Legislature(2003 - 2004)

01/28/2004 07:00 AM House W&M

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                    ALASKA STATE LEGISLATURE                                                                                  
           HOUSE SPECIAL COMMITTEE ON WAYS AND MEANS                                                                          
                        January 28, 2004                                                                                        
                           7:00 a.m.                                                                                            
MEMBERS PRESENT                                                                                                               
Representative Mike Hawker, Chair                                                                                               
Representative Vic Kohring                                                                                                      
Representative Dan Ogg                                                                                                          
Representative Norman Rokeberg                                                                                                  
Representative Ralph Samuels                                                                                                    
Representative Peggy Wilson                                                                                                     
Representative Max Gruenberg                                                                                                    
Representative Carl Moses                                                                                                       
MEMBERS ABSENT                                                                                                                
Representative Bruce Weyhrauch, Vice Chair                                                                                      
COMMITTEE CALENDAR                                                                                                            
HOUSE BILL NO. 236                                                                                                              
"An Act imposing a tax on employment; and providing for an                                                                      
effective date."                                                                                                                
     - HEARD AND HELD                                                                                                           
PREVIOUS COMMITTEE ACTION                                                                                                     
BILL: HB 236                                                                                                                  
SHORT TITLE: EMPLOYMENT TAX FOR EDUCATION                                                                                       
SPONSOR(S): REPRESENTATIVE(S) WILSON                                                                                            
04/02/03       (H)       READ THE FIRST TIME - REFERRALS                                                                        
04/02/03       (H)       W&M, FIN                                                                                               
04/10/03       (H)       W&M AT 7:00 AM HOUSE FINANCE 519                                                                       
04/10/03       (H)       -- Meeting Canceled --                                                                                 
04/16/03       (H)       W&M AT 7:00 AM HOUSE FINANCE 519                                                                       
04/16/03       (H)       Heard & Held/Subcommittee assigned                                                                     
04/16/03       (H)       MINUTE(W&M)                                                                                            
01/28/04       (H)       W&M AT 7:00 AM HOUSE FINANCE 519                                                                       
WITNESS REGISTER                                                                                                              
DON RULIEN                                                                                                                      
Alaska Society of Certified Public Accountants                                                                                  
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Answered questions about HB 236.                                                                           
STEVEN PORTER, Deputy Commissioner                                                                                              
Office of the Commissioner                                                                                                      
Department of Revenue                                                                                                           
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Answered questions about HB 236.                                                                           
CHUCK HARLAMERT                                                                                                                 
Juneau Section Chief                                                                                                            
Tax Division of Administrative Services                                                                                         
Department of Revenue                                                                                                           
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Answered questions about HB 236.                                                                           
PATRICK OWEN                                                                                                                    
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Testified in favor of HB 236.                                                                              
KEVIN RITCHIE                                                                                                                   
Executive Director                                                                                                              
Alaska Municipal League                                                                                                         
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Spoke in favor of HB 236.                                                                                  
ACTION NARRATIVE                                                                                                              
TAPE 04-4, SIDE A                                                                                                             
[About 40 seconds of blank tape at the beginning of side A]                                                                     
Number 0001                                                                                                                     
CHAIR MIKE HAWKER called the  House Special Committee on Ways and                                                             
Means  meeting to  order at  7:00 a.m.   Representatives  Hawker,                                                               
Samuels, Kohring, Gruenberg,  Moses, and Ogg were  present at the                                                               
call to  order.  Representatives  Rokeberg and Wilson  arrived as                                                               
the meeting was in progress.                                                                                                  
HB 236-EMPLOYMENT TAX FOR EDUCATION                                                                                         
CHAIR HAWKER announced  that the only order of  business would be                                                               
HOUSE BILL  NO. 236, "An  Act imposing  a tax on  employment; and                                                               
providing for  an effective date."   He noted that Version  D had                                                               
been  worked on  during  the interim  and  that today's  proposed                                                               
committee substitute (CS)  is Version H.  He  also announced that                                                               
there was a quorum present.                                                                                                     
Number 0152                                                                                                                     
REPRESENTATIVE  SAMUELS  moved to  adopt  HB  CS236, Version  23-                                                               
LS0921\H, Kurtz, 4/14/03,  as the working document.   There being                                                               
no objection, Version H was before the committee.                                                                               
CHAIR HAWKER said the concept behind  this revenue bill is to tax                                                               
employees, ages 19  and older, $100.   He welcomed Representative                                                               
Wilson, the sponsor of the bill,  who arrived at the hearing.  He                                                               
said it  could raise  $40 million  a year and  is a  very popular                                                               
idea around the state.  He said  the bill was still a concept and                                                               
