Legislature(2003 - 2004)
03/12/2003 04:03 PM House L&C
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE LABOR AND COMMERCE STANDING COMMITTEE
March 12, 2003
4:03 p.m.
MEMBERS PRESENT
Representative Tom Anderson, Chair
Representative Bob Lynn, Vice Chair
Representative Nancy Dahlstrom
Representative Carl Gatto
Representative Norman Rokeberg
Representative Harry Crawford
MEMBERS ABSENT
Representative David Guttenberg
COMMITTEE CALENDAR
HOUSE BILL NO. 120
"An Act excluding service contracts from regulation as
insurance; and providing for an effective date."
- HEARD AND HELD
HOUSE BILL NO. 162
"An Act increasing the fee for a state business license; and
providing for an effective date."
- HEARD AND HELD
PREVIOUS ACTION
BILL: HB 120
SHORT TITLE:SERVICE CONTRACT SALES ARE NOT INSURANCE
SPONSOR(S): REPRESENTATIVE(S)COGHILL
Jrn-Date Jrn-Page Action
02/24/03 0286 (H) READ THE FIRST TIME -
REFERRALS
02/24/03 0286 (H) L&C
03/05/03 (H) L&C AT 3:15 PM CAPITOL 17
03/05/03 (H) Heard & Held
03/05/03 (H) MINUTE(L&C)
03/12/03 (H) L&C AT 4:00 PM CAPITOL 17
BILL: HB 162
SHORT TITLE:INCREASE BUSINESS LICENSE FEE
SPONSOR(S): RLS BY REQUEST OF THE GOVERNOR
Jrn-Date Jrn-Page Action
03/05/03 0432 (H) READ THE FIRST TIME -
REFERRALS
03/05/03 0432 (H) L&C, FIN
03/05/03 0433 (H) FN1: (CED)
03/05/03 0433 (H) GOVERNOR'S TRANSMITTAL LETTER
03/05/03 0433 (H) REFERRED TO LABOR & COMMERCE
03/12/03 (H) L&C AT 4:00 PM CAPITOL 17
WITNESS REGISTER
RYNNIEVA MOSS, Staff
to Representative Jack Coghill
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Answered questions about proposed
amendments to HB 120 on behalf of the sponsor.
STAN RIDGEWAY, Deputy Director
Division of Insurance
Department of Community and Economic Development
Juneau, Alaska
POSITION STATEMENT: Answered questions on HB 120 about how the
Division of Insurance licenses sellers of insurance and collects
premium taxes.
EDGAR BLATCHFORD, Commissioner
Department of Community and Economic Development
Anchorage, Alaska
POSITION STATEMENT: Presented HB 162 on behalf of the
administration.
RONALD JORDAN, Small Business Owner
Anchorage, Alaska
POSITION STATEMENT: Testified on HB 162, suggesting a graduated
fee based on the number of employees in the business.
DAVE JANKA, Owner/operator
Auklet Charter Services
Cordova, Alaska
POSITION STATEMENT: Testified in opposition to HB 162, but
spoke in favor of graduated fees such as those used by other
organizations and agencies.
RICK URION, Director
Division of Occupational Licensing
Department of Community & Economic Development
Juneau, Alaska
POSITION STATEMENT: Answered questions on HB 162 and provided
statistics about business licenses.
MIKE WINDRED, Director of Operations
Alaska Travel Adventures, Inc.
Juneau, Alaska
POSITION STATEMENT: Spoke in favor of HB 162 and urged the
committee to keep the criteria for the business license fee
simple in order to keep the fiscal note low.
KEITH MONTGOMERY, Owner
Montgomery Construction
Juneau, Alaska
POSITION STATEMENT: Opposed the large increase in business
license fees in HB 162, explaining how difficult it is for the
family's two small businesses to afford the $800 biennial cost
of two licenses.
ACTION NARRATIVE
TAPE 03-20, SIDE A
Number 0001
CHAIR TOM ANDERSON called the House Labor and Commerce Standing
Committee meeting to order at 4:03 p.m. Representatives
Anderson, Lynn, Dahlstrom, Rokeberg, and Crawford were present
at the call to order. Representative Gatto arrived as the
meeting was in progress.
HB 120-SERVICE CONTRACT SALES ARE NOT INSURANCE
Number 0041
CHAIR ANDERSON announced that the first order of business would
be HOUSE BILL NO. 120, "An Act excluding service contracts from
regulation as insurance; and providing for an effective date."
Number 0054
RYNNIEVA MOSS, Staff to Representative Jack Coghill, Alaska
State Legislature, sponsor of HB 120, explained that this bill
was held over from the March 5 meeting because of concerns
expressed by Representatives Rokeberg, Lynn, and Senator Ralph
Seekins [about businesses selling home warranties and auto
service contracts without an insurance license]. Representative
Rokeberg's suggested revision was sent to the bill drafter Mike
Ford, Legislative Legal and Research Services. Ms. Moss relayed
Mr. Ford's opinion that the language in [Version 23-LS0537\D]
removed those types of service contracts from insurance
regulation and that additional changes were unnecessary. She
distributed a proposed amendment by the Division of Insurance,
Department of Community and Economic Development, which set a
maximum value on the purchase price of items whose service
contracts would be exempted from the insurance code. She said
the concerns of the Division of Insurance might best be
addressed in separate legislation. Ms. Moss said Representative
Coghill wants to pass a bill that legalizes the activities of
many honest businessmen.
