Legislature(2003 - 2004)
05/10/2003 08:50 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 10, 2003
8:50 a.m.
MEMBERS PRESENT
Representative Jim Whitaker, Co-Chair
Representative Cheryll Heinze
Representative Vic Kohring
Representative Bruce Weyhrauch
Representative Peggy Wilson
Representative Max Gruenberg
Representative Carl Moses
MEMBERS ABSENT
Representative Mike Hawker, Co-Chair
Representative Norman Rokeberg
OTHER LEGISLATORS PRESENT
Representative Dan Ogg
Representative Paul Seaton
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
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
05/09/03 (H) Heard & Held
MINUTE(W&M)
05/10/03 (H) W&M AT 8:30 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.
ACTION NARRATIVE
TAPE 03-27, SIDE A
Number 0001
CO-CHAIR JIM WHITAKER called the House Special Committee on Ways
and Means meeting to order at 8:50 a.m. Representatives
Whitaker, Kohring, Weyhrauch, Wilson, Gruenberg, and Moses were
present at the call to order. Representative Heinze arrived as
the meeting was in progress. Representatives Ogg, Seaton, and
Cissna were also in attendance
HB 293-STATE SALES AND USE TAX
CO-CHAIR WHITAKER announced that the only order of business
would be the continuation of the discussion of HOUSE BILL NO.
293, "An Act levying and collecting a state sales and use tax;
and providing for an effective date."
CO-CHAIR WHITAKER reminded the committee that the purpose of
this committee is to deal with the state's fiscal situation.
The committee has previously discussed two components of the
plan/approach that the committee believes could effectively deal
with providing a long-term framework of fiscal stability for the
state. Those two components have manifested through HJR 9, a
cost control mechanism, and HJR 26, a provision allowing for
some use of the permanent fund. Both resolutions have passed
from this committee, and if approved by two-thirds of both
houses of the legislature, the measures will go before the
voters November 2004. The legislation before the committee
today, HB 293, is the third component. Although the committee
substitute before the committee isn't valid, it is the only CS
the committee has. Therefore, Co-Chair Whitaker requested that
the committee not discuss the CS and its particulars. The
purpose of today's meeting is to help Co-Chair Hawker continue
to make improvements to this legislation by discussing the
legislation in broad terms, he said.
Number 0442
LARRY PERSILY, Deputy Commissioner, Office of the Commissioner,
Department of Revenue, offered to answer any questions and
perform any research necessary to facilitate this process. He
informed the committee that at this point he would say that some
of the key issues with this legislation deal with transportation
services, especially as related to fish. Another key issue is
caps and how special municipal taxes would work [with this
proposed sales tax]. Furthermore, there has been some re-
thinking of some of the administrative issues. For example,
although the easiest thing for businesses is quarterly payments,
it presents a cash flow issue for the state and municipalities.
Therefore, review of staggered quarterly payments is occurring.
Number 0804
REPRESENTATIVE WEYHRAUCH expressed his hope to be able to
discuss amendments.
CO-CHAIR WHITAKER announced that specific amendments will be
entertained for discussion, but not adoption. If the amendments
can't be worked into the CS, all members will have the
opportunity to bring forward specific amendments on Monday when
he hoped HB 293 would be reported from this committee.
REPRESENTATIVE WEYHRAUCH informed everyone that one of his
amendments would strip this legislation and insert three
sections in which one section will specify that the state will
impose a 3 percent sales and use tax in the state. Section 2
would specify that the Department [of Revenue] shall promulgate
regulations implementing Section 1. Section 3 would specify
that there would be no prohibition against a community already
collecting a sales and use tax to continue to do so.
REPRESENTATIVE WEYHRAUCH remarked that HB 293 is complex and is
difficult for the public to understand, and it's even more
difficult to interpret what the department has presented to the
committee in order to sell this tax to the public. Therefore,
the above suggestion proposes a simple sales tax plan as a
matter of policy. This suggestion would achieve the
administration's goal, fill a fiscal measure, and insulate the
legislature from the hoards of lobbyists [lobbying] for
exemptions.
CO-CHAIR WHITAKER agreed that Representative Weyhrauch's
suggestion is a "good, clean" approach. However, he expressed
concern that the complex discussions that have been occurring
regarding HB 293 are the same discussions that the department
would have to enter into if Representative Weyhrauch's
suggestion was adopted.
