOHANNA BALES, Deputy Director, Tax Division, Anchorage Office,
Department of Revenue (DOR), introduced herself.
ROBYNN WILSON, Income Audit Manager, Tax Division,
Administrative Services Division, Department of Revenue (DOR),
introduced herself.
3:40:29 PM
REPRESENTATIVE JOSEPHSON asked whether the DOR's fiscal note
reflects the cost of administering the tax changes is zero, even
though the program would incur a loss of $3.8 million under the
bill.
MS. BALES answered yes; that is correct. She said it will not
cost the department any more if the tax brackets change.
3:41:28 PM
REPRESENTATIVE MILLETT asked whether the C corporations are
taxed differently than oil and gas taxes.
MS. BALES answered that the tax rate for oil and gas
corporations and other non-oil and gas corporations are the
same, but the calculation of the taxable income would differ
between oil and gas companies and other non-oil and gas
corporation. This bill would treat all C corporations the same.
3:42:11 PM
REPRESENTATIVE SADDLER asked about the net effect of HB 68 on
the oil industry.
MS. BALES answered that $3.8 million in revenue encompasses all
C corporations. She pointed out the DOR has approximately 27
oil and gas C corporations that file in the state. Under this
bill, the maximum benefit to a single corporation would be
$5,828. With the 27 oil and gas filers, the maximum benefit to
all oil and gas corporations under the bill would represent
approximately $157,000 in tax savings. She concluded that the
majority of the savings will go to non-oil and gas corporations
under the bill.
3:43:19 PM
REPRESENTATIVE REINBOLD asked for an explanation of the C
corporations. She further asked what type of businesses
typically would apply and who would investigate any potential
local tax fraud.
MS. BALES answered that all companies can be assessed as chapter
C corporations. She explained that the designation for C
corporations is found within the Internal Revenue Code (IRS).
Thus businesses operating as C corporations in Alaska would be
taxed in Alaska. The other types of corporations, such as S
corporations, limited liability corporations (LLCs) and limited
liability partnerships (LLPs) are taxed differently federally.
Therefore the S corporations, LLCs and LLPs are taxed
differently in Alaska. For example, with S corporations the
income earned is distributed to the individual shareholders and
reported on their individual income tax returns. The reason S
corporations aren't taxed in Alaska, is because Alaska does not
impose an individual income tax. She reiterated any industry or
company that sets up itself as a corporation can be a C
corporation or an S corporation depending upon how the
corporation wishes to be treated under federal law. Additional
limitations apply, such that the S corporations are limited to
no more than a hundred shareholders. Thus small businesses
generally tend to be S corporations since they don't have to pay
the Alaska corporate income tax; however, many older C
corporations are companies that have been around for a long
time, such as mom and pop restaurants, airlines, construction
companies, retailers, and tourism companies and are subject to
Alaska's corporate income tax.
3:45:51 PM
REPRESENTATIVE REINBOLD reiterated her earlier question of who
would investigate local tax fraud and why the division doesn't
use fewer brackets.
MS. BALES related that neither bill sponsor discussed collapsing
the brackets into fewer tax brackets. She said she thinks it is
a point well taken. She responded that the division
investigates tax fraud through audits and also by the DOR's
criminal investigation unit. Thus the DOR would investigate if
the department receives tips or anyone has concerns that people
aren't properly reporting income they have earned.
3:46:58 PM
REPRESENTATIVE REINBOLD suggested perhaps she should have called
DOR instead of the IRS for the few times she has been suspicious
[that someone was not reporting income.]
MS. BALES asked for clarification on whether the total purchase
was not rung up or she wasn't charged an additional sales tax.
REPRESENTATIVE REINBOLD reiterated her earlier scenario in which
she had her nails done at a nail salon and was charged $40. She
handed the clerk $40 in cash, but the sale was rung up as zero
and she also did not receive a receipt. In several instances
when this happened it raised an alarm and while she isn't
specifically accusing someone, she related when this happened
she called the IRS. She wondered if the IRS is the appropriate
agency to report this type of activity or if someone in the
state should be notified.