Number 0181
REPRESENTATIVE ROKEBERG summarized the testimony from last
week's meeting. He said that there are special provisions for
automobile service contracts in current law. Home warranties
that are sold by realtors and homebuilders fall under the
purview of the insurance law. He asked if that was Ms. Moss's
understanding of the current law.
MS. MOSS replied that Mr. Ford said that the use of the word
"property' in [Version D] of the bill would probably cover those
concerns [by removing home warranties and auto service contracts
from oversight by the Division of Insurance].
REPRESENTATIVE ROKEBERG asked to make clear for the record that
automobiles and home warranties would be excluded from the
purview of insurance under HB 120.
MS. MOSS replied that Mr. Ford had said yes, they would be
excluded.
Number 0266
REPRESENTATIVE LYNN questioned what had changed since the last
hearing in which the committee was told that realtors who sold
home warranties were violating the insurance law.
MS. MOSS replied that the bill drafter and the administration
interpret the current law differently.
REPRESENTATIVE LYNN asked which agency is going to interpret the
law if he sells someone a home warranty.
MS. MOSS said that is one reason for this legislation;
Representative Coghill does not want the law interpreted on a
case-by-case basis. She said he believes that service contracts
should be excluded from the insurance title.
Number 0326
REPRESENTATIVE ROKEBERG suggested getting a letter from Mr. Ford
that states that the sellers of auto service contracts and home
warranties are covered by this bill and thereby exempt from the
insurance statute. He added that Mr. Ford should be asked
whether any amendments to HB 120 are necessary.
Number 0365
STAN RIDGEWAY, Deputy Director, Division of Insurance,
Department of Community and Economic Development, addressed the
questions raised by Representatives Rokeberg and Lynn. He
agreed that HB 120 does exempt homeowner warranties and
automobile service contracts. He said when he testified last
week, he made a misstatement when he said the division does not
regulate service contracts at this time. He explained that he
should have said that the division does not regulate the aspect
of a service contract that requires someone to have a license.
This is because the only way the division knows if someone is
selling insurance without a license is when a customer files a
complaint against the seller. He said that most of the auto and
homeowner contracts sold are above board.
Number 0455
MR. RIDGEWAY explained that the division has rate and form
filings from all the companies that sell home owner warranties
and auto contracts; they all pay premium taxes to the State of
Alaska. Some 24 insurance companies sell home owner warranties
(which are listed as "other than auto type" warranties), and
another 34 insurance companies sell mechanical breakdown
insurance, for example, covering problems with home heating
systems. The division lists 45 companies that sell vehicle
service contracts, and 17 companies sell contracts specifically
related to autos. He said that's 62 insurance companies (with
some duplication between the two lists) that pay premium tax on
auto-related products. He said if these products were exempted
from the insurance code, HB 120 would have a significant
financial impact because the Division of Insurance would lose
these premium taxes. Mr. Ridgeway said he also researched
automobile companies that have licenses to sell automobile
insurance, a type of credit insurance. He has a 10-page list of
new and used auto dealers that have filed for insurance licenses
to sell credit and/or property insurance. He said some of those
auto dealers have an appropriate license and some do not.
Number 0584
MR. RIDGEWAY explained that after the legislature passed the
Omnibus Insurance Bill last year, the division changed the
licensing process and added a limited lines license that covers
credit insurance. He suggested that the division add a new
limited lines license that would cover service warranties,
assuring that these were regulated by the state. This would
allow people selling service contracts to register for a small
fee.
Number 0610
MR. RIDGEWAY described the division's proposed amendment to HB
120, which read:
(e) This title does not apply to a service contract
offered, issued for delivery, delivered, or renewed in
this state where the tangible property has a purchase
price of $8,000.00 or less, exclusive of sales tax.
In this subsection, "tangible property" means
household consumer goods; "service contract" means a
contract or agreement to provide for the repair,
replacement, or maintenance of property over a
definite period of time in exchange for a fixed amount
of money.
MR. RIDGEWAY explained that the division's proposed amendment
would classify tangible property that has a purchase price of
$8,000 or less, exclusive of sales tax, and would define it as
household consumer goods. This amendment would exempt service
contracts on household consumer goods but would leave service
contracts for homes, autos, ambulance services, and many other
products currently interpreted as insurance under the Division
of Insurance.
Number 0669
REPRESENTATIVE LYNN asked Mr. Ridgeway about a realtor's
liability for a customer's complaint about a home warranty.