Number 1118
REPRESENTATIVE OGG remarked that he liked the simplicity of the
3 percent. However, he surmised that Representative Weyhrauch's
suggestion would establish a state bureaucracy that would
collect a sales tax statewide while at the same time have
municipalities collecting a sales tax within their jurisdiction.
Therefore, businesses would have to collect a city sales tax and
a state sales tax and thus send money two different ways under
two different enforcement entities. The aforementioned is
clearer in HB 293 than in Representative Weyhrauch's suggestion.
REPRESENTATIVE WEYHRAUCH remarked that there is no doubt that HB
293 will require a bureaucratic increase. The shift in the
amendment wouldn't do anything that HB 293 doesn't already do.
"You're going to have a complex bill that is going to have to be
administered, interpreted, and applied by the bureaucracy," he
said. This committee is taking the role of an administrative
official by going through all the policy choices, which is what
would happen if the bureaucracy was faced with the process of
implementing statute that is extremely complex and new. He
noted that under his proposal the bureaucracy would still have
to impose all the federal exemptions that presently exist.
Representative Weyhrauch stated, "I just think that we have such
a huge task in front of us in implementing the statewide sales
tax policy that we don't have the tools, the time, or the
equipment nor do we have the wherewithal to say no to every
bureaucrat or every lobbyist that's going to come in here and
want their special deal worked out." Therefore, he emphasized
the need to establish a strong policy and instruct the state to
implement it.
Number 1545
REPRESENTATIVE WILSON asked if [Representative Weyhrauch's
amendment] is basically saying that the bureaucrats have to
decide the exemptions and the legislature would set a goal for
them to meet.
REPRESENTATIVE WEYHRAUCH explained that the 3 percent sales and
use tax would specify that the state wants 3 percent on sales
and use services in the state. Such a proposal merely
implements a revenue collection procedure as part of the general
revenue scheme that helps fill the fiscal gap. He characterized
the sales and use tax as an approach. No dollar value would be
established, it's merely a matter of collection, he said.
REPRESENTATIVE WILSON pointed out that the [bureaucrats] could
create enough exemptions that collections could be small, and
therefore she said they would need some sort of guidance.
Number 1748
REPRESENTATIVE HEINZE commented that she liked the goal of
Representative Weyhrauch's amendment. However, legislators are
elected by the public to implement policy and his suggestion
would place their job on the [department's] shoulders. She
emphasized that she is here for her constituents.
REPRESENTATIVE GRUENBERG said this sales tax is equivalent to
writing an income tax code. To do such in a couple of days,
without taking it to the people to find out what they want,
without carefully studying each section of the legislation, and
without a true tax academic, isn't good public policy.
Representative Gruenberg stated that he wanted to solve the
state's fiscal crisis, and therefore a variety of legislation
must be reviewed. He stressed the need to take a plan to the
people and to have experts lay out the ramifications of such a
tax. Each section of HB 293 will have an economic impact on the
state. With regard to his suggestion yesterday regarding
imposing the tax on the goods that move outside Alaska,
Representative Gruenberg said that he didn't want to make Alaska
less competitive in the market place. He encouraged this
committee to do what it should while not rushing to judgment.
Number 2149
REPRESENTATIVE WEYHRAUCH remarked that HB 293 will live or die
in regard to its political weight in the legislature.
Furthermore, Representative Weyhrauch stressed that he became a
legislator to make some decisions. "The time is now," he
stressed. Representative Weyhrauch said that he is willing to
make hard and tough decisions, but the revenue system in this
state has to be fixed. Moreover, legislation that develops
revenues and resources have to be passed. Therefore, he is
offering amendments to be voted up or down.
REPRESENTATIVE WILSON agreed that the legislature has to make
some tough decisions now, if possible. She indicated that
without some action this year, next year will be horrible.
However, she reiterated her need to fight for her constituents
in order to make it the least painful for them.
Number 2431
REPRESENTATIVE SEATON pointed out that most of the testimony and
input he has heard has been from municipalities and cities. The
beauty of Representative Weyhrauch's proposal is that the state
will have the 3 percent sales tax without interfering with the
caps or exemptions in the municipalities. Representative
Weyhrauch's proposal cures many problems, he said.
Number 2729
CO-CHAIR WHITAKER directed the committee discussion to the
merits of a seasonal sales tax for which the percentage would
fluctuate.