MS. BALES responded that the DOR would appreciate a call and
would determine if the company is subject to corporate income
taxes. She indicated that if the company is not a C corporation
it would not be subject to corporate income taxes, but the
division could also refer the case to IRS since it sounds as
though the person could be trying to avoid individual income
taxes. She reiterated the department's interest and noted a
local sales tax could also apply. She understood Anchorage does
not have a sales tax, but some jurisdictions throughout the
state do impose one.
3:48:46 PM
CHAIR OLSON related a question on behalf Representative Herron.
He asked whether there might be any unintended consequences.
MS. BALES answered that the department does not see any
unintended consequences or potential loopholes with the changes
in HB 68. She characterized this bill as being pretty straight
forward.
3:49:08 PM
REPRESENTATIVE MILLETT asked whether the DOR has a preference
for ten brackets or for using fewer brackets, such as three or
four that some other states use.
MS. BALES answered that the DOR does not have a preference. The
department's corporate income tax is set up using ten brackets.
She said that changing the number of tax brackets really doesn't
create any additional work. She viewed it as being a preference
for legislators or businesses. The department doesn't view the
current corporate income tax bracketing as creating any concern.
3:50:04 PM
REPRESENTATIVE MILLETT understood that it doesn't create a
burden for the department, but she asked whether it would it be
easier for the taxpayer.
MS. BALES related she did not think it created any burden for
businesses either. She reported that so many automated tax
preparation services calculate the taxes for businesses. She
suggested that some software companies would need to change
their programs under the current bill or if the tax brackets
were also collapsed to three brackets. She did not see the 10
tax brackets as creating any issue, but she could also
understand if [the legislature] would like to make changes from
the current corporate income tax brackets.
3:51:11 PM
REPRESENTATIVE MILLETT asked why businesses don't change from C
corporations to S corporations and avoid Alaska's corporate
income taxes.
MS. BALES answered that the department has also pondered this.
She related her understanding that when these C corporations
were initially established, the top individual income rates in
Alaska were at 55 percent, which was greater than the top
corporate income tax rates at the time. The department has
concluded that the businesses initially incorporated as C
corporations since the rates were less and they would pay less
corporate income taxes. She surmised that to change the
articles of incorporation will often involve fees for attorneys
or accountants. The department has contemplated that at any
given time these small C corporations with less than a hundred
shareholders could easily convert to S corporations and not pay
any Alaska corporate income tax at all.
3:52:36 PM
CHAIR OLSON asked whether switching the current corporate income
tax structure to three brackets would generate a fiscal note.
MS. BALES answered no; that the DOR could easily convert to less
tax brackets.
3:53:20 PM
CHAIR OLSON, after first determining no one else wished to
testify, [the Chair treated the public testimony as being
closed.]
3:53:45 PM
REPRESENTATIVE REINBOLD moved to report HB 68 out of committee
with individual recommendations and the accompanying fiscal
note. There being no objection, HB 68 was reported from the
House Labor and Commerce Standing Committee.
3:54:15 PM
The committee took a brief at-ease from 3:54 p.m. to 3:59 p.m.
HB 9-SECURED TRANSACTIONS AND FUNDS TRANSFERS
3:59:33 PM
CHAIR OLSON announced that the final order of business would be
HOUSE BILL NO. 9, "An Act relating to secured transactions under
the Uniform Commercial Code and to the regulation of funds
transfers, including remittance transfers, under the Uniform
Commercial Code and federal law; and providing for an effective
date."
3:59:47 PM
REPRESENTATIVE MAX GRUENBERG, Alaska State Legislature, sponsor
of HB 9, introduced himself.
MILES BROOKES, Staff, Representative Max Gruenberg, Alaska State
Legislature, introduced himself.
4:00:23 PM
REPRESENTATIVE GRUENBERG said HB 9 is a very important, time
sensitive bill. He stated the bill would amend the uniform
commercial code. The first two sections of HB 9 assist the
banking industry and the remaining sections assist creditors who
attempt to collect debts from people who change their names or
may not give their correct name. Further, it is also easy to
have a misspelling entered into transactions, which can stop the
process, he also said.