needed technical work from  the professional [revenue] community.                                                               
Chair   Hawker   welcomed   the  teleconference   witnesses   and                                                               
Representative Rokeberg, who arrived at the hearing.                                                                            
CHAIR HAWKER  asked Don Rulien  if he had  seen Version H  of the                                                               
Number 0662                                                                                                                     
DON  RULIEN,  Alaska  Society of  Certified  Public  Accountants,                                                               
noting that he's  head of that society, said he  had Version H in                                                               
front of him.                                                                                                                   
Number 0711                                                                                                                     
STEVEN PORTER,  Deputy Commissioner, Office of  the Commissioner,                                                               
Department of  Revenue, said the  bill would need to  be modified                                                               
to reflect  the January 1,  2005, effective date, to  prescribe a                                                               
calendar  year  tax period.    The  Department of  Revenue  (DOR)                                                               
estimates  that  this  program  could  generate  $39  million  in                                                               
revenue for  a full fiscal  year starting in  2006, he said.   He                                                               
said there  would be a  substantial number of returns,  both from                                                               
businesses  and from  private  individuals.   He  noted that  DOR                                                               
would have  to increase  staff by 13  full-time employees  and 10                                                               
temporary  workers, initially,  and then  adjust to  12 full-time                                                               
employees  and 10  temporary workers.   He  also said  that there                                                               
would need  to be $680,000  in capital for a  large-scale imaging                                                               
and data capture system to accommodate the [additional] data.                                                                   
REPRESENTATIVE GRUENBERG referred to page  2, paragraph 1 [of the                                                               
fiscal note from the Department  of Revenue], which read in part,                                                               
"...  and  include  authority  for   the  Department  to  provide                                                               
taxpayer incentives  for use of  electronic filing or  other cost                                                               
saving technology."   He asked what kinds of  incentives could be                                                               
applied, and if they could be applied to other revenue raising.                                                                 
Number 0906                                                                                                                     
CHUCK HARLAMERT,  Juneau Section Chief, Tax  Division, Department                                                               
of  Revenue (DOR),  replied  that, at  present,  the largest  tax                                                               
program is the  corporate income tax, with  12,000 taxpayers, and                                                               
that the  cost-benefits of investing in  technology aren't there.                                                               
He  said  [DOR]  envisions  a provision  that  grants  authority,                                                               
within  limits,   to  establish   incentives  to   taxpayers  and                                                               
preparers to use the technology that is adopted.                                                                                
REPRESENTATIVE   GRUENBERG  asked   if  DOR   had  any   specific                                                               
incentives in mind.                                                                                                             
MR. HARLAMERT replied in the negative.                                                                                          
REPRESENTATIVE GRUENBERG said  he would like to  pursue this idea                                                               
in  other   areas  as  well,   for  example,  in   child  support                                                               
MR.  PORTER  explained that  Department  of  Revenue, within  the                                                               
Permanent  Fund [Dividend  Division],  Child Support  Enforcement                                                               
Division,  and  Tax Division,  is  trying  to move  forward  with                                                               
incentives.   He  cited as  examples,  an on-line  system and  an                                                               
electronic  card system,  with appropriate  incentives, depending                                                               
on the type of  public [targeted].  He said DOR  was trying to be                                                               
Number 1136                                                                                                                     
REPRESENTATIVE WILSON,  sponsor of  the bill, said  the committee                                                               
has  spent  time talking  about  trying  to  make it  easier  for                                                               
employers and the  state to work with the bill.   The letter from                                                               
the National  Payroll Reporting Consortium, Inc.  (NPRC) suggests                                                               
changes in  the bill, from  their standpoint, for  employers, she                                                               
said, and asked Mr. Porter if he had seen the letter.                                                                           
MR. PORTER replied that he had not seen the letter.                                                                             
REPRESENTATIVE WILSON suggested the  committee go over the letter                                                               
CHAIR HAWKER stated  that his intent was to  address those issues                                                               
in discussion with Don Rulien.                                                                                                  
CHAIR HAWKER called attention to HB  236, Version H, page 1, line                                                               
6, and questioned the words "19 years  of age or older".  He said                                                               
that it  does not  address persons  who turn 19  later on  in the                                                               
year, and that on page 2, line  14, it does require the person to                                                               
be 19 years of age for the entire tax year.                                                                                     
CHAIR  HAWKER asked  if there  might  be problems  about the  tax                                                               
"kicking in" only after the person has made $1,000.                                                                             
Number 1450                                                                                                                     
MR.  RULIEN  said  there  would   be  a  problem  with  transient                                                               
employees who  would be difficult  for an  employer to track.   A                                                               
better  plan  would  be  to   make  collection  similar  to  [the                                                               
Employment  Security Contribution  for state  unemployment] where                                                               
the amount is withheld.   At the end of the year  a form is filed                                                               
for a  refund, if too much  was withheld, or there  were multiple                                                               
employers and  an overpayment  was made.   [The bill  as written]                                                               
puts a  larger burden on the  employer.  He also  agreed with the                                                               
need to  move the date  on the bill  to a calendar  year, because                                                               
payroll is based  on the calendar year.  He  said that would make                                                               
it easier to follow the law.                                                                                                    