REPRESENTATIVE WEYHRAUCH commented that the concept of a
seasonal sales tax is great because of the fluctuation of people
coming into Alaska in the summer. However, he indicated that
the layer of complexity with a seasonal sales tax is of concern.
Representative Weyhrauch said, "So, I'm opposed to this seasonal
sales tax." Furthermore, he expressed his dislike of people
making purchasing decisions based on the weather. He also
expressed the need for there to be a connection between
consumption and use and the people.
CO-CHAIR WHITAKER, upon hearing no disagreement with
Representative Weyhrauch's comments on the seasonal sales tax,
announced that those thoughts could be relayed to Co-Chair
Hawker for the next CS.
Number 2935
REPRESENTATIVE HEINZE related that across the state she is
hearing from her colleagues and constituents that they want an
income tax rather than a sales tax. "Can we not discuss that,"
she asked.
CO-CHAIR WHITAKER said that he wanted to give as much leeway as
possible. However, he suggested completing the discussion on
the 3 percent flat sales tax as opposed to the seasonal sales
tax before entering into a discussion on the option of an income
tax.
REPRESENTATIVE GRUENBERG inquired as to the ramifications of
both the flat 3 percent sales tax versus the seasonal sales tax.
Which tax will make more money for the state, he asked.
MR. PERSILY predicted that the seasonal sales tax would probably
make a little more money for the state because there would be a
higher rate during a period of the year when there's more
economic activity. However, in the context of a $400-$700
million budget gap, the difference in the two proposals wouldn't
be so significant. He estimated that there would be a $10-$20
million difference between the 3 percent sales tax and the
seasonal sales tax.
REPRESENTATIVE GRUENBERG inquired as to how much Alaskan
residents will pay as opposed to non-Alaskan residents under the
two different proposals.
MR. PERSILY answered that for a general sales and use sales tax,
the department estimates that nonresidents would pay about 10
percent with a reasonable margin of error. Under the seasonal
tax proposal, the 10 percent paid by nonresidents would increase
to 12 percent of the annual total. Mr. Persily specified that
the nonresident portion on the seasonal tax wouldn't double or
even increase above 15 percent of the total. He pointed out
that although there is more economic activity in the summer
months from nonresidents, items such as airplane tickets and
cruise ship travel can't have a sales tax. Therefore, the
additional revenue from nonresidents would come from hotels,
restaurants, and [retail purchases].
MR. PERSILY, in further response to Representative Gruenberg,
informed the committee that the original concept of a 3 percent
sales tax with some reasonable exemptions, a broader definition
of manufacturing, and no tax on the equipment used in oil and
gas production was estimated to generate $330 million. The CS,
with its tight definition of manufacturing that would impose the
sales and use tax on oil and gas equipment, would generate
closer to $400 million. Under the original concept that would
generate $330 million. Therefore, a nonresident estimate of 10
percent would result in a contribution of $33 million [from
nonresidents] while a 14 percent nonresident [estimate] would
result in a contribution of about $45 million or so.
REPRESENTATIVE HEINZE noted that often people say that the
tourism dollars don't go into the general fund. However, with
this tax, tourism dollars would be directly deposited into the
general fund.
MR. PERSILY clarified that all sales tax collections would be
deposited into the general fund regardless of who paid it.
Therefore, a sales tax would collect some general tax from some
nonresidents.
REPRESENTATIVE HEINZE surmised then that the tourism [industry]
can say that it's putting money in the general fund.
MR. PERSILY remarked, "It just means they'd come to you and ask
for more appropriations for tourism marketing."
REPRESENTATIVE HEINZE said that she looks to Mr. Persily to
answer questions, however she realized that she doesn't know
much about him.
MR. PERSILY informed the committee that he has been in Alaska 27
years and has run his own [newspaper] business two different
times. He noted that the newspaper [business] brought him to
Alaska. He mentioned that he has lived in Wrangell and Juneau,
and has worked for the Anchorage Times. About six years ago he
moved to the Department of Revenue. He also noted that he did a
stint as an investigator with the State Ombudsman's Office.
MR. PERSILY explained that he works with the department's
research and analysis section, economists, and the tax division.
He informed the committee that during his six years with the
department he has attended seminars and training classes on
streamlined sales tax, sales tax, and income tax as well as
helping draft and write the revenue forecast for six years.