4:01:15 PM
REPRESENTATIVE GRUENBERG thanked Mr. Brookes for his work on the
bill. He said this bill was introduced at the request of the
Uniform Law Commissioners. He listed potential testifiers and
letters of support. He also pointed to a letter of support from
Deborah Behr, on behalf of the administration. He reported the
deadline of July 1, 2013, that all states must meet so the
provisions involving creditors' rights will go into effect
simultaneously nationwide.
CHAIR OLSON asked whether this is part of a compact.
REPRESENTATIVE GRUENBERG answered no. He said the first two
sections remedy an issue that arose with passage of the federal
Dodd-Frank Act [Wall Street Reform and Consumer Protection Act
(Pub.L. 111-203, H.R. 4173), which became effective on July 10,
2010]. The Dodd-Frank Act did not cover certain types of
financial transfers between banks and individuals. As a result,
the states must cure this defect with state law and the last
parts of HB 9 do so and pertain to issues with name changes.
4:03:58 PM
DEBORAH BEHR, Chief Assistant Attorney General, Legislation and
Regulations Section, Civil Division (Juneau), Department of Law
(DOL), Chair; Alaska Uniform Law Delegations, National
Conference of Commissioners on Uniform State Laws (NCCUSL), said
the Alaska statutes assigned to the Department of Law (DOL) the
duty to promote uniform laws in Alaska where uniformity among
the states is important. The state has been a member of the
Uniform Law Commission for over a hundred years. She
characterized the Uniform Law Commission as a states' rights'
organization, in which states propose uniform solutions to state
legislatures to address common problems where uniformity across
state lines is desirable. In particular, one area is commerce,
she stated. She said that businesses buy and sell products and
borrow money across state lines. All fifty states have adopted
the Uniform Commercial Code (UCC) since the UCC ensures
reliability and predictability of business transactions. The
goal of this bill is to update two articles of the UCC, with the
first pertaining to the UCC, Article 9 on secured transactions.
4:05:47 PM
MS. BEHR related a scenario to illustrate the first update to
the UCC, Article 9. She and her husband are buying a car and
very few people pay cash for a car. Instead, people make a down
payment on the car, the bank loans the remainder, but takes a
secured interest in the car. Thus if the owner were to default
on the loan, the bank wants to have an easy way to get the car
back. The Uniform Commercial Code (UCC), Article 9, sets up the
easy way to do this, which is perfected by filing the
transaction with the recorder's office. Thus a secondary
creditor, who is interested in the owner's interest in the car,
can check the transaction. In short, this is what the UCC,
Article 9 secured transactions is about, she said.
4:07:22 PM
MS. BEHR reiterated that it is also very easy to misspell
someone's name on a secured transaction. For example, when she
and her husband buy their car, the bank would prepare the
document; however, it is very easy to misspell her name since
there are many different ways to spell Deborah and also to spell
Behr. In the event the name doesn't match up, the creditor has
a problem although it shouldn't be the creditor's problem since,
in this instance, she promised to pay for the car and she
received the car. In any case, it causes a problem if names
don't match, she said. In essence, this explains the first
update.
MS. BEHR said under current law, if the creditor gets things
exactly right there isn't any problem and the creditor can get
the car back; however, with a misspelling, it has been a
problem. Thus the UCC has recommended all states have a safe
harbor and examine the person's driver's license. Even though
the driver's license may have a misspelling the creditors will
have taken the necessary steps to protect its interest in the
car. Further, if the person held a commercial driver's license
and a personal driver's license, the most current driver's
license would be used. Additionally, if the person held both a
driver's license and a state identification card, in this state
the Alaska driver's license would be used. This process allows
creditors and businesses a means to obtain an easy way to get
expectations fulfilled - one that is fast, smooth, and easy, and
avoids lawsuits, she stated.
4:08:26 PM
MS. BEHR related the second update to the UCC, Article 9 makes
changes to "registered organizations." Since the UCC, Article
9, was adopted, new limited liability corporations (LLCs) and
limited liability partnerships (LLPs) have cropped up. These
LLCs and LLPs also purchase things and can conduct business in
several different states. This second change sets up a rule,
similar to corporations, in which the paperwork of organization
is examined to determine the origin of formation and becomes the
state the LLCs or LLPs would file their paperwork. This change
makes it much easier for the banking community to feel more
comfortable loaning businesses money. In fact, that's one of
the advantages of the UCC. In essence, when banks feel more
secure that purchasers will repay the loan, it can offer better
interest rates or allow businesses to obtain more liquidity they
can use to run their businesses.