CHAIR HAWKER agreed.  He  said creating dual fiscal year-ends for                                                               
single employers,  with a payroll  year-end that is at  odds with                                                               
the federal  tax-reporting year-end, would create  a second level                                                               
of reporting.                                                                                                                   
Number 1610                                                                                                                     
MR. RULIEN  referred to page  2, lines  3-5, and said  [a return]                                                               
had to be  [filed] by the 15th  day of the month, which  is not a                                                               
requirement in  reporting now.  He  said it would be  much easier                                                               
to follow the same rules that exist today.                                                                                      
CHAIR HAWKER  said the  current reporting form  in Alaska  is the                                                               
ESC form, and  there is a long list of  regulations on timing and                                                               
reporting.  He asked if it  would be a viable alternative for the                                                               
employer  to use  the same  reporting, forms,  and dates,  to the                                                               
MR.  RULIEN  replied   he  thought  it  would   be  an  excellent                                                               
alternative.  He  said there could simply be a  new column on the                                                               
Employment Security  Contribution (ESC)  report, and also  on the                                                               
employee application for  a refund report, which is  on an annual                                                               
basis.  He  said payroll employees are very used  to the form and                                                               
it would be easy  to do.  The form would  need more lines because                                                               
there  would  be  more   requirements  for  reporting  individual                                                               
employees,  specifically for  the $100  "payroll tax."   He  said                                                               
that  employment security  only  has one  ceiling,  but this  tax                                                               
would have  a ceiling of  $100 with a $1,000  floor.  He  said he                                                               
did not think there should be  a $1,000 floor, because that would                                                               
add another unnecessary step before [figuring] the withholding.                                                                 
CHAIR  HAWKER asked  if anyone  from  DOR could  discuss the  ESC                                                               
reporting system.                                                                                                               
Number 1900                                                                                                                     
MR.  HARLAMERT said  all of  the data  that was  required in  the                                                               
proposed tax  could be done on  the ESC report except  for how it                                                               
would be  coordinated with a  federally funded program.   He said                                                               
there  was concern  about how  to  spread the  costs between  the                                                               
larger federal  program and the  state program.   He said  it was                                                               
probable that  the allocated  costs to the  state of  the federal                                                               
program  would be  higher than  the  costs [of  a state  program]                                                               
standing  alone.   He said  it  was a  tradeoff between  employer                                                               
convenience and the greater expense to the state.                                                                               
REPRESENTATIVE  GRUENBERG  asked,  if  there  was  not  a  $1,000                                                               
minimum, how many more people and  how much more revenue over $39                                                               
million would be brought in.                                                                                                    
MR. HARLAMERT  replied he did not  know, but he could  get a hold                                                               
of the figures.                                                                                                                 
REPRESENTATIVE  ROKEBERG asked  for clarification  about how  the                                                               
state would be burdened by the use of the ESC reporting method.                                                                 
Number 2200                                                                                                                     
MR.  HARLAMERT explained  that the  ESC report  is the  federally                                                               
funded unemployment tax  collected by the Department  of Labor (&                                                               
Workforce  Development  (DLWD).    He said  the  DLWD  system  is                                                               
elaborate  and  intended  to  cover  the  process  of  collecting                                                               
premiums  and  awarding  benefits.   Many  states  use  the  same                                                               
technology,  he said.   The  DLWD  system is  more expensive  and                                                               
larger-scale than what DOR uses.   He does not know the costs DOR                                                               
would  have  to allocate  to  the  [proposed]  tax program.    He                                                               
guessed that it  would be more than the marginal  costs of adding                                                               
the tax program to the DLWD system.                                                                                             
REPRESENTATIVE  ROKEBERG  said  the   ESC  form  to  collect  the                                                               
unemployment tax  from the employers  and employees of  the state                                                               
follows  the  format  of  a software  program  developed  by  the                                                               
federal government  and the DLWD.   He asked Mr. Harlamert  if he                                                               
was suggesting that  it might be more expensive  to reprogram the                                                               
software and [redo the] form to  accommodate this new tax than to                                                               
have a discrete, stand-alone form.                                                                                              
Number 2400                                                                                                                     
MR. HARLAMERT replied it would not.   He said he assumed that the                                                               
[new tax] would be handled along  with the ESC form in the [DLWD]                                                               
system.   He said  the DOR  has not  explored capturing  the data                                                               
through [DLWD's] system.                                                                                                        
CHAIR HAWKER  said only general  revenue would be  collected, and                                                               
adding another column to a form already in place seems logical.                                                                 
MR. RULIEN spoke about compensation  and said that only those who                                                               
are  earning  W-2  wages  are  required  to  file  and  have  ESC                                                               
withheld, and also  to pay in ESC.   He said one  of the problems                                                               
is there  are a lot  of unreported wages:   partnership earnings,                                                               
limited liability  company earnings, and  self-employed earnings.                                                               
A  problem with  ESC  is that  it matches  [state]  forms to  the                                                               
federal unemployment  tax forms, and  this new tax  encompasses a                                                               
greater portion  of wages that are  not reported on ESC  or under                                                               
federal  unemployment tax,  he  said.   He  wondered  if DOR  had                                                               