MR. RIDGEWAY replied that normally the dispute is between the
company settling the claim and the customer, not necessarily the
seller of the insurance. Under the current law, a realtor
should have a license to sell that product; under HB 120, a
realtor would be exempt from having to have a license to sell a
home warranty.
Number 0766
MR. RIDGEWAY, answering a question from Chair Anderson, said the
department prepared an indeterminate fiscal note with the hope
that the committee would accept the division's amendment. If it
is not accepted, the department would have to research the cost
of the legislation. The resulting fiscal note would be an
estimate because companies combine their insurance products to
calculate their premium taxes.
REPRESENTATIVE ROKEBERG commented that Mr. Ridgeway has
identified automobile businesses that are covered under AS
45.25.620 [Service contracts] as having to file with the
Division of Insurance.
MR. RIDGEWAY replied that according to the department's
assistant attorney general, AS 45.25.620 requires a disclosure
document if the business sells automobile service contracts. He
said the statute does not exempt service contracts from the
insurance code.
REPRESENTATIVE ROKEBERG clarified that he was saying that it
sounds as if most automobile companies are complying with the
division's regulations.
Number 0872
MR. RIDGEWAY replied that 90 percent of those businesses have a
license to sell credit insurance, and a few have a license to
sell property insurance. He said in that sense, the businesses
are not complying with the insurance law when they sell service
contracts.
REPRESENTATIVE ROKEBERG asked the difference between credit
insurance and property insurance as they relate to service
contracts.
MR. RIDGEWAY replied that credit insurance covers a loss if a
person dies while they have and are paying a contract; it is a
hybrid type of life insurance. He added that service contracts
fall under the property and casualty insurance. He confirmed
that credit insurance would not be affected by HB 120.
Number 0929
MR. RIDGEWAY, upon questioning by Representative Rokeberg,
explained that a few automobile dealers have licenses to sell
service contracts.
REPRESENTATIVE ROKEBERG asked why there would be a large fiscal
note if most of the companies referred to earlier sell credit
insurance and their payment of fees would not be affected by
this bill.
MR. RIDGEWAY replied that the fiscal note would be tied to
exempting service contracts from the insurance code. The
insurance companies that pay premium taxes - a percentage on the
gross premiums sold in the state - would no longer have to pay
those premium taxes. So the impact would be the loss of
thousands and thousands of dollars.
Number 1003
REPRESENTATIVE ROKEBERG replied that the committee would like to
know the amount of that loss. He asked if there's only a few
firms selling property insurance now, if they're registered and
paying premium taxes, then how much premium tax would the
division lose? Many firms aren't registered with the division
[and therefore are not paying premium taxes].
Number 1019
MR. RIDGEWAY explained that there are two kinds of taxes:
premium taxes and licensing fees. The people who sell the
product for the auto dealers have to have a license; to get a
license, they pay a fee. The insurance company that files forms
with the division to sell products in Alaska pays the premium
tax, not the auto dealer who sells the insurance policy. The
insurance company pays a flat percentage on gross sales. For
example, the individual State Farm insurance agent who sells a
customer an auto policy does not pay premium taxes; State Farm
pays those taxes.
REPRESENTATIVE ROKEBERG said Mr. Ridgeway testified that there
are very few people who are covered by this bill who are
registered with the department. Why is the division going to
lose a lot of premium tax?
Number 1079
MR. RIDGEWAY explained that if service contracts are exempted,
the insurance companies servicing them will no longer pay
premium taxes. Every insurance company that files to sell a
product in the state is paying the premium tax; the agent and
the auto salesperson do not pay the premium tax. For every
automobile service contract or home warranty that is sold, the
division receives a premium tax. Even though the person selling
the contract might not have a license to sell it, the division
gets the premium tax on the contract.
REPRESENTATIVE ROKEBERG repeated Mr. Ridgeway's testimony that
the insurance company paying the premium tax is registered with
the department. He asked why the division would have difficulty
identifying the amount of lost premiums. He asked whether it is
because the companies sell multiple products, making it hard to
determine which line would be affected.
Number 1135
MR. RIDGEWAY used State Farm to illustrate the difficulty in
separating out [lost premium taxes on service contracts.] He
said State Farm might sell service contract policies; the
company also sells auto policies. When State Farm pays its
premium taxes, the amount is calculated on gross premiums times
3 percent. If the companies broke those products out, a simple
computer run could determine the amount of lost premiums. As it
is, the division will have to estimate the premiums currently
paid on service contracts.
REPRESENTATIVE ROKEBERG asked about using the division's
proposed amendment but leaving the auto service contracts intact
and including home warranties in the bill. He asked if Mr.
Ridgeway knew the dollar amount represented by the home warranty
policies.
Number 1193
MR. RIDGEWAY responded that he did not know the dollar amount of
[home warranty premiums paid], but he said he does have
information on the number of companies - roughly 60 - that have
filed to sell those products and how many the division has
approved. Some 34 companies sell contracts for mechanical
breakdowns [on homes], and 24 companies sell contracts for
insurance other than auto, which is home warranties. He
confirmed that a mechanical breakdown could include an item such
as a boiler.
