Legislature(2003 - 2004)
05/09/2003 07:06 AM House W&M
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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 SPECIAL COMMITTEE ON WAYS AND MEANS
May 9, 2003
7:06 a.m.
MEMBERS PRESENT
Representative Mike Hawker, Co-Chair
Representative Jim Whitaker, Co-Chair
Representative Cheryll Heinze
Representative Vic Kohring
Representative Norman Rokeberg
Representative Bruce Weyhrauch
Representative Peggy Wilson
Representative Max Gruenberg
Representative Carl Moses
MEMBERS ABSENT
All members present
OTHER LEGISLATORS PRESENT
Representative Paul Seaton
Representative Dan Ogg
Representative Sharon Cissna
COMMITTEE CALENDAR
HOUSE BILL NO. 293
"An Act levying and collecting a state sales and use tax; and
providing for an effective date."
- HEARD AND HELD
PREVIOUS ACTION
BILL: HB 293
SHORT TITLE:STATE SALES AND USE TAX
SPONSOR(S): WAYS & MEANS
Jrn-Date Jrn-Page Action
04/30/03 1202 (H) READ THE FIRST TIME -
REFERRALS
04/30/03 1202 (H) W&M, FIN
04/30/03 1202 (H) REFERRED TO WAYS & MEANS
05/01/03 (H) W&M AT 7:00 AM HOUSE FINANCE
519
05/01/03 (H) Heard & Held --
Teleconference --
MINUTE(W&M)
05/06/03 (H) W&M AT 7:00 AM HOUSE FINANCE
519
05/06/03 (H) Heard & Held
MINUTE(W&M)
05/07/03 (H) W&M AT 7:00 AM HOUSE FINANCE
519
05/07/03 (H) Heard & Held -- Recessed to a
call of the chair --
MINUTE(W&M)
05/08/03 (H) W&M AT 7:00 AM HOUSE FINANCE
519
05/08/03 (H) Heard & Held -- Recessed to a
call of the Chair --
MINUTE(W&M)
05/09/03 (H) W&M AT 7:00 AM HOUSE FINANCE
519
WITNESS REGISTER
LARRY PERSILY, Deputy Commissioner
Office of the Commissioner
Department of Revenue
Juneau, Alaska
POSITION STATEMENT: Answered questions on HB 293.
ROBYNN WILSON, Revenue Auditor
Tax Division
Department of Revenue
Juneau, Alaska
POSITION STATEMENT: Answered questions on HB 293.
ACTION NARRATIVE
TAPE 03-26, SIDE A
Number 0001
CO-CHAIR WHITAKER called the House Special Committee on Ways and
Means meeting to order at 7:06 a.m. Representatives Hawker,
Whitaker, Kohring, Wilson, and Moses were present at the call to
order. Representatives Heinze, Rokeberg, Weyhrauch, and
Gruenberg arrived as the meeting was in progress.
Representatives Seaton, Ogg, and Cissna were also present.
HB 293-STATE SALES AND USE TAX
CO-CHAIR WHITAKER announced that the only order of business
would be HOUSE BILL NO. 293, "An Act levying and collecting a
state sales and use tax; and providing for an effective date."
He indicated that the committee would continue work on HB 293
over the weekend and would bring it back Monday morning.
CO-CHAIR WHITAKER recalled that the last hearing left off with
discussion of the "isolated" concept.
Number 0244
LARRY PERSILY, Deputy Commissioner, Office of the Commissioner,
Department of Revenue, recalled that the discussion was
regarding the exemption on isolated or occasional sales [page
13, lines 5-12]. He further recalled that one of the points
discussed yesterday was whether the committee, as a policy,
wanted to assess a sales and use tax on an individual sale of a
used car. That is one of the items that is being changed such
that if an individual sold a used vehicle, it wouldn't be
subject to the sales tax so long as the sale was on an
occasional basis as opposed to those in the business of used car
sales.
CO-CHAIR WHITAKER requested discussion with regard to the
meaning of "person" in relation to these isolated or occasional
sales.
Number 0348
ROBYNN WILSON, Revenue Auditor, Tax Division, Department of
Revenue, specified that the definition of "person" includes a
corporation. "The idea here is that occasional sell where that
person or organization is not in the business of selling that
particular item," she explained.