considered these issues.                                                                                                        
Number 2713                                                                                                                     
REPRESENTATIVE GRUENBERG  suggested on page  1, line 7,  that the                                                               
term "compensation"  be changed  to "income".   He said  then all                                                               
types of income,  as defined by the Internal  Revenue Code (IRC),                                                               
could be included.  He wondered  how much additional tax would be                                                               
MR. RULIEN  said the term  should not be called  "income" because                                                               
interest, dividends,  and the permanent fund  [dividend] would be                                                               
included.    He  suggested "earned  income"  or  "self-employment                                                               
taxable income",  which would be  subject to Social  Security and                                                               
Medicare [withholding].                                                                                                         
MR. HARLAMERT said DOR has not  reviewed the tax to go beyond the                                                               
term "earned  income".   He said there  are 425,000  taxpayers in                                                               
the  state and  there  would  be a  substantial  increase in  the                                                               
number of people that receive  the permanent fund [dividend], but                                                               
who don't have earned income.                                                                                                   
MR.  RULIEN  said  most   professional  associations  are  either                                                               
limited    liability    companies,    partnerships,    or    sole                                                               
proprietorships.  They  are a source of a huge  amount of revenue                                                               
[not considered]  because they are  not required to  file returns                                                               
with the state.                                                                                                                 
Number 2922                                                                                                                     
REPRESENTATIVE WILSON  asked Mr. Rulien to  restate his rewording                                                               
MR. RULIEN said he was trying to  come up with the right word for                                                               
"earned income"  because he thinks  it is  not the intent  of the                                                               
tax  to  include interest  or  dividends.   He  suggested  "self-                                                               
employment earnings",  which are  subject to the  Social Security                                                               
and  Medicare  rules  under  the  IRC.    He  wondered  if  self-                                                               
employment  earnings,  as  defined  by the  IRC,  could  also  be                                                               
Number 3030                                                                                                                     
CHAIR  HAWKER said  there seemed  to  be three  categories.   The                                                               
first  one was  "W-2 reportable  earnings," which  are wages  and                                                               
compensations  from  an   employee-employer  relationship.    The                                                               
second  one  was  compensation reportable,  or  "1099  reportable                                                               
income for the purposes of services."                                                                                           
MR. RULIEN  suggested that  the second  category could  be called                                                               
"non-employee compensation."                                                                                                    
CHAIR HAWKER agreed and said  the third category could be called,                                                               
from a  partnership standpoint, "reportable on  form [Schedule K-                                                               
1] to an individual."                                                                                                           
MR. RULIEN said the categories were correct.                                                                                    
Number 3143                                                                                                                     
REPRESENTATIVE  ROKEBERG asked  for  clarification  on the  [ESC]                                                               
reporting and wondered if it was a quarterly report.                                                                            
MR. RULIEN said it was quarterly.                                                                                               
REPRESENTATIVE ROKEBERG  asked if there were  any monthly reports                                                               
to the DOR or DLWD.                                                                                                             
MR.  HARLAMERT  replied  that  there   were  no  monthly  reports                                                               
relative to compensation.                                                                                                       
REPRESENTATIVE  ROKEBERG  asked  if there  were  monthly  reports                                                               
required by the Internal Revenue Service.                                                                                       
CHAIR HAWKER answered there were payments [due] but not reports.                                                                
REPRESENTATIVE ROKEBERG  said there were requirements  written in                                                               
the  bill  for monthly  reports,  which  would be  an  additional                                                               
burden [on  the employer].   He  said he  was concerned  with the                                                               
fiscal  [impact]  on  the  private  sector.   He  said  that  the                                                               
structuring of the reporting mechanism  was important.  He talked                                                               
about the form and the three choices:   line item only on the ESC                                                               
report, a stand-alone report, or a combination report.                                                                          
Number 3448                                                                                                                     
CHAIR HAWKER suggested  there might be a fourth  option and asked                                                               
if  there were  any  federal reporting  requirements, monthly  or                                                               
quarterly, that already provided  enough information so that they                                                               
could be used by employers.                                                                                                     
MR.  RULIEN answered  that  the ESC  requirements  are much  more                                                               
detailed  than  the  federal   requirements  and  include  social                                                               
security requirements.                                                                                                          
REPRESENTATIVE ROKEBERG,  speaking from personal experience  as a                                                               
self-employed person,  said he was  concerned about not  adding a                                                               
burden to  those who are  self-employed.  He suggested  a special                                                               
requirement to  file yearly income,  if cash flow on  tax revenue                                                               
receipts  is an  issue.   The timing  of the  reporting would  be                                                               
important, he said.                                                                                                             
CHAIR HAWKER asked  Mr. Rulien to explain the  consistency of the                                                               
reporting  requirements  for  the  W-2, 1099,  and  K-1  [federal                                                               
MR. RULIEN  explained that the W-2  and 1099 [forms] are  due out                                                               
to the employees by January 31  and are then required to be filed                                                               
with  the   Internal  Revenue  Service  (IRS)   by  February  28.                                                               