MR. RIDGEWAY said the division wants to preserve the premium tax
because it is the third or fourth largest revenue producer for
the state. He said the committee's concern about licensing real
estate agents and automobile salesman is a issue separate from
the state receiving the premium tax. With this proposed
legislation, the state exempts all of those companies from a
premium tax.
Number 1293
REPRESENTATIVE ROKEBERG explored the solution of specifically
exempting businesses from getting an insurance license to sell
home warranties. He asked if that would avoid the loss of the
premium tax.
MR. RIDGEWAY said that is correct.
REPRESENTATIVE ROKEBERG suggested exempting automobile dealers
from the requirement to get a license to sell auto policies and
asked Mr. Ridgeway's opinion.
MR. RIDGEWAY confirmed that [automobile dealers] would be
excluded from a licensing fee but the insurance companies would
still pay the premium tax.
REPRESENTATIVE ROKEBERG asked why the division's proposed
amendment included the figure of "$8,000.00 or less".
Number 1356
MR. RIDGEWAY explained that the amendment was directed at
consumer products. He said his understanding of the intent of
the bill was to exempt products like TVs, home appliances, and
hot tubs from the insurance code. A lot of retail dealers sell
service contracts with their products. He said the bill is very
broad as written, and the division was not sure whether the
sponsor and the committee understood how broad it was.
REPRESENTATIVE CRAWFORD asked Representative Rokeberg if he
objects to the division's proposed amendment. He said it gives
the division quite a bit of leeway on service contracts, with
the $8,000 ceiling.
REPRESENTATIVE ROKEBERG suggested he address the question to the
sponsor of the bill.
Number 1458
CHAIR ANDERSON turned the gavel over to Vice Chair Lynn.
MS. MOSS said there is a philosophical difference here about
service contracts versus credit insurance. She said credit
insurance is clearly an insurance; it's insuring a risk that
somebody's going to die and the person is going to leave the
family with the debt of a new vehicle, for example. A service
contract, however, is tied directly to property; an auto is
property, a house is property. Putting a value limit of $8,000
would probably exclude some home heating systems in Alaska, most
cars in decent running condition, and vacuum systems in a new
home. If the bill is amended with a dollar amount, she said
$8,000 is pretty low. And the $8,000 figure would tie many
service contracts back into the insurance provisions.
Number 1546
REPRESENTATIVE CRAWFORD asked whether it was the sponsor's
intention to exempt these insurance companies from paying their
premium tax.
MS. MOSS replied no, she is not convinced that's going to
happen. She said that there's very few auto sales companies in
the state that realize that they're supposed to be licensed.
She said she doesn't think the revenue lost is going to be that
significant. She also said the Division of Insurance is
spending a lot of manpower deciding, case by case, whether
somebody is supposed to have an insurance license to be selling
service contracts. She estimated that [the benefit of]
relieving staff from making piece-meal decisions would outweigh
any loss of premium tax revenue incurred.
Number 1591
REPRESENTATIVE CRAWFORD asked whether the sponsor favors changes
in HB 120 that would exempt these businesses from licensure but
would require the insurance companies to continue paying their
premium taxes.
MS. MOSS replied that the sponsor has not discussed this
possibility with the bill drafter, but he could do so. She said
this bill excludes the premium tax on service contracts, which
the division has admitted is insignificant at this point.
Number 1647
REPRESENTATIVE ROKEBERG commented that too many amendments might
trigger a fiscal note, which could be a good way of getting the
lost premium tax figure from the Division of Insurance. He
pondered using the division's suggested amendment but modifying
the purchase price to a figure that meets the sponsor's
approval. He considered further amending the bill to exclude
home warranty sales, which would force the department to
determine the true amount of the premium tax loss. He also
mentioned excluding automobile companies from the provisions of
the bill. He asked Ms. Moss if that's a good approach -
triggering a fiscal note and moving the bill on to the House
finance committee.
Number 1709
MS. MOSS replied that she thinks that approach would work. She
noted that Representative Coghill had discussed a dollar amount
of $20,000, not $8,000, with the Division of Insurance. She
cautioned that $20,000 limit might buy a decent used car, but
there are very few new cars that can be bought for $20,000. She
said $8,000 is too low a figure.
REPRESENTATIVE ROKEBERG asked Ms. Moss how the sponsor would
feel about the committee adding amendments that excluded home
warranties and the automobile companies, thereby triggering a
fiscal note.
MS. MOSS said Representative Rokeberg has a legitimate
suggestion to get the bill to the House finance committee so
this issue can be resolved. She said she does not think its
going to attract a big fiscal note, but Representative Coghill
would be willing to amend it with a larger purchase price than
$8,000 and send it to finance committee to have a discussion on
the fiscal impact.