MR. PERSILY clarified that in the context of HB 293 the language
"person" doesn't mean an individual but rather a corporate
entity.
Number 0431
CO-CHAIR HAWKER asked if the paragraph applies to larger
transactions such as the sale and purchase of a business.
MS. WILSON replied yes that would be the case under the
definition of "occasional."
MR. PERSILY turned to page 13, line 13, the exemption of
personal effects brought into the state, and recalled that was
discussed yesterday. He then turned to page 13, line 18, which
is the limit on sales tax liability that would apply to the
purchase of motor vehicles, watercraft, aircraft, and mobile
homes. The tax would be paid on only the first $5,000 of the
purchase price, regardless of the total purchase price.
Number 0526
CO-CHAIR HAWKER inquired as to how the list of items was
derived.
MS. WILSON explained that under the Streamlined Sales Tax Act
caps are prohibited after 2005, except for the items listed.
She noted that these items are commonly capped by states and
localities.
MR. PERSILY added that of those communities that currently have
a cap for the sales tax, there are many [caps] above and below
$5,000.
CO-CHAIR HAWKER related his understanding that the $5,000 cap is
the [legislature's] policy call as opposed to a guideline
specified in the Streamlined Sales Tax Act.
MS. WILSON agreed.
Number 0624
REPRESENTATIVE OGG related his impression that a person who is
not in the business of selling cars sells a car is exempt [as
specified on page 13, lines 5-12]. Therefore, he inquired as to
whether an individual in a similar situation with watercraft or
aircraft would be exempt as well.
MR. PERSILY answered that the intent of the discussions held
with the co-chair was that any individual not in the business of
selling any of a vehicle, watercraft, or aircraft would be
completely tax exempt when it's an isolated or occasional sale.
CO-CHAIR WHITAKER interjected that it wouldn't be a requisite to
purchase a new [vehicle, watercraft, or aircraft] in order to
occasionally sell the old one.
Number 0836
REPRESENTATIVE SEATON posed a situation in which a rental car
company sells cars on a fairly regular basis, although selling
cars is not its prime business. In such a situation would the
rental car company have to pay sales tax on the sale of those
cars.
MS. WILSON answered that it would depend upon the extent of the
definition of "occasional," which could be part of the
legislation or the regulatory package.
REPRESENTATIVE SEATON posed another situation in which a oil
company operates a fleet of vehicles for a few years, sells
them, and replaces them with new vehicles. Under the
"occasional" definition would the aforementioned transactions
not be taxable.
MS. WILSON replied, per her understanding of the current intent
of the section as it will be redrafted, the oil company's
transactions would be exempt.
MR. PERSILY said he would consider an oil company or
construction company that purchases new equipment and sells the
used equipment as occasional and isolated. However, a rental
car company that annually purchases new vehicles and has a used
car sale one to three times a year every year would not be an
isolated or occasional event but rather is part of the company's
business. Therefore, those rental car transactions would be
taxable and thus the buyer of the used vehicle would be
responsible for sales tax.
Number 1037
MR. PERSILY returned to review of [CSHB 293] and turned
attention to page 13, line 22. He explained that the point of
that section is that if a business is purchasing something to
resell it, the sales tax would only be paid on the final retail
sale. The same [logic] would apply to the provision on page 13,
line 26. Mr. Persily moved on to page 14, line 1, which he
characterized as a tight exemption that applies only to the
property purchased as a component of a mining or manufacturing
process. As written, the [exemption] would not apply to the
equipment used in the manufacturing process. As the fiscal note
specifies, this tight exemption would mean that in the oil and
gas industry the equipment used would be subject to sales tax
because those items aren't an ingredient or component in the
manufacturing of the product. He recognized the aforementioned
as a policy call of the legislature.
Number 1211
REPRESENTATIVE HEINZE related her understanding that the pieces
that go into a module wouldn't be taxed. However, once the
module is built and sold to industry, the industry would pay tax
on that module.
MR. PERSILY said that would be his understanding.
REPRESENTATIVE HEINZE suggested that this situation with the
modules needs to be reviewed. Currently, modules are being
built in Anchorage, Kenai, and Fairbanks. For the Northstar
Unit project alone, $400 million was spent on modules. The tax
on the aforementioned would be $12 million. Representative
Heinze pointed out that the gas pipeline is "coming up" and she
suggested there would be billions of dollars in modules. In
Oregon there is no tax and it has taken 15 years to get [the
construction of] modules from Oregon to Alaska. Therefore, she
suggested that without an exemption for modules [the
construction of the modules] will return to Oregon.