4:09:34 PM
MS. BEHR turned to the final major change to the UCC, Article 9,
which relates to "after acquired property." She related a
scenario in which she lives in Anchorage and wants to open a
bike construction company. She detailed that she would first
ask the bank for a loan to buy parts and put together bikes.
The bank would loan her the money, but would take a security
interest in parts and bicycles of her business. However, she
related that businesses don't always stay at their original
location. In fact, she might decide to move her bicycle
business to Arizona for a couple of months during Alaska's
winter. In the process, she would also take the proceeds the
bank loaned her to buy more bicycles in Arizona. In doing so, a
legal issue arises as to where a creditor would need to look to
find the business statement filed. Under the changes to the
UCC, Article 9, the new change would state that the filing in
Alaska trails with the property to Arizona for four months each
year in order to allow the bank time to record against the
bicycles. In short, the changes to the UCC, Article 9, would
allow commerce move more smoothly and provide greater comfort to
lending institutions that are loaning money to businesses.
4:11:00 PM
MS. BEHR turned to the final changes, which relate to the UCC,
Article 4A. She indicated these changes are supported by the
Alaska Bankers Association - noting the letter of support of
January 28, 2013 in members' packets. This change pertains to
"remittance transfers," which are electronic transfers that are
generally made overseas. She related that typically if the
transaction is a consumer transaction, it is set up under
federal law, but if it is a business transaction it is covered
under state law; however, a recent change in the Congress made
it murky and the banks asked for clarity - nationwide. Thus
things that fall under the UCC, Article 4A, will continue to be
covered by UCC, Article 4A for these remittance transfers, she
said.
MS. BEHR reported that 30 states have adopted the Article 9
changes, 13 other states have legislation pending, and all 50
state's changes are due by July 1; 2013. She said that the
Article 4A changes are brand new and a few states are currently
doing this; however, all states are trying to quickly pass the
changes to accommodate the banking community since the bankers
really want the changes. She pointed out technical advisors who
are available for questions, including Mr. Bill Henning,
University of Alabama, who is a nationwide expert on the UCC.
She expressed her gratitude that he is available to the
committee today.
4:12:30 PM
CHAIR OLSON asked whether this is a model law.
MS. BEHR answered that all the states are making changes and try
to keep to the UCC. In further response to a question, she
answered thus far, 30 states have made the Article 9 changes.
4:12:48 PM
REPRESENTATIVE MILLETT referred to materials in the packet
[Uniform Law Commission, "Why States Should Adopt 2010
Amendments to UCC Article 9,"] that indicates states must ensure
the state's driver's license database is compatible with its UCC
database as to characters and fields. She asked whether
Alaska's DMV's database is compatible.
MS. BEHR answered that the state has two options. One option is
to have Alaska's DMV computers communicate directly with the
state recorder, which was not feasible without a significant
fiscal note. The other approach, which Alaska will take is the
"safe harbor" one in which the actual physical Alaska driver's
license (ADL) is viewed at the time of the transaction. She
clarified the ADL would not be viewed electronically, but would
be viewed in the individual creditor's office.
REPRESENTATIVE MILLETT asked what happens if the person does not
have an Alaska driver's license.
MS. BEHR answered that the person would use their name, noting
people can also obtain a state identification card. She
emphasized that the mistake could be a typo in an agreement and
does not necessarily mean fraud.
4:14:20 PM
REPRESENTATIVE MILLETT acknowledged her name is frequently
misspelled.
MS. BEHR stated that if everyone is acting appropriately, it
works fine. She referred to her earlier scenario - the car
purchase - and said if she wasn't able to make the car payment,
she would just go to the car dealer and indicate she couldn't
make the payment and work out an agreement. However, she said
the recording function is beneficial when another creditor wants
to loan her money and can view the database at the state
recorder's office to ensure she doesn't have substantial debt.
She emphasized this does not stop the transaction because the
name is misspelled, but it makes it more difficult and more
expensive.
REPRESENTATIVE MILLETT was unsure how this would affect rural
Alaska since many rural Alaskans don't have access to photo
identification.