Number 1744
MS. MOSS, in reply to a question from Vice Chair Lynn, said that
if a bill triggers a fiscal note, when it is read across the
floor, it would be referred to the finance committee where a
hearing would be scheduled.
REPRESENTATIVE ROKEBERG suggested using the Division of
Insurance's amendment but replacing the $8,000 with $20,000.
REPRESENTATIVE CRAWFORD pointed out that the $8,000 amount
served the purpose of limiting the bill to service contracts
that cover consumer goods; he said he didn't think that the bill
was intended to include automobiles and other high figure items.
MS. MOSS said HB 120 is intended to separate service contracts
on property from insurance; the sponsor views them as two
different things, regardless of the value of the property. She
said Representative Coghill is compromising because he perceives
a policy on an automobile to be a service contract on a piece of
property, regardless of whether the property costs $20,000 or
$50,000. With a service contract, there is no real risk tied to
a financial disaster; something on the piece of property becomes
dysfunctional for some reason and the seller of the service
contract agrees to replace it or repair it.
Number 1850
REPRESENTATIVE ROKEBERG moved to adopt Conceptual Amendment 1,
which read,
Page 1, line 6, after "state"
Insert "where the tangible property has a purchase
price of $20,000 or less, exclusive of sales tax. In
this subsection, 'tangible property' means household
consumer goods."
There being no objection, it was so ordered.
Number 1866
REPRESENTATIVE ROKEBERG moved Conceptual Amendment 2, which
read,
Page 1, line 5, after "service contract"
Insert: ", or home warranties"
REPRESENTATIVE ROKEBERG explained the purpose of the amendment
was to exclude the sale of home warranties from the purview of
the Department of Community and Economic Development. He said
according to Mr. Ridgeway's testimony, such an amendment would
require the department to describe any cuts to premium taxes,
thereby tripping a fiscal note which would require a referral to
the House finance committee.
Number 1930
CHAIR LYNN asked whether there was any objection to adopting
Conceptual Amendment 2. There being none, it was so ordered.
REPRESENTATIVE ROKEBERG discussed another possible amendment
that would exclude motor vehicle sales activity from the bill,
leaving it under the purview of the division.
MS. MOSS replied that she couldn't answer for Representative
Coghill because it was a new concept. She added that the Senate
intends to exempt motor vehicle [service contracts from
insurance regulation].
REPRESENTATIVE ROKEBERG said in his proposed third conceptual
amendment, the motor vehicle activities would be exempt from the
provisions of HB 120. He said he doesn't intend to delete
subsection (e) but wants to add a new subsection (f).
Number 2029
MS. MOSS proposed revising the language drafted by the Division
of Insurance. On line [5], a period would be placed after the
words "means household consumer goods". She suggested adding
the words "In this subsection, 'service contract' means" and
then continue with the rest of the language in HB 120's
subsection (e). She repeated her wording at the request of Vice
Chair Lynn and Representative Rokeberg. She explained that all
the language in HB 120 would consist of subsection (e).
Number 2105
REPRESENTATIVE ROKEBERG moved to adopt Conceptual Amendment 3,
as follows:
Page 1, line 8, after "money."
Add: "Motor vehicle sales and activities are excluded
from this subsection."
MS. MOSS asked for clarification. She said that if motor
vehicle activities and sales are excluded from subsection (e) of
the bill, that puts them back within Title 21, Insurance.
REPRESENTATIVE ROKEBERG confirmed that's what the committee
wants to do because that's the status quo.
MS. MOSS said that the language leaving motor vehicle service
contracts out of the bill would probably be amended in the
Senate. She said if the committee excludes motor vehicle
contracts, then they would remain under the regulation of
insurance statutes. She said it's a matter of opinion [about
whether motor vehicle service contracts are regulated by the
Division of Insurance], and it's part of the reason for this
legislation.
Number 2185
REPRESENTATIVE ROKEBERG said he still wanted to exclude the
motor vehicle sales from this legislation.
MS. MOSS asked for clarification about whether Representative
Rokeberg would exclude motor vehicles over the value of $20,000.
REPRESENTATIVE ROKEBERG said the intention of Conceptual
Amendment 3 is to maintain the current status [with motor
vehicle sales of any amount] so there is oversight by the
Division of Insurance, with the hopes of diminishing the size of
the fiscal note. He said motor vehicles appear to be the
largest area of premium tax impact. He suggested that
automobile dealers would like to maintain the status quo.
Number 2222
REPRESENTATIVE DAHLSTROM asked for clarification on where home
warranties fall [in terms of regulation and consumer
protection].
MS. MOSS said that a list of statutes that cover state contract
law was included in the bill packet last week.
Number 2240
REPRESENTATIVE GATTO said he was too confused to vote on this
amendment. He suggested that the amendment or the bill be
rewritten so that the language is clearer.
MS. MOSS suggested that the committee adopt Conceptual Amendment
3 and then hear the committee's next bill. Staff could write up
the three conceptual amendments so the committee could see
[later this afternoon] the bill's exact language.