REPRESENTATIVE GRUENBERG posed a scenario in which he
manufactures boxes. He surmised that all the office equipment
and paper he uses would be exempt from the sales tax.
MR. PERSILY replied, "It's not if that is not a component or an
ingredient in the process." He acknowledged that this is one of
the bigger policy calls in this legislation.
MS. WILSON pointed out that it's common for states to exempt a
manufacturing process rather than the approach encompassed in
the legislation. However, it's often defined as the actual
direct process. In states where this exemption is broad, the
exemption generally doesn't exempt office equipment and
consumables.
Number 1453
CO-CHAIR HAWKER requested that Representative Heinze's question
be put in the context of the Stranded Gas Development Act.
MR. PERSILY explained that [this year's amendments to the]
Stranded Gas Development Act give the state authority to
negotiate with the sponsors of the project a contract for
payment in lieu of taxes, which would include corporate income
taxes, production taxes, and sales taxes. Therefore, as far as
the gas line project, the aforementioned could be addressed in
the negotiations.
REPRESENTATIVE HEINZE surmised that it wouldn't apply to
exploration on the North Slope or other fields and modules.
CO-CHAIR WHITAKER said such authority to negotiate only applies
to the gas line.
Number 1607
REPRESENTATIVE OGG inquired as to how the provision encompassed
in page 14, lines 1-4, would apply to commercial fishing.
MS. WILSON explained that as currently written, she didn't she
that it would apply to [commercial fishing].
MR. PERSILY interjected, "Except for the purpose of purchasing
fish as the ingredient." Mr. Persily specified that it wouldn't
apply to the equipment used to process the fish.
REPRESENTATIVE OGG posed a scenario in which a commercial
fishermen catches a fish and the tender boat purchases the fish,
which is a point of sale. How would this legislation impact
such a situation, he asked.
MS. WILSON answered that if further processing is performed,
then it would be an exempt sale to that purchaser because it
would be a sale for manufacturing.
MR. PERSILY clarified that if the purchaser is purchasing the
fish to sell it directly to retail, then it would be considered
a purchase for resale. Therefore, there would be no sales tax
on that purchase.
REPRESENTATIVE OGG recalled that there is already a 1.5-cent
fish sales tax at the point of sale between the fisherman and
processor or tender that the fisherman must pay. He inquired as
to how this legislation would impact that sale of fish.
MR. PERSILY said that he couldn't conceive of a situation in
which there would be sales tax on that transaction because the
fish is being sold to either a processor or distributor, in both
cases it would be tax exempt. "Fishermen and sales tax just
would not mix," he said. In further response to Representative
Ogg, Mr. Persily said that if a fisherman sold fish to the
public on the dock and that's the first and final sale, sales
tax would be collected.
Number 1943
CO-CHAIR HAWKER related his vision and intent that the above
[understanding] is the line that is drawn. The regular and
recurring activity of selling directly to the consumer would be
subject to the sales tax. However, he remarked that the idea is
not to tax the isolated or occasional sale.
REPRESENTATIVE WILSON, with regard to fishermen selling fish
directly to the public, said that she would hate to have
fishermen turn into tax collectors.
CO-CHAIR WHITAKER remarked that the committee will have to work
its way through it the best way it can.
CO-CHAIR HAWKER posed a situation in which a fisherman owns a
small business, and should, as a component of the fisherman's
business, engage in regular and recurring [selling of fish],
which would be a taxable transaction. He pointed out that since
the burden is placed on the collector and remitter of the sales
tax, that entity is allowed to keep a remuneration for providing
that service to the state.
Number 2243
MS. WILSON turned to the provision on page 14, lines 8-16, and
stated that this is effectively a sale for resale situation.
Therefore, a company in the business of leasing equipment can
purchase the equipment for that purpose without paying tax.
MR. PERSILY moved on to page 14, lines 17-18, which specifies
that the motor fuel that is subject to the motor fuel tax is
exempt from the sales and use tax.