4:15:39 PM
REPRESENTATIVE REINBOLD referred to page 2 of the fiscal note,
which read, "Section 34 instructs DNR to adopt, amend, or repeal
regulations and this section takes effect immediately per
Section 36. The Recorders/UCC Central Section has begun work on
amending definitions that exist in regulations and thus DNR
anticipates completing regulations by September 16, 2013." She
asked how this will affect DNR.
MS. BEHR deferred to the Department of Natural Resources (DNR)
to answer.
4:16:32 PM
VICKY BACKUS, State Recorder, State Recorder's Office, Division
of Support Services (DSS), Department of Natural Resources
(DNR), answered that HB 9 makes minor changes to the Recorder's
office to their regulations; however most of the changes amend
their forms.
4:17:22 PM
REPRESENTATIVE REINBOLD said she was alarmed this bill would
affect the DNR.
MS. BACKUS responded that the DNR's involvement would be
minimal.
4:17:45 PM
REPRESENTATIVE JOSEPHSON recalled that 30 states have opted into
the recommendations. He asked how many states have adopted the
4A recommendations.
MS. BEHR answered that less states have; however, this is due
primarily to the changes being circulated to the industry for
only a few months. She offered that many states have bills
pending. Additionally, the banking community thinks the changes
are a good idea, she said.
4:18:26 PM
REPRESENTATIVE CHENAULT asked whether a misspelling in a
person's name has anything to do with repossessing car from the
bank or creditor's standpoint.
MS. BEHR, using her earlier scenario of her car purchase,
answered that the issue would arise if the party had to go to
court to prove the creditor was going after the same Deborah
Behr's car; however, if no objection arose and the debtor did
not complain, it would go pretty smoothly.
REPRESENTATIVE CHENAULT suggested that the creditor loaning the
money would use the vehicle identification number (VIN) and not
be as concerned about the name being misspelled.
4:19:43 PM
REPRESENTATIVE JOSEPHSON said it strikes him that the bill
pertains mainly to creditors, but it did not seem as though
anything in the bill was unreasonable.
MS. BEHR answered that HB 9 is also a debtor's bill, since it
creates a smooth mechanism for creditors to get back
merchandise, such as her car in the aforementioned scenario.
Absent that mechanism, the car dealer would be reluctant to give
her the car so it would make credit easier for consumers to
obtain, she said. She related that thus far the legislation has
passed 30 states and to date no consumer protection group has
objected.
4:21:08 PM
WILLIAM HENNING, L.L.M., Uniform Law Commissioner; Professor,
University of Alabama, School of Law, related he has worked
extensively with Ms. Behr on the Uniform Law Commission.
4:22:20 PM
REPRESENTATIVE REINBOLD understood 30 states have adopted
Article 9 and 20 states have not, although 13 are in the process
of doing so. She asked why these state have not all adopted the
changes. She further asked whether any national organizations,
such as the National Conference of State Legislatures (NCSL)
have weighed in.
MR. HENNING answered that the amendments [contained in HB 9]
were finalized by the American Law Institute and Uniform Law
Commission in 2010. As Ms. Behr mentioned earlier, the
commission wants the changes to go into effect at the same time
nationwide. He said that some states passed bills, but the
commission asked them to defer the effective date to July 1,
2013. He acknowledged many more than 13 states have not yet
brought in legislation yet, but are preparing to do so. He
related his understanding that universal adoption in all 50
states will occur. In fact, there has been no opposition to the
changes.
MR. HENNING, with respect to the consumer organizations,
explained he served on the drafting committee that prepared the
Article 9 amendments and served with someone who brought the
consumer perspective to the committee [Gail Hillebrand]. She
was involved throughout the process. He related that this
member is an expert in the UCC, serves on the permanent
editorial board of the UCC, and did not find any problem with
the proposed changes. In fact, she reported back that using
driver's license name as a safe harbor would give additional
certainty to creditors and would not disadvantage someone
without a driver's license because other ways exist to show the
name would be perfectly adequate. In short, there is no
opposition from anyone, including consumer groups. The proposed
changes have happened rapidly during a three-year period;
however, he anticipated the remaining states would act promptly.