Furthermore, he has worked with the legislature on tax programs
for six years. Mr. Persily said he wouldn't try to pass himself
off as an expert, but he felt knowledgeable to assist the
legislature as it creates a tax policy.
Number 3918
REPRESENTATIVE WEYHRAUCH highlighted that the state will spend
money on this program through the enforcement, collection, and
administration of it as well as any overhead costs that arise.
MR. PERSILY stated that [the department] has done a lot of
analysis regarding the cost of collection.
REPRESENTATIVE GRUENBERG related his understanding that a
seasonal tax would generate about $10 million more than a flat 3
percent tax. He also understood Mr. Persily to say that
nonresidents would pay about 2 percent. Representative
Gruenberg said that information doesn't logically follow because
under the seasonal tax, Alaskans would pay more, which he
interpreted to mean they purchase more in the summer. However,
Representative Gruenberg thought exactly the opposite might be
true. For example, winter clothing costs more. Representative
Gruenberg related his thought that a $10 million difference
would be made up by tourists.
MR. PERSILY pointed out that there is only one research person
in the Tax Division. Therefore, there isn't an exhaustive set
of answers. However, the department's best guess is that a
seasonal tax would probably gain $10-$20 million each year in
additional revenue. The nonresidents could increase from 10
percent to 12-15 percent, and therefore a nonresident increase
of 2 percent would amount to $6 million or so and 5 percent
would result in an additional $15 million and thus nonresidents
could pay $6-$15 million more. The total additional revenue
could be $10-$20 [million]. Mr. Persily noted that there is
some increased spending by residents during those six [summer]
months.
REPRESENTATIVE GRUENBERG highlighted that people often talk in
terms of nonresidents paying more. However, upon further
contemplation, [the general public] is really going to question
whether they will have to pay more. Representative Gruenberg
related his understanding that under the seasonal proposal,
Alaskan residents will pay more.
MR. PERSILY reiterated that it's the department's best guess
that residents pay a little more in the summer than in [the
winter months]. Therefore, it's true that residents would pay a
bit more in sales tax [under the seasonal tax proposal], but in
the context of the $330 million it will be a very small amount.
He acknowledged that it could be due to the increased economic
activity by residents in the summer.
REPRESENTATIVE WILSON commented that she believes Mr. Persily is
very capable of advising the legislature in this situation.
Representative Wilson informed the committee that when he was a
reporter he followed the legislature closely. Furthermore, Mr.
Persily accompanied legislators during the statewide tour of
the fiscal policy caucus. Mr. Persily is very good at what he
does, she said.
Number 4507
REPRESENTATIVE OGG turned to the seasonal sales tax in terms of
communities that have an existing sales tax of say 6 percent.
He pointed out that in the summertime, the state cherry picks
out of that community's share of the sales tax because over time
that 4 percent would come off the cap. Therefore, a 6 percent
sales tax with the additional 2 percent seasonal state sales tax
would, in the winter, result in [the community] obtaining its
full 6 percent while in the summer [the community] would only
obtain 4 percent of the local sales tax and that 2 percent would
go to the state. He pointed out that in the coastal communities
many expenditures revolve around the fishing season when people
are purchasing large amounts of groceries to take to their fish
camp. Perhaps these [residents] are purchasing gear during the
summer [when, due to use, things need to be replaced]. With the
aforementioned in mind, he suggested that the 3 percent sales
tax across the board [would be appropriate] because it would be
consistent for the local community and the state.
REPRESENTATIVE HEINZE commented that there are a lot of
businesses related to tourism that come to Alaska.
TAPE 03-27, SIDE B
REPRESENTATIVE HEINZE continued, "I find this, it just seems
backwards."
MR. PERSILY said in reviewing the seasonal sales tax one must
keep in mind that there aren't numbers from Anchorage and
Fairbanks because those communities don't have a [local] sales
tax. In reviewing the communities that do have a year round
sales tax, there is increased activity in the summer months.
However, permanent fund dividend spending and Christmas spending
come close to balancing it out; the increased summer spending
isn't an overwhelming increase that one may have initially
assumed.
REPRESENTATIVE HEINZE recalled Mr. Persily's comment that the
difference wouldn't be significant, perhaps $10-$20 million
more. However, that is significant.