[Limited liability companies], which  have a K-1 partnership, and                                                               
sole proprietors,  which don't have K-1  partnerships, but [file]                                                               
a Schedule  C, which is  part of  the individual tax  return, all                                                               
have  a file  due date  on October  15 under  "extensions of  the                                                               
following year."                                                                                                                
CHAIR HAWKER  added, "That is  [true] if,  and only if,  they are                                                               
calendar-year taxpayers."   He  asked Mr.  Rulien to  explain any                                                               
variations [of due dates].                                                                                                      
MR. RULIEN  explained that the  due date is  the 15th day  of the                                                               
10th month at the end of the  taxable year, which could vary.  He                                                               
suggested considering  gross income rather  than net income  on a                                                               
quarterly basis.                                                                                                                
Number 3837                                                                                                                     
REPRESENTATIVE  OGG spoke  about the  1099 form  and the  fishing                                                               
industry's  not  having  to  file  on  a  quarterly  basis.    He                                                               
explained  that they  file on  a yearly  basis if  90 percent  of                                                               
their income  is from fishing.   He said the fishing  industry is                                                               
the largest  employer in the  state and  must be considered.   He                                                               
said there were many crewmembers  who only work three months, and                                                               
there would be no way of  knowing what their income was until the                                                               
following year.                                                                                                                 
MR. RULIEN said the burden should  be on the employer or owner of                                                               
the fishing vessel  who pays the fishermen, or  this large source                                                               
of revenue would be lost.                                                                                                       
Number 3950                                                                                                                     
REPRESENTATIVE OGG said  a burden is created on the  owner of the                                                               
fishing  business because  quarterly reporting  is currently  not                                                               
MR. RULIEN agreed.                                                                                                              
CHAIR HAWKER  spoke about the federal  ES form as a  trigger, and                                                               
questioned if the tax should be on the employee or employer.                                                                    
REPRESENTATIVE  WILSON said  that decision  should be  made early                                                               
on.  She said care must be taken  not to put the extra burdens of                                                               
time and expense on small business employers.                                                                                   
REPRESENTATIVE  OGG said  his  intent was  not  to let  fishermen                                                               
escape the  tax, but to explain  the difference in the  nature of                                                               
the employer-employee  relationship in the fishing  industry.  He                                                               
said it  was a contractual  relationship based on  the percentage                                                               
of the income.                                                                                                                  
CHAIR HAWKER  asked if  earnings from  a fishing  enterprise, the                                                               
net [income] of the individual, was a 1099-reportable item.                                                                     
MR.  RULIEN said  that was  correct, but  the IRS  has given  the                                                               
fishing industry  an exemption, saying  the owner of  the fishing                                                               
business does not  have to treat the fishermen they  are paying a                                                               
percentage  to as  employees, so  he/she is  allowed to  [file] a                                                               
1099.   He said  the burden needs  to be put  on the  employer to                                                               
withhold the tax from the fisherman in order to collect the tax.                                                                
Number 4350                                                                                                                     
CHAIR HAWKER  said Mr. Rulien  brings out two  critical technical                                                               
issues.  He said the 1099 form  is strictly a federal form and is                                                               
not  copied to  the  state.   He asked  if  the people  reporting                                                               
earnings  on a  1099  are required  to  file quarterly  estimated                                                               
MR. RULIEN said that was correct.                                                                                               
CHAIR  HAWKER  asked  if  this  applied to  an  employee  in  any                                                               
situation when receiving a 1099.                                                                                                
MR. RULIEN  said this  does not apply  to fishermen  because they                                                               
earn [90] percent  of their earnings from fishing  and have until                                                               
March 1 of the following year to pay taxes without a penalty.                                                                   
CHAIR  HAWKER  said  fishermen  do  not  have  to  make  the  ESC                                                               
Number 4457                                                                                                                     
REPRESENTATIVE  OGG  said he  would  be  concerned if  the  state                                                               
designated  the  owner  of  a fishing  business  as  an  employer                                                               
because  that might  trigger worker's  compensation issues  which                                                               
are not presently in effect.                                                                                                    
REPRESENTATIVE WILSON asked if it  would be legal to collect [the                                                               
tax] if the [federal government]  says the relationship is not an                                                               
employee-employer relationship.                                                                                                 
Number 4600                                                                                                                     
REPRESENTATIVE ROKEBERG  again spoke as a  longtime self-employed                                                               
person.  He said he was  interested in hearing more about the IRS                                                               
exception  for fishers  in Alaska.   He  said the  issues between                                                               
self-employment  and  independent  contractor  relationships  are                                                               
spoken  to  in  the  law,  in IRS  regulations,  and  in  [state]                                                               
statutes to a  degree, and in terms of  practice and regulations.                                                               
He said there  were safe-harbor tests and  other accounting tests                                                               
to yield  differentials between the  two relationships.   He said                                                               
he did not see clarification as a major problem.                                                                                
TAPE 04-4, SIDE B                                                                                                             