CO-CHAIR HAWKER noted that the intention of this provision is
that the motor fuel exemption would apply to all fuel
transactions that are subject to the excise tax provisions
within the larger scope of motor fuel taxes.
MR. PERSILY clarified that if an excise tax is already being
collected, the intent with this provision is not to also collect
a sales and use tax at the pump.
MS. WILSON continued with the provision on page 14, lines 19-25,
which she pointed out is similar to the provision on page 14,
line 8. This provision is also a sale for resale exemption.
Number 2448
MR. PERSILY addressed page 14, lines 26-28, which he
characterized as a catchall. Basically, this provision
specifies that an interstate commerce transaction is exempt if
imposition of the sales and use tax violates the United States
constitution.
REPRESENTATIVE GRUENBERG remarked that this would be a full
employment provision for lawyers because he surmised that people
wouldn't know what this provision exempts. He asked if the
department will publish regulations defining [interstate
commerce for which the imposition of the sales and use tax would
be in violation of the United States constitution].
MS. WILSON remarked that the department would expect to write
regulations. In further response to Representative Gruenberg,
she said she didn't know if such an exemption is common in other
states. However, many states don't place an exemption on the
books that they can't tax. For example, this legislation
addresses food stamps, while Florida doesn't even specify food
stamps as an exemption because the state knows it can't be
taxed. Therefore, Ms. Wilson said that this provision on page
14, lines 26-28, says that the state will tax [interstate
commerce] to the extent possible under the constitution.
REPRESENTATIVE GRUENBERG, upon hearing that Ms. Wilson has never
seen a statute like this, informed the committee that this is a
fast-evolving area in the U.S. Supreme Court. The [U.S. Supreme
Court] is changing long-standing rules in this area, which are
quite complex. He opined that the state will have to hire new
attorneys to defend this.
CO-CHAIR HAWKER acknowledged that this is a bit of a conundrum
that needs examination.
Number 2804
REPRESENTATIVE SEATON returned to the provision on page 4, lines
8-11, and inquired as to why furniture, appliance, rental or
lease of mobile homes, et cetera would not be exempt.
MS. WILSON commented that the provision certainly could be
adjusted. She indicated that the original intent was to deal
with leases.
CO-CHAIR WHITAKER noted agreement with Representative Seaton
that the provision would be a policy call.
REPRESENTATIVE WILSON said that she remains unclear with regard
to the provisions on page 14, lines 8-16, and lines 19-25. She
related her understanding that the provisions mean that
furniture, appliances, and the rental and lease of mobile home
property are not exempt.
MR. PERSILY said Representative Wilson's understanding is
correct.
REPRESENTATIVE WILSON surmised then that anything someone leases
other than those items listed is exempt.
MS. WILSON said that if she leases a car and Representative
Wilson purchases the same car, the [two transactions] should be
treated similarly. She explained that the reasons lines 8 and
19 are included on page 14 are so that a car rental company can
purchase the car for subsequent leasing just as the car
dealership can purchase the car to sell to it to an individual
and not initially pay the tax.
MR. PERSILY clarified that the sales tax would be paid once at
the final lease.
REPRESENTATIVE WILSON inquired as to how leasing an apartment
would be treated.
MS. WILSON explained that this legislation specifically taxes
sales and rentals of tangible personal property. An apartment
isn't tangible personal property but rather real property, and
therefore wouldn't be taxed.
REPRESENTATIVE WILSON related her understanding that although in
Wrangell there is a sales tax on every rental, this legislation
would specify that there can't be.
MR. PERSILY replied yes in that this legislation doesn't tax the
rental of residential or office space; this legislation doesn't
impose a sales and use tax on the tax of real property.
However, he pointed out that Wrangell could have a special local
tax on the rental of property similar to the bed tax, liquor
tax, or fuel transfer tax found in some communities.
Number 3235
MS. WILSON, in response to Representative Gruenberg, explained
that in regard to the language on page 14, line 14, an exemption
certificate would be used. Therefore, it wouldn't be incumbent
on the seller to know what is specified on page 14, lines 14-16.
CO-CHAIR HAWKER recalled the extensive discussions on the
exemption certificate last night. There was discussion that
some substantial improvements to this language should be done.