Number 2290
VICE CHAIR LYNN, asked if there were any objections to adopting
Conceptual Amendment 3. There being no objection, it was so
ordered.
REPRESENTATIVE ROKEBERG clarified that Conceptual Amendment 3
excluded vehicle sales from subsection (e), maintaining the
status quo, continuing oversight by the Division of Insurance.
Conceptual Amendment 2 excluded home warranties [from oversight
by the Division of Insurance]. Conceptual Amendment 1 excluded
any service contracts up to $20,000.
REPRESENTATIVE GATTO said this bill needs to be read and
understood by ordinary people. He said his concern is that
people will read these exclusions and violate the law
unknowingly or get around the law deliberately.
Number 2341
VICE CHAIR LYNN ordered HB 120 held over until the committee
could see the rewritten paragraph.
REPRESENTATIVE CRAWFORD confirmed that Conceptual Amendment 3
passed without objection.
HB 162-INCREASE BUSINESS LICENSE FEE
Number 2374
VICE CHAIR LYNN announced that the final order of business would
be HOUSE BILL NO. 162, "An Act increasing the fee for a state
business license; and providing for an effective date."
TAPE 03-20, SIDE B
Number 2388
EDGAR BLATCHFORD, Commissioner, Department of Community and
Economic Development, presented HB 162 on behalf of the
governor. He explained that HB 162 represents an effort to
balance the budget. The legislation increases the business
license fee from $25 to $200 per year; the fee is collected on a
biennial basis. He acknowledged that this is an increase, but
the cost of a business license has remained the same since 1949.
He reviewed Alaska's growth in population since 1940, when the
population in the Territory of Alaska was 75,000; in 1950, the
population was 138,000, a large percentage of that number being
military personnel. By the first full year after statehood, in
1960, the population was 230,000. A business license that cost
$25 in 1950, adjusted for inflation, would cost $188 in 2003.
COMMISSIONER BLATCHFORD said that with this increase, there
would be an estimated $8.5 million of additional revenue for
FY 04. This would provide general fund revenues for a variety
of state services, including public safety, road maintenance,
and education. He said the department provides technical
support to small, medium, and large businesses, technical
assistance in international trade, and assistance to businesses
exporting Alaska products. The department also provides
important Alaska economic information. He testified that the
proposed fee is a very important piece of the Governor's plan to
bring Alaska's house in order while growing the overall economy.
He urged the committee to support HB 162.
Number 2264
REPRESENTATIVE ROKEBERG asked Commissioner Blatchford if he
would support changing the word "fee" to "tax" in the bill.
COMMISSIONER BLATCHFORD said no.
REPRESENTATIVE ROKEBERG asked about the past controversy of
Alaskan businesses having to send their business license fees to
an address outside Alaska. He asked if collections could be
done within the state.
COMMISSIONER BLATCHFORD said he didn't know about the
controversy but said he would respond in detail before tomorrow.
Number 2170
RONALD JORDAN, Small Business Owner, described himself as an
Anchorage resident for the past 30 years. He testified on HB
162, agreeing that the current fee for a business licenses is
too low; he said wouldn't object to an increase. He said he
faxed a proposal to Representative Rokeberg to stair-step the
license fees by the number of employees in the business. In
Washington state, for example, a state business license costs
$15, but cities such as Leavenworth have their own business
license fees. He said that if the increase remains as proposed
in HB 162, the $400 up-front biennial fee will stifle the start-
up of many small enterprises. He proposed instead a $100 fee
for [a new business in] the first year. The State of Alaska can
access the number of employees by checking the business's
Quarterly Contribution Reports filed [with the Department of
Labor & Workforce Development].
Number 2111
REPRESENTATIVE ROKEBERG noted that there's an amendment from
Chair Anderson with a step-up fee based on the number of
employees in the business. Representative Rokeberg noted that
he had prepared a possible amendment with step increases
starting at $25 a year with gross receipts less than $25,000,
ranging up to $200 for businesses with gross receipts $200,000
or more.
Number 2031
REPRESENTATIVE ROKEBERG noted that Mr. Jordan has started a
number of successful businesses in Anchorage. He asked if a
small business with few employees and small gross receipts would
be discouraged from even starting a business.
MR. JORDAN replied that the bigger entities like BP or Alaska
Airlines have a bigger business base [and can afford a higher
fee]. Alaska is made up of a lot of small businesses, and for a
person just starting up, when the first year or two is really
tight, $200 to $300 can make all the difference.
Number 1917
REPRESENTATIVE ROKEBERG asked Commissioner Blatchford whether he
had considered a graduated tax scheme. He also asked him to
speak to the concern about small businesses not getting a
license because the cost is too high.
COMMISSIONER BLATCHFORD said the $400 biennial fee appears to be
a healthy increase from the $25 annual fee. He said that his
staff will look at a graduated tax if the committee requests it.