4:25:13 PM
REPRESENTATIVE REINBOLD asked whether any unintended
consequences have been reported by the 30 states that have
passed the bill.
MR. HENNING answered no; however, he cautioned that the proposed
changes will not be effective until July 1, 2013. He emphasized
that the proposed changes the UCC have been very carefully
reviewed by the Uniform Law Commissioners, by banking groups,
and by consumer groups. In fact, he is not aware of any
problems that have ever surfaced. Additionally, he reported
that he lectures nationwide to provide continuing legal
education presentations. He has presented these changes in a
number of states to groups of lawyers and he has not yet been
asked a question that leads him to believe any problem exists.
4:26:13 PM
REPRESENTATIVE REINBOLD asked for the reason for the July 1,
2013 effective date.
MR. HENNING indicated that a single effective date for all
states is important since problems can arise if some states
incorporate the changes at different times. If that were to
occur, then some states would have adopted the proposed UCC
amendments and others would not. This would create a "conflicts
of law" problem, and uncertainty could arise over which state's
laws govern the transaction. He indicated the UCC asked states
to defer the effective date until July 1, 2013 to avoid any
issues. He pointed out the proposed UCC amendments pertain to a
large scale revision of Article 9 that was dispersed in 1998 or
1999. The UCC undertook the process to adopt the large package
of changes through all states. At the time the UCC used July 1,
2001 as the deferred effective date and all fifty states
successfully adopted the changes. In conclusion, the UCC has
previously used this process to make changes so the same pattern
used then is very similar to the one being used now.
4:27:57 PM
CHAIR OLSON related that it's a common practice to use a July 1
effective date to incorporate changes that affect all states.
He explained that every year or so changes which will affect the
insurance or banking communities necessitate the whole country
must use a July 1 effective date to implement the changes.
4:28:42 PM
REPRESENTATIVE GRUENBERG referred to page 8, lines 11-18 of HB
9. He asked whether the general rule for financing statement
must include the following, which read:
(A) the individual name of the debtor;
(B) the surname and first personal name of the debtor;
or
(C) subject to (g) of this section, the name of the
individual that is indicated on an unexpired driver's
license that this state has issued to the
individual or on an unexpired identification card
issued to the individual under AS 18.65.310; ....
REPRESENTATIVE GRUENBERG then referred to page 9, lines 6-9, to
subsection (g), which read:
(g) If this state has issued to an individual more
than one driver's license, more than one
identification card under AS 18.65.310, or both an
identification card under AS 18.65.310 and a driver's
license, the driver's license or identification card
that was issued the most recently is the one to which
(a)(4)(C) of this section refers.
REPRESENTATIVE GRUENBERG asked whether his interpretation
is correct that this language is very carefully set out.
MR. HENNING answered yes. He elaborated that he would be happy
to explain more fully, but Representative Gruenberg has
correctly stated how the rules would work.
4:30:16 PM
REPRESENTATIVE REINBOLD referred to page 9, lines 24-30, of HB 9
and asked what is meant by the language "financing statement
becomes seriously misleading."
MR. HENNING answered that a couple of situations have arisen
that this language would address. For example, frequently a
loan to a decedent's estate occurs. Even though one would
imagine this to happen infrequently, it doesn't. He explained
that often times an infusion of capital is necessary to keep
businesses going during the winding down process of a business.
The name used on the financing statement is the name of the
deceased person, yet the deceased person is not the debtor in
the transaction; instead, the debtor is the estate itself.
These paragraphs indicates when the name included in a filed
financing statement for a debtor becomes insufficient, it does
not represent a name change. Briefly, the current language
spoke to a name change, but it does not accurately describe all
situations. He characterized proposed Section 20 as technical
changes as the content of the rule will remain exactly the same,
although this language is more descriptive.
4:32:26 PM
REPRESENTATIVE REINBOLD asked whether this is identical to law
in other states.
MR. HENNING answered yes; it is precisely identical to the
changes in law for the 30 states that adopted the 2010
amendments to Article 9.
4:32:48 PM
REPRESENTATIVE GRUENBERG related his understanding that the
Alaska changes are identical to the uniform act.
MS. BEHR agreed, except for stylistic changes. She indicated
she had the national headquarters review the language and it
meets the test of uniformity and would be accepted.