REPRESENTATIVE WILSON remarked that every place where the
committee has questions, it probably means the language isn't as
clear as it could be. She asked if the language would be
changed such that the ordinary person would be able to
understand it.
CO-CHAIR WHITAKER said that the committee would do the best it
can.
Number 3408
REPRESENTATIVE SEATON returned the earlier issue of taxing
apartments and related his belief that many taxing authorities
tax services, including apartment rentals. If this isn't exempt
here, unless there is language specifying that every community
can start a new and separate taxing authority it will have a
large fiscal impact. Therefore, he suggested review of that.
CO-CHAIR WHITAKER expressed his desire for committee members to
bring forward their concerns, but he pointed out that there are
a number of pages to review.
Number 3515
MR. PERSILY continued with page 14, line 29 through page 15,
line 10, which he characterized as a policy call requiring more
work. This provision addresses interstate transportation,
interstate commerce, which the state isn't limited in its
ability to tax. This provision specifies that the
transportation of property from one point within the state to
another point in the state is exempt if the property is being
transported in interstate commerce under a single contract.
Therefore, under the current language, if the contract for the
transportation of oil from Prudhoe Bay to refineries in the
Lower 48 is a single contract, the sales tax wouldn't apply.
Mr. Persily related his understanding that the state can't tax
interstate transportation while in-state transportation services
can be taxed.
REPRESENTATIVE HEINZE asked if the [oil] industry has a single
contract for moving the oil down to the refinery.
MR. PERSILY said he didn't know, but pointed out that in many
cases the oil is being moved to the company's own refineries
through its own transportation company.
REPRESENTATIVE HEINZE inquired as to the impact of this sales
tax if a gas line that goes through Canada is built.
MR. PERSILY opined that it would be a single contract because
it's a single carrier; once the gas is put in the pipe in
Prudhoe Bay the next stop is Alberta, Canada. Therefore, it
would be exempt. However, he said he wasn't sure whether oil
that moves through a pipe to a holding tank and ultimately
pumped into a tanker is under a single contract or two
contracts. Again, this would be a policy call with regard to
whether the legislature wants to impose a sales tax on the
tariff charged on the transportation of oil.
Number 3739
REPRESENTATIVE OGG inquired as to how the provision on [page 14,
line 29 through page 15, line 10] would impact the fishing
industry.
MR. PERSILY related his understanding that under this
legislation transportation services are subject to sales tax.
Therefore, one moving fish only within the state would be
subject to sales tax.
REPRESENTATIVE OGG surmised then that a tender operator who is
paid on a contractual basis by a processing entity would have to
pay sales tax on his contract.
MR. PERSILY clarified that the tender wouldn't pay if a
processor contracts with a tender to provide the service, the
processor, as the buyer, would pay the sales tax.
MS. WILSON interjected, "Unless it's being further processed."
She pointed out that the provision on manufacturing discusses
adding value, and therefore there is no requirement for a
finished product.
MR. PERSILY, in further response to Representative Ogg,
specified there would be a sales tax only if [the fish is] moved
to final the retail purchaser.
REPRESENTATIVE OGG commented that sometimes the focus tends to
be on the oil and gas industry because it's simpler. However,
he expressed the need to be assured [that this legislation]
doesn't make it harder for the fishing and processing industries
to be competitive.
Number 4041
REPRESENTATIVE MOSES inquired as to how this legislation would
impact a scenario in which a fisherman delivers fish to the
tender which is then delivered directly to the airport.
MR. PERSILY related his understanding of the above situation
that the tender would take the fish to the airport to be shipped
to its final destination.
MS. WILSON identified this as another policy call. She
indicated that the next provision, page 15, lines 11-30,
addresses the concern. She said she wasn't clear whether
Representative Moses' concern is regarding fish going out-of-
state or within the state.
MR. PERSILY clarified that the concern is regarding whether the
freight charge would be subject to sales tax in a situation in
which someone is being paid to transport the fish to the airport
for delivery to the airfreight company to ship it out-of-state
to the buyer.
MS. WILSON responded that [under the current language in the
legislation] the freight charge wouldn't be subject to sales
tax. Again, it is a policy call.
Number 4222
CO-CHAIR WHITAKER surmised if the transportation services are
within the confines of the company owned by the tender or the
shipper, [the freight charges] would not be subject to sales
tax. However, if a transportation service is provided by a
transportation company [the freight charge] is subject to the
sales tax because it is intrastate transport. He asked if that
is correct.