MR. PERSILY clarified that he meant that it wasn't significant
in comparison to the $300 million or so total and a $600-$700
million gap. He agreed that in the context of requests for
funds, [$10-$20 million] is real money.
Number 4531
CO-CHAIR WHITAKER highlighted the importance in remembering that
a seasonal tax is a base tax that is increased in the summer;
the seasonal tax is year round, the rate merely changes. The
best educated guess Mr. Persily can provide the committee is a
range of possibility not a range of probability. Co-Chair
Whitaker acknowledged that if tens of thousands or hundreds of
thousands of dollars were spent to uncover the range of
probabilities rather than possibilities, the number might be a
little closer than Mr. Persily's best guess, but probably not.
MR. PERSILY clarified that his best guess regarding the
differential between the seasonal tax and the 3 percent flat tax
is $10-$20 million additional [revenue from the seasonal tax],
depending upon the exemptions.
CO-CHAIR WHITAKER inquired as to the committee's stance on the
conceptual proposal, the seasonal tax versus the 3 percent flat
tax.
REPRESENTATIVE HEINZE stated her preference for the seasonal
sales tax.
REPRESENTATIVE WILSON expressed the need for the committee to
know its goal. She related that the governor's goal is to
obtain the most funds from the tourists. If that's the goal,
then the seasonal tax is what could be done. However, she said
she didn't like the seasonal sales tax because her constituents
say it will be a nightmare to implement. She said that the 3
percent sales tax would be easier to implement.
REPRESENTATIVE HEINZE related that she is on this committee to
close the fiscal gap.
CO-CHAIR WHITAKER agreed that closing the fiscal gap is the goal
of the committee.
Number 3928
REPRESENTATIVE OGG said that there are several goals, the main
being to close the fiscal gap. Still, [closing the fiscal gap]
needs to be fair to the citizens of Alaska as well as simple.
However, the seasonal sales tax isn't simple, he remarked.
Representative Ogg announced that he favors an income tax, it's
simple. He also announced that he favors Representative
Weyhrauch's year round 3 percent sales tax.
REPRESENTATIVE GRUENBERG turned to tourists and pointed out that
tourists don't have a choice of when to come to Alaska.
However, Alaskans, to some extent, have a choice when to buy.
Representative Gruenberg suggested that under the seasonal tax,
people will time their purchases to take advantage of the lower
tax rate. With a seasonal tax, merchants' selling habits and
Alaskans' buying habits will adjust.
REPRESENTATIVE WEYHRAUCH stressed that this seasonal proposal is
going to be a tool for balancing the budget on people in the
State of Alaska. He suggested that when more money is necessary
the dates of the seasons will be changed to capture additional
money. He further stressed the need to have a set sales tax.
REPRESENTATIVE HEINZE noted her partial agreement, and expressed
the hope that the legislature is "bigger than that." She
related her belief that if the public was presented with [the
seasonal tax] and switching the forms from winter to summer and
knew that $10-$20 million could be used to fund public school
buses or the university, they would step up to the plate.
REPRESENTATIVE WILSON commented, "And I can understand someone
from Anchorage saying that just because she doesn't have to
worry about all the sales tax and all the ramifications in her
town already." She reiterated her belief that the 3 percent
year round sales tax is simpler and healthier for the
communities in Southeast Alaska.
Number 3360
REPRESENTATIVE KOHRING announced that he doesn't support either
proposal. He noted his agreement with the comments regarding
the fact that the sales tax would be punitive on those
communities that already have a sales tax. He maintained that
spending reductions should be reviewed and he offered to suggest
where the cuts could be achieved. In regard to what should be
done to close the fiscal gap, Representative Kohring said:
"Tourism, fisheries, agriculture, public television, radio,
(indisc.), AIDEA [Alaska Industrial Development and Export
Authority], we can give the administration unallocated cuts. We
can say you cut $100 million, we'll cut $100 million, let's ...
approach this from a partnership perspective."
CO-CHAIR WHITAKER said that the message he is going to take to
Co-Chair Hawker is that there is a slight leaning toward a
simplification of the approach. Co-Chair Whitaker noted that he
is more in favor of a flat 3 percent tax.
Number 3020
REPRESENTATIVE MOSES remarked, "I think we're barking up the
wrong tree." Although there is a need to do something about the
fiscal gap, it has been proven that "this