Number 4627                                                                                                                     
REPRESENTATIVE ROKEBERG  said the bigger problems  are the timing                                                               
in the  reporting requirements and  how the tax relates  to small                                                               
businesses.   He said another  problem is whether the  tax should                                                               
be  on employers  and not  employees.   Typically, the  burden of                                                               
collection  is  on the  employers,  but  the tax  still  [should]                                                               
remain with  the individual, and  he said this should  be clearly                                                               
CHAIR  HAWKER said  there were  other circumstances  such as  the                                                               
non-employee  compensation arrangement,  "1099 folks,"  where the                                                               
federal  statute  recognizes  the  necessity  for  the  payer  to                                                               
withhold  "backup withholding."    In such  cases,  the money  is                                                               
taken before it reaches the  person being paid, without violating                                                               
the separation of the employer-employee relationship.                                                                           
Number 4444                                                                                                                     
CHAIR  HAWKER  referred to  page  1,  lines  6 and  7,  "receives                                                               
compensation  greater  than  $1,000  in the  state."    He  asked                                                               
Representative Wilson  if the intent  was to tax the  $1,000 just                                                               
earned,  or does  it mean  the next  $100 after  $1,000 has  been                                                               
REPRESENTATIVE WILSON said it was  a good question and the intent                                                               
was not to  take an entire paycheck, and the  amount was simply a                                                               
starting point.                                                                                                                 
CHAIR HAWKER agreed with Representative  Wilson that the bill was                                                               
a  work in  progress.   He asked  Mr. Rulien  to speak  about the                                                               
$1,000 floor issue.                                                                                                             
Number 4254                                                                                                                     
MR. RULIEN  said the wording of  the bill puts the  burden on the                                                               
employee  to show  the employer  that he/she  has already  earned                                                               
$1,000 at "ABC"  company.  He said he likes  the ES rules whereby                                                               
the employer  withholds [the  tax] no matter  how many  times the                                                               
employee  has worked,  and  then, at  the end  of  the year,  the                                                               
employee can  request a refund  if he/she has overpaid  the $100,                                                               
by attaching the W-2 [form] to show the over withholding.                                                                       
CHAIR HAWKER  said that was  how it  currently worked today  as a                                                               
refund on  a single check,  after application  at the end  of the                                                               
Number 4130                                                                                                                     
MR. RULIEN suggested the tax be  [stated] as a 10 percent tax not                                                               
to exceed $100, collected in the  first month, in most cases.  He                                                               
said he  was looking for  an easier  way to report  for employees                                                               
and the payroll department.                                                                                                     
CHAIR HAWKER  said when computers  came along it  caused problems                                                               
with standardized  reporting, and if  the tax is  not simplified,                                                               
wage  earners  would  have  to be  entered  separately  into  the                                                               
program with their own wage-base table.                                                                                         
MR. RULIEN  said a  10 percent  tax not to  exceed $100  would be                                                               
CHAIR  HAWKER   said  he  was  thinking   of  a  $20-per-paycheck                                                               
withholding,  until $100  is  reached, but  then  thought of  the                                                               
problem of  persons who have  not had their  liabilities withheld                                                               
by the time they cease employment.                                                                                              
MR.  RULIEN agreed  with Representative  Wilson's concern  not to                                                               
take a  person's whole paycheck, and  said $20 might be  a lot of                                                               
money to some people.                                                                                                           
Number 3813                                                                                                                     
REPRESENTATIVE   GRUENBERG  spoke   about  his   district,  which                                                               
includes Mountain View and Russian  Jack, where there is a highly                                                               
transient population and people change  jobs frequently.  He said                                                               
if each  job withholds  $100 from  [these people's]  paycheck, it                                                               
would be  a real imposition.   He said a  burden would be  put on                                                               
them if they had to wait until the  end of the year and apply for                                                               
a refund.   He suggested  a mechanism whereby the  first employer                                                               
could give them  a card that shows [the tax  has been taken out],                                                               
so that  when they  go to  the next employer  they can  show [the                                                               
card].  He said the tax would  be a real imposition on people who                                                               
can ill afford it.  He  asked Representative Wilson to comment on                                                               
this issue.                                                                                                                     
REPRESENTATIVE  GRUENBERG asked  if  the  term "compensation"  on                                                               
[page 1], line 7, has an established legal meaning.                                                                             
MR. RULIEN said "compensation" means a W-2 earner.                                                                              
REPRESENTATIVE GRUENBERG  asked if the  term was in the  field of                                                               
Number 3557                                                                                                                     
MR. RULIEN answered  that it was both in the  field of accounting                                                               
and in taxation.  He said  it would be more readily understood as                                                               
"W-2    earner",   because    partnership   earnings    are   not                                                               
"compensation".   They are not  reported as W-2 earnings  and are                                                               
exempt.   He said the wording  [in the bill] needs  to be changed                                                               
to encompass  all professional earnings,  self-employed earnings,                                                               
and everything else.                                                                                                            
REPRESENTATIVE  GRUENBERG  said  he  noticed  "compensation"  was                                                               
defined in the bill.                                                                                                            