MS. WILSON remarked that as currently written, the provision
focuses on whether the [product/fish] would be resold or
reprocessed, not the entities doing the selling.
MR. PERSILY interjected that the point is whether it's part of
the process of the item being handled for resale or is it the
final sale.
CO-CHAIR HAWKER noted that he has provided the drafter with
detailed information on the issue of services that might be
contemplated [in this legislation]. This is an area in which he
believes this CS needs clarification. He mentioned that the
value-added transportation in an ultimate process is something
that would clearly be delineated as opposed to transportation as
a service in and of itself.
Number 4437
REPRESENTATIVE WILSON recalled the committee's discussion at a
previous hearing about a salad. She explained that the finished
product is the salad a customer pays for and eats. All the
ingredients aren't finished products and aren't sold as such
until all mixed [to form the salad]. She likened the salad to
the fish that travels from place to place and is changed, and
the finished product is when the fish is purchased in the store.
REPRESENTATIVE GRUENBERG identified Alaska as the beginning
point of the "salad," the place of primary extraction for oil,
gas, and fish. The aforementioned items are consumed outside.
However, he said he understood [the provision on page 15, lines
11-30] to tax only the salads eaten in Alaska. However,
shouldn't [the objective be] to tax the salads eaten in New
York, he asked. If the tax was imposed at the beginning of the
process, it would be added to the price in New York. Therefore,
New Yorkers would be taxed rather than Alaskans.
CO-CHAIR WHITAKER announced that such is a policy decision and
that broader policy discussion will be addressed as the
committee works its way through the process. However, today the
committee will continue to get the explanation of the CS before
it and any concerns will be addressed [at a later hearing].
TAPE 03-26, SIDE B
Number 0703
REPRESENTATIVE MOSES returned to the discussion of the situation
of the tender transporting the fish to the airport. He pointed
out that many municipalities have tax on the fish ticket. He
asked if that would be exempt.
MR. PERSILY surmised that the question is whether there would be
a tax on a tax to which he responded no. Furthermore, there
would be no tax on the sale of the raw fish to the tender
because that isn't the final sale, it would be considered a sale
for resale.
REPRESENTATIVE MOSES asked if the above would supercede the
municipality's ability to tax that [raw] fish.
MR. PERSILY replied no, adding that the municipality could still
charge the raw fish tax.
MR. PERSILY returned to review of the CS by directing attention
to page 15, lines 11-30.
Number 4521
MS. WILSON said this provision is about exporting. She agreed
that this provision probably needs some clarification.
MR. PERSILY specified that the intent of the provision is that
there is an exemption for those selling services out-of-state.
Mr. Persily continued with page 15, line 31 through page 16,
line 9, regarding the exemption for property used for leasing.
MS. WILSON said that this provision is basically the example of
the car being leased. In this case, if the car dealer brought
up the car from Seattle, Washington, and subsequently leased the
car, that wouldn't be a use subject to the use tax.
Number 4429
MR. PERSILY turned to page 16, lines 10-12, which would give
credit for taxes paid in another state for goods.
MS. WILSON explained that if one purchases a car in Seattle,
Washington, and pays the sales tax in Seattle and brings the car
to Alaska, the Alaskan tax would only apply above what was paid
in Seattle. Therefore, there would be a credit and the consumer
wouldn't pay the sales tax twice.
MS. WILSON, in speaking to the provision on page 16, lines 13-
20, explained it as follows:
The direct pay permit is a situation where a company
would be expected to purchase a lot of things tax
exempt and a lot of things that probably should be
taxable. For example, say a manufacturing concern.
... what typically happens is if that company is big
enough - and we would set up some criteria - but for
example, they have to have an accounting system robust
enough to accrue their own use tax. We basically put
the onus then on that company to report their own tax.
And so we issue the company a permit based on
criteria. That's how that works. And then they would
buy all of their goods and services, tax off. They
would accrue their own tax and pay it just like
retailers would.
MS. WILSON moved on to the provision on page 16, line 21 through
page 17, line 4, which is a sale for resale. This provision
requires sellers be registered so that they could purchase
inventory without paying the tax.