COMMISSIONER BLATCHFORD, in response to a question by
Representative Lynn, said the administration looked at the most
agreeable fee that would be easily applied in an equitable
fashion. He said that raising the fee from $25 to $200 seemed
like a logical step.
Number 1842
REPRESENTATIVE ROKEBERG reiterated that the committee is
considering two possible amendments [using a graduated fee]. He
asked the commissioner about the ease of verifying either the
number of employees or gross receipts for a business.
COMMISSIONER BLATCHFORD said he would check with staff and
respond to the committee by tomorrow afternoon; he could then
tell the committee how much information he would have available
and how complete it would be.
Number 1770
DAVE JANKA, Owner/operator, Auklet Charter Services, testified
that he does not support HB 162 as presently written. He does
support a graduated system of fees. He said the $175 annual
increase will make a big difference for an owner-operated
business that is seasonal with a part-time employee. All these
fees -- the city business license, the Fish and Game
registration -- add up for a small business. He described how
the fees for the Alaska Travel Industry Association membership
and the Department of Fish and Game vessel license are
calculated on a graduated basis. He agreed that the business
license fee is really a tax. He said that when he receives his
business license he would like information that shows what
services he gets when he pays his fee. For the small
owner/operator, one to five employees, he suggested a $30 fee.
A business with 200 or 300 employees should be paying $500 to
$700.
Number 1647
REPRESENTATIVE ROKEBERG asked Mr. Janka if he thought that
people wouldn't get a license if the fee were too high. Would
it be better to have a lower initial rate for a start-up
business?
MR. JANKA recalled his past experience starting a part-time
photography business, for which he bought the state and city
business licenses. If the fee had been $200, he would have
taken pictures and accepted cash without paying for a business
license. He estimated that many people would do that.
Number 1591
REPRESENTATIVE GUTTENBERG asked Mr. Janka the difference between
a tax and a fee.
MR. JANKA said a tax goes into the general fund for operation of
state services; a fee pays for the delivery of a [specific]
service.
Number 1547
RICK URION, Director, Division of Occupational Licensing,
Department of Community & Economic Development, addressed the
question about whether it would be easier to base a graduated
license fee on gross sales or the number of employees. He said
the number of employees was the far easiest method because every
employer in the state is required to file a Quarterly
Contribution Report with the Department of Labor & Workforce
Development. He said those numbers are available.
Number 1496
REPRESENTATIVE ROKEBERG agreed that it's best to keep the
[criteria] simple; he noted that a business's gross and net
income depends on its accountant. He asked Mr. Urion if the
[Division of Occupational Licensing] collects the business
license fee and if he was asked to research the increased
business license fee before the legislation was drafted.
MR. URION explained that he was not asked in advance to do
research but since the bill has been introduced, he has
researched different variables.
REPRESENTATIVE ROKEBERG asked Mr. Urion's opinion about whether
a graduated scale would generate more income if it were more
affordable for entry-level businesses.
MR. URION said he can only speculate about how many people would
not buy the $200 licenses. He said it's also speculation as to
how many people today don't buy the $25 business license.
REPRESENTATIVE ROKEBERG suggested that this question could be
answered using economic analysis. He posited that the state
would collect more income from the lower stratum of economic
activity if the fee were reasonable.
Number 1362
VICE CHAIR LYNN asked how many businesses might drop out on the
top end of a graduated scale.
MR. URION said he learned from the Department of Labor &
Workforce Development that about 65,773 licenses, or 90 percent,
are for businesses with 0 to 4 employees. About 8 percent of
licensed businesses employ 5 to 19 workers; and 2 percent, or
15,062 employers, have 20 or more employees. He estimated that
no large employers would drop out because of a $200 fee.
Number 1273
REPRESENTATIVE DAHLSTROM moved to adopt Amendment A.1 [23-
GH1102\A.1, Bannister, 3/12/03], which reads:
Page 1, lines 4 - 5:
Delete all material and insert:
"* Section. 1. AS 43.70.030(a) is amended to read:
(a) The license fee for each business [IS $25]
per year is
(1) $50 if the business had not more than
five employees at any time during the preceding
calendar year;
(2) $100 if the business had at least six
but not more than 25 employees at any time during the
preceding calendar year;
(3) $200 if the business had more than 25
employees at any time during the preceding calendar
year."
VICE CHAIR LYNN described the amendment.
Number 1238
REPRESENTATIVE ROKEBERG objected for purposes of discussion. He
said he approved of this approach but was shocked to learn that
90 percent of the businesses in the state have 0 to 4 employees.
He suggested that for large corporations with only one employee
in Alaska, the license fee should be based on a combination of
employees and gross receipts. Most small businesses, with 0-1
employee would be on the low end; the next step up would be 2
employees. He favors the approach using the employee count
because it's readily available. He suggested that the committee
could adopt the proposed Amendment A.1, then put the bill aside
and ask the department to do its research.
Number 1133
REPRESENTATIVE GUTTENBERG asked what kind of a business has zero
employees.