CHAIR HAWKER  remarked that a  truly distinct definition  of what                                                               
is subject to taxation is  needed, and he suggested the committee                                                               
refer to  IRC and  state statute, where  the definition  has been                                                               
clearly delineated, litigated, and ruled on by various courts.                                                                  
REPRESENTATIVE  GRUENBERG  said  he assumed  the  term  "personal                                                               
services"  on [page  1], line  9, similarly,  has a  well-defined                                                               
MR.RULIEN said  he understands that  $100 is much larger  to some                                                               
people  than to  others, especially  transient workers  who would                                                               
have many  withholdings.  He noted  that on page 2,  line 19, the                                                               
burden is  on the employers.   If they do not  withhold properly,                                                               
then they have to  pay the tax, he added.   He wondered about the                                                               
correct  definition of  proper disclosure  by the  employee.   He                                                               
quoted [from lines 21-22], the  employer can demonstrate that the                                                               
employer relied  on proof  provided by  the employee",  and asked                                                               
what the proof was.                                                                                                             
REPRESENTATIVE  GRUENBERG   suggested  the   DOR  be   given  the                                                               
authority to  prescribe these details;  for example, the  type of                                                               
proof required.                                                                                                                 
Number 3254                                                                                                                     
REPRESENTATIVE WILSON said  the NPRC letter says,  "... the state                                                               
should  adopt the  federal income  tax definitions  of 'employer'                                                               
and   'employee'   for   the    purposes   of   consistency   and                                                               
administrative convenience,"  when it  comes to  the compensation                                                               
definition.   She asked  if it  would make  things easier  if the                                                               
committee followed those suggestions.                                                                                           
MR. RULIEN  gave an example  of a limited liability  company with                                                               
employees that are  partners who get wages, and said  he does not                                                               
want [the  tax] to miss out  on an untapped source,  such as this                                                               
company, by using the employer-employee definition.                                                                             
Number 3126                                                                                                                     
REPRESENTATIVE  ROKEBERG agreed  uniform definitions  need to  be                                                               
adopted.   He said he  disagreed with  Representative Gruenberg's                                                               
idea to cede  the rule-making authority to work [on  the bill] to                                                               
the DOR.   He  said he was  concerned about  public policy-making                                                               
issues  and  that   the  language  in  the   statutes  is  almost                                                               
unintelligible to  the average citizen.   He said people  need to                                                               
be able to  look at the face  of the bill and  understand it, and                                                               
the committee needs  to do a better job of  clarifying the law to                                                               
the public.                                                                                                                     
Number 3000                                                                                                                     
REPRESENTATIVE  OGG agreed  with the  10 percent  idea.   He also                                                               
agreed  the  tax  could  be  a problem  for  the  [multiple  job]                                                               
employee.   He  said that  for people  who do  not make  $1,000 a                                                               
month,  a fair  amount of  income would  be taken  as tax  in the                                                               
first   month.     He  suggested   an  accommodation   for  those                                                               
CHAIR HAWKER proposed  changes to the effective date  of the bill                                                               
and suggested Representative Wilson  meet with the committee aide                                                               
and DOR to work on a committee substitute.                                                                                      
REPRESENTATIVE  ROKEBERG  echoed   previous  comments  about  the                                                               
impacts  [of the  tax] on  multiple employment  situations, which                                                               
are very common  for various reasons.  He  suggested not charging                                                               
the tax  until a  $3,000 threshold  [of income]  is reached.   He                                                               
spoke in favor of a year-end reconciliation with a W-2 form.                                                                    
CHAIR HAWKER said in the  process of drafting laws, sometimes the                                                               
realities and practicalities are overlooked.                                                                                    
REPRESENTATIVE ROKEBERG  wondered why the  age was set at  19 and                                                               
older and did not include workers 16-18 years old.                                                                              
REPRESENTATIVE WILSON said the committee  was concerned about the                                                               
16-year-old  babysitter and  those kids  "nickel and  diming it."                                                               
She said more work would be done on this issue.                                                                                 
REPRESENTATIVE  GRUENBERG  asked if  there  was  a law  to  draft                                                               
legislation in plain English.                                                                                                   
CHAIR HAWKER  spoke about the implementation  date's needing work                                                               
because the current  retroactive date was not going to  work.  He                                                               
asked for  opinions on an  effectiveness clause whereby  the bill                                                               
would become  effective any January  1, when January 1  follows a                                                               
state  fiscal year-end  June  30,  and when  the  balance in  the                                                               
constitutional budget  reserve is less  than $1.5 billion.   Once                                                               
the tax is  imposed, it would cease to be  in effect any December                                                               
31, following  a fiscal  year-end when  the CBR  is in  excess of                                                               
$2.5 billion.                                                                                                                   
Number 2125                                                                                                                     
REPRESENTATIVE  ROKEBERG  said  the  idea  was  a  great  trigger                                                               
mechanism as it related to the CBR.   He brought up the idea of a                                                               
"reverse trigger mechanism."                                                                                                    
Number 1908                                                                                                                     
REPRESENTATIVE GRUENBERG  said the bill  would affect all  of the                                                               
"little  wage  earners,"  and  the   people  should  be  able  to                                                               