REPRESENTATIVE WILSON returned to the direct pay permit and
inquired as to how the state tracks this.
MS. WILSON answered that such would be the subject of an audit.
In a manufacturing situation, the sellers wouldn't have to
determine what was directly used in the manufacturing process;
the onus on manufacturing concern. Therefore, it would then be
up to the Department of Revenue to audit that concern on a
regular basis, similar to auditing retailers. The
aforementioned is why criteria is specified.
CO-CHAIR HAWKER noted he anticipates further clarifications
regarding the issues of collection, remittance permits, resale
exit certificates, and exemption certificates.
Number 3959
MR. PERSILY pointed out that page 17, lines 5-23, addresses
permit applications from businesses so that the state knows who
is in the business of sales and services in Alaska. The
provision specifies that if the business has a number of
locations, the application may specify multiple locations.
Furthermore, this provision recognizes that there could be
place(s) of business or offices that have vending machines in
multiple locations [which is of no consequence]. Page 17, line
24 through page 18, line 7, deals with the revocation or
suspension of a seller's permit. This provision sets out
opportunities for hearings under the Administrative Procedure
Act (APA) and [rules regarding the] enforcement of someone in
noncompliance.
MS. WILSON, in speaking to page 18, lines 8-20, explained that
it imposes a penalty for someone who improperly uses an
exemption certificate. For example, someone in business obtains
a seller's permit, establishes an exemption certificate, and
then goes out of business on June 30th while continuing to use
the exemption certificate to purchase goods for resale for the
remainder of the year, although the business is no longer in
business.
MR. PERSILY highlighted that the penalty payable to the state
would be $100 or 100 percent of the tax due, whichever is
greater.
REPRESENTATIVE WILSON remarked that doesn't make sense. If
someone is doing something illegal, the individual [company]
should be punished. However, this merely requires that the tax
be paid. She emphasized her belief that a penalty should be
imposed.
MS. WILSON returned to the provision dealing with the penalty
for the improper use of an exemption certificate. She clarified
that the 100 percent of the tax isn't just recouping the tax
rather it's a penalty on top of the tax. "It just measures the
penalty," she specified.
Number 3713
MS. WILSON continued with page 18, lines 21-28, and related that
this provision deals with commingling of homogenous products.
MR. PERSILY moved on to page 18, line 29 through page 19, line
15, which addresses the department's ability to require a
retailer who doesn't maintain a place of business in the state
to furnish security for the payment of taxes. Therefore, there
would be something to go after, if an out-of-state business
doesn't pay its taxes. Furthermore, the provision imposes a
penalty over and above the tax due.
REPRESENTATIVE WILSON inquired as to the definition of fungible
goods, which is mentioned on page 18, line 23.
MS. WILSON responded that as the legislation is written there is
no specific definition for fungible, although she guessed that
there is probably a definition [already] in law.
REPRESENTATIVE GRUENBERG recalled that [fungible] is a term
that's used in the uniform commercial code.
Number 3416
MR. PERSILY moved on to page 19, lines 16-18, which requires
someone engaged in transportation shall register and pay the
taxes. In response to Co-Chair Whitaker, Mr. Persily specified
that this legislation requires a separate registry, beyond a
business license, with the Department of Revenue for a seller's
permit. He noted that there is no charge for that seller's
permit.
REPRESENTATIVE ROKEBERG related his understanding that any
activity engaged in the transportation of goods, such as UPS,
would be a taxable event in Alaska. However, the transshipment
of any goods and redistribution would be exempt, he presumed.
MR. PERSILY said that was his understanding of what the
committee wants, although it isn't clear in the legislation.
Therefore, there would be no sales tax on goods passing through
the state. In further response, Mr. Persily specified that his
assumption is that the committee doesn't want to impose a sales
tax on the services [enabling goods to pass through the state].
CO-CHAIR HAWKER remarked that he believes the above is already
addressed in the distinctions between intrastate and interstate.
He noted that it needs major clarification.
Number 3131
REPRESENTATIVE SEATON used the example of a gallon of milk in
the Bush and asked if the transportation of the milk to the
community is taxed as a sales tax and the increased value [cost]
of milk in the village is also taxed at the 2 percent.
CO-CHAIR WHITAKER responded in the affirmative.