REPRESENTATIVE ROKEBERG reiterated how a large corporation with
zero employees could do millions of dollars of business in the
state; he asked whether the legislature wants to exempt this
type of business from a higher business license fee. He
cautioned that if legislators created a graduated fee structure,
they still need to raise $8.5 million in revenue. For the 90
percent of the business licenses, there clearly has to be some
kind of an increase to meet the governor's goal of $8.5 million
in new revenue. Small business is the backbone of the state, he
said.
VICE CHAIR LYNN asked Representative Rokeberg if he withdraws
his objection for purposes of adopting the amendment.
Number 1055
REPRESENTATIVE ROKEBERG moved to amend proposed Amendment A.1 to
change the "five employees" on line 5 to "two employees". He
then immediately withdrew his proposed amendment to Amendment
A.1.
REPRESENTATIVE ROKEBERG withdrew his objection to adoption of
Amendment A.1 and proposed that HB 162 be held over for the
administration to use a graduated scale.
Number 0980
VICE CHAIR LYNN asked if there were any objections to adoption
of Amendment A.1. There being no objection, it was so ordered.
VICE CHAIR LYNN said HB 162 will be held over.
REPRESENTATIVE ROKEBERG said it's important for the committee to
give the administration direction on how to revise HB 162. He
asked Mr. Urion to give members copies of his report showing
breakouts of business licenses by the number of employees. He
said there are two ways to [raise the revenue]: try to [retain
a single fee amount] or reduce the fee amount [according] to a
schedule that makes sense. The committee needs to tie its
decision to some data and may need to make some distinctions
between small businesses with 0-1 person and businesses with 2
or 3 employees. He said his own business employs 20 people but
grosses less than $1 million; he couldn't afford an $800 a year
business license in order to help raise the [governor's $8.5
million goal]. On the other hand, he added, if a business's
gross receipts exceeded $10 million, that business would be at
the high end [of the graduated scale].
Number 0872
MR. URION said his division would be happy to provide any
research the committee would like. He said his supervisors
confirmed that they were not wedded to HB 162 as it is currently
written.
Number 0837
MIKE WINDRED, Director of Operations, Alaska Travel Adventures,
noted that his company has five business licenses. He spoke in
favor of HB 162 and said he favored the simplicity of the bill.
If the system becomes complicated - whether its gross receipts
or the number of employees - the bill will require a larger
fiscal note. Now, everybody pays the same amount for a business
license and its very easy for the state to administer. He
researched what other states do and noted that most states have
an application fee, for example, the State of Washington charges
$15. But in Washington state, the actual business license
varies according to the type of business: $30 for an egg
handler and $700 for a cabaret in Bellevue. Alaska's system is
simple and straightforward and he urged the committee to keep it
so. He said his company is a member of the Alaska Travel
Industry Association, in which 95 percent of the businesses have
fewer than 5 employees. He calculated that because 90 percent
of businesses in Alaska are small businesses, if the $200 fee
were cut in half [because of businesses refusing to renew their
licenses], the state would lose $3.6 million in revenue. To
make up the lost $3.6 million off [the remaining] 7,500 business
licenses, the state would have to charge a very large fee. He
urged the committee not to put too big a burden on any one group
of businesses.
Number 0702
KEITH MONTGOMERY, Owner, Montgomery Construction, a business
license to do small jobs, got a handy man's contractor's
license, and paid $1,000 for a bond. His wife has a business
license to do childcare for one child. Both businesses are sole
proprietorships. He called HB 162 the labor tax because it
taxes working people, one big shot at a time. He said he might
work under the table if HB 162 passed, but he wants to be a
responsible citizen and to pay his own way. He would be willing
to pay an increased fee, but $200 a year each is too much for he
and his wife. He said he's also taking classes towards an
occupational health and safety certification wants to get a
license for that work. He suggested a fee of $50 for businesses
with 0 to 2 people. He said he wants to be able to accept work
and to give his customers invoices and receipts for their tax
purposes.
MR. MONTGOMERY responded to a question from Representative
Rokeberg about whether he works another job. He explained that
he is a skilled carpenter and completed a four-year
apprenticeship; he works for a contractor. He earns $10,000 a
year or less through his handy-man license. He said [his
construction business] helps feed four future voters of Alaska.
Number 0424
REPRESENTATIVE ROKEBERG asked Mr. Montgomery how his family
would handle buying two business licenses at once for $800.
MR. MONTGOMERY agreed that the $800 would be a big hit and might
cause him to take his work "underground." He said he loves
woodworking and would continue to do it. He said that the [$200
annual] cost is very steep for [small businesses] that want to
do the right thing.
Number 0318
VICE CHAIR LYNN said today's testimony on HB 162 was a good
example of how citizens can help the committee do its work.
There being no other witnesses, he closed public testimony for
the day. He announced again that HB 162 would be held over.
ADJOURNMENT
There being no further business before the committee, the House
Labor and Commerce Standing Committee meeting was adjourned at
5:35 p.m.
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