CHAIR OLSON advised members HB 9 is in its original form.
4:33:24 PM
LUKE FANNING, Vice-President, First National Bank, Alaska;
Alaska Bankers Association (ABA), said he is testifying on
behalf of the ABA, which represents eight state, national, and
federal savings banks in Alaska. These member banks are
responsible for 85 percent of the nonpublic commercial lending
in Alaska as well as 2,500 employees across 130 branches
statewide.
MR. FANNING stated that the ABA supports HB 9 because it
provides for necessary amendments to UCC, Article 9, which was
adopted in all 50 states. He said this legislation is necessary
to address recent changes to the articles in 2010. These
changes to Article 9 have been adopted in 30 states, as
previously discussed, and similar legislation is pending in
other states. In fact, it is important to pass the bill this
legislative session since the amendments will be effective July
1, 2013. He cautioned that if the bill is not passed this year,
Alaska will be inconsistent with the amendments adopted already
by the majority of states. In short, HB 9 is necessary to keep
UCC's Article 9 up to date in Alaska and ensure Alaska's law is
consistent with financial practices in the rest of the country.
Further, failure to pass HB 9 could result in additional cost
and uncertainty for Alaska's businesses and financial services
customers. Besides affecting creditors, which was discussed
earlier, the bill would affect other businesses and parties
trying to purchase property, particularly across state lines.
He concluded that if there is any inconsistency in the security
requirements it could hinder or otherwise hold up property sales
transfers, such as cars being purchased across state lines.
Again, these changes are not limited to creditors, but affect
people purchasing assets or trying to sell assets, regardless of
whether a bank is involved in that transaction. He thanked
members for consideration of the ABA's position on this bill.
4:35:50 PM
CHAIR OLSON asked what would happen if 45 states adopted the
Article 9 amendments, but Mr. Fanning's bank has a multi-state
relationship with a state not party to the agreement by July 1,
2013.
MR. FANNING answered that it could complicate things, in
particular, in the event of foreclosures, sales of assets, or
for private parties trying to buy or sell assets across state
lines. He said it could hinder a transaction or derail the
party's ability to obtain financing on an asset if the chain of
ownership was not clear and consistent.
4:36:34 PM
CHAIR OLSON wondered whether all fifty states can comply by July
1, 2013.
MR. FANNING deferred to Ms. Behr; however, he offered his belief
that if any perception of uncertainly exists, it could drive up
costs for banks. He further offered his belief that it could
discourage lending in a worst case scenario.
4:37:43 PM
STACY SCHUBERT, Director, Government Relations, Alaska Housing
Finance Corporation (AHFC) read prepared testimony as follows:
AHFC, through its multi-family lending department
utilizes Article 9 of the Uniform Commercial Code in
securing some of its collateral when financing multi-
family projects. The collateral, such as kitchen
appliances, furniture, equipment, and the like is
perfected due to recording of the UCC's financing
statement.
As proposed, HB 9 further enhances AHFC's, as well as
other creditors' secured positions, by providing: 1)
greater guidance as to the name of the debtor provided
on the financing statement; and 2) greater protection
for an existing secured creditor having a security
interest in an after acquired property, when debtor
moves to another state or merges with another entity.
For example, in the event AHFC forecloses on a
property and is also trying to repossess and sell the
furniture and appliances, the amendment to UCC's
[Article] 9 would protect AHFC in the event the debtor
has merged with another entity after the loan has
closed.
AHFC supports the revisions as they enhance AHFC's
ability to repossess a security. Thank you, Mr.
Chairman.
4:40:51 PM
The committee took an at-ease from 4:40 p.m. to 4:44 p.m.
CHAIR OLSON, after first determining no one else wished to
testify, closed public testimony on HB 9.
4:44:07 PM
REPRESENTATIVE REINBOLD moved to report HB 9 out of committee
with individual recommendations and the accompanying fiscal
notes. There being no objection, HB 9 was reported from the
House Labor and Commerce Standing Committee.
4:45:34 PM
ADJOURNMENT
There being no further business before the committee, the House
Labor and Commerce Standing Committee meeting was adjourned at
4:45 p.m.