understand the bill.                                                                                                            
CHAIR HAWKER  said his  intent was directed  at the  "little wage                                                               
earners."  He thanked Mr. Rulien for his participation.                                                                         
Number 1638                                                                                                                     
PATRICK OWEN  testified in favor of  HB 236 and said  it was long                                                               
overdue.    He said  if  it  had been  in  place  last year,  the                                                               
problems of  education funding  in rural  areas would  be solved.                                                               
He  said the  future  leaders  of [Alaska]  need  to be  educated                                                               
properly.   He said  he would  like to see  the state  income tax                                                               
back again.                                                                                                                     
REPRESENTATIVE ROKEBERG  said Mr.  Owen's testimony brought  up a                                                               
very interesting  point the committee  should recognize.   In the                                                               
past there had  been, concurrently, the state tax as  well as the                                                               
"head" tax.   He said he thought the rationale  behind having two                                                               
taxes at the same time was  to make sure the transient workforce,                                                               
the  lower-income workforce,  and youth  labor, which  were under                                                               
the threshold of the income tax, would pay the "head" tax.                                                                      
MR. OWEN  said it  was a  shame the  oil companies  were bringing                                                               
their own  people to  take jobs  and were  taking jobs  away from                                                               
Alaskans.  He  said the companies are making big  money that goes                                                               
back  down   south  and   Alaska  does   not  benefit   from  it.                                                               
Unemployment  compensation is  paid out  [down south],  he added.                                                               
He said the tax was one way that  money could stay in Alaska.  He                                                               
said he  would like  to see  the money generated  by this  tax go                                                               
into an education fund, instead of the general fund.                                                                            
Number 1305                                                                                                                     
REPRESENTATIVE OGG said  he appreciated Mr. Owen's  comments.  He                                                               
asked Mr.  Owen's opinion if  the choice  had to be  made between                                                               
education funding and funding Medicaid.                                                                                         
MR. OWEN replied that both programs are viable.                                                                                 
REPRESENTATIVE OGG said  it was a question that would  have to be                                                               
asked, eventually, in the committee.                                                                                            
Number 1113                                                                                                                     
KEVIN  RITCHIE,  Executive   Director,  Alaska  Municipal  League                                                               
(AML), said the goal of AML  is to work with [the legislature] to                                                               
adopt  a  long-range  fiscal  plan  including  implementation  of                                                               
reasonable  taxes and  user fees  to  provide a  stable base  for                                                               
funding.  He said  he would like to be able to  bring this tax to                                                               
communities as part of a package.                                                                                               
Number 1020                                                                                                                     
REPRESENTATIVE GRUENBERG  spoke about  the [Alaska  Conference of                                                               
Mayors' "vote of no confidence"] resolution and said:                                                                           
     With   all  due   seriousness,  the   mission  of   the                                                                    
     legislature,  and  this  body, and  the  Conference  of                                                                    
     Mayors,  is   to  deal  with  the   fiscal  crisis  and                                                                    
     resolutions,   and  messages   like  that   are  really                                                                    
     counterproductive and don't  foster the relationship we                                                                    
     need to have if we are  going to work together to solve                                                                    
     the problem.                                                                                                               
He said he  was only speaking on behalf of  himself and asked Mr.                                                               
Ritchie to carry that message back.                                                                                             
MR. RITCHIE thanked him and said he would.                                                                                      
REPRESENTATIVE   ROKEBERG   echoed   Representative   Gruenberg's                                                               
sentiments.  He  said certain people coming  [to the legislature]                                                               
from various communities  with hat in hand looking  for a handout                                                               
probably  will  not  be  welcome   in  certain  offices  in  this                                                               
building.  He asked Mr. Ritchie if the mayors are part of AML.                                                                  
MR. RITCHIE  replied the  [Alaska Conference  of Mayors]  and AML                                                               
are separate organizations.                                                                                                     
REPRESENTATIVE WILSON said it has  been frustrating and difficult                                                               
for  [members of  the committee],  and the  committee would  also                                                               
like to see progress on the fiscal plan.                                                                                        
CHAIR HAWKER  agreed, personally, with the  previous speakers and                                                               
discussed  the committee's  past  efforts [to  work  on a  fiscal                                                               
plan].    He  asked  Mr.  Ritchie to  carry  back  a  message  of                                                               
disappointment to the mayors.                                                                                                   
MR. RITCHIE said  AML and the Alaska Conference of  Mayors have a                                                               
joint  platform to  support "a  strong goal  of working  with the                                                               
legislature to work  with the public to see the  value of a long-                                                               
range fiscal plan and some of  the measures needed to get there."                                                               
Both organizations  support the  POMV concept,  and will  work to                                                               
carry that discussion to the public.                                                                                            
[HB 236 was held over]                                                                                                          
Number 0507                                                                                                                     
There being no  further business before the  committee, the House                                                               
Special  Committee on  Ways and  Means meeting  was adjourned  at                                                               
8:31 a.m.                                                                                                                       

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