REPRESENTATIVE WILSON turned to businesses such as Federal
Express for which there is no tax, only a charge for that
[transportation] service. She inquired as to how that would
work with the sales tax.
CO-CHAIR WHITAKER clarified that intrastate would be taxed.
It's a transportation service, he said. There would be [no tax]
on the U.S. Post Office.
Number 3017
MS. WILSON moved on to page 19, lines 19-25, which allows a
retailer to use an accrual basis method of accounting on
application to the department.
REPRESENTATIVE GRUENBERG recalled that under the Internal
Revenue Code, one can normally chose a cash or accrual basis
without an application.
MS. WILSON recalled that the Internal Revenue Code specifies
parameters about who can use the cash basis. A large
corporation can't use a cash basis, he said.
Number 2916
MR. PERSILY continued with the provision on page 19, line 26
through page 20, line 12, which is another policy call.
Currently, the provision specifies that tax returns are to be
filed on a quarterly basis. This provision allows sampling
methods in its audits rather than pulling 100 percent of the
records. On page 20, lines 13-19, if a business is paying taxes
on the accrual basis, the tax paid has to be written off because
of a bad debt that [business] can deduct on a subsequent tax
payment to the state. Therefore, the state wouldn't collect
taxes on business that was never received. The provision on
page 20, lines 20-25, would be another policy call in terms of
the amount. This provision dictates how much the business may
keep from the collections as reimbursement or partial
reimbursement for the cost of being the tax collector. The
provision specifies that amount retained could be 2 percent or
$75 a month, whichever is less.
MS. WILSON turned to page 20, line 26 through page 21, line 14,
which deals with forfeiture of security and sale of the deposit
at auction if the taxpayer is not complying.
MR. PERSILY addressed page 21, line 15 through page 22, line 6,
what happens when a taxpayer quits or sells the business. The
successor is not liable for the tax due from the seller of the
business if [the purchaser] provides the department with written
notice of the transaction and acquisition.
MS. WILSON continued with page 22, lines 7-22, and characterized
this as a policy call. She pointed out that subsection (c)
applies to corporate officers, directors, and shareholders.
Number 2635
MR. PERSILY pointed out that on page 22, lines 23-25, the
department is directed to adopt regulations that are consistent
with the Streamlined Sales and Use Tax agreement. With regard
to the definition provision on page 22, line 26 through page 26,
line 1, Mr. Persily acknowledged that there are probably some
definitions that are missing and some that need to be clarified.
For example, on page 24, lines 3-6, the definition of
"manufacturing" would be one in which the committee would want
to consider how broad, how tight, and what policy calls to make
in this area. He mentioned that there may be the need for
policy discussion in relation to page 24, line 15 through page
25, line 10.
MR. PERSILY turned to page 26, lines 3-4, which provides an
exemption for the car rental tax. He explained that, assuming
the car rental tax is adopted, car rentals subject to the car
rental tax aren't subject to the sales and use tax. Section 11
on page 26 is an uncodified law of the state specifying that the
department is authorized to enter into the Streamlined Sales and
Use Tax [Act].
MR. PERSILY concluded with the effective dates of the
legislation. He specified that the sales tax would take effect
January 1, 2004, while the motor fuel tax takes effect July 1,
2003. The vehicle rental exemption, Section 14, only goes into
effect if the vehicle rental tax passes.
Number 2334
REPRESENTATIVE ROKEBERG noted that he has provided committee
staff with an amendment.
CO-CHAIR WHITAKER announced that tomorrow would be the
appropriate time to bring forward amendments and concerns.
REPRESENTATIVE ROKEBERG explained that the amendment is such
that if the natural resource income increases above 110 percent,
then there would be an inverse reduction in any statewide tax.
CO-CHAIR WHITAKER surmised that under Representative Rokeberg's
amendment the tax would be indexed to natural resource revenue.
REPRESENTATIVE WEYHRAUCH noted that he passed out a number of
amendments to the committee yesterday. He mentioned that he
wanted to refine the handwritten amendment.
Number 2052
CO-CHAIR WHITAKER announced that tomorrow as there are ongoing
discussions and rewrites, the committee's input will be put in
the rewrites. Therefore, there will be a CS, which is subject
to amendment by any committee member.
[HB 293 was held over]
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Ways and Means meeting was adjourned at
8:18 a.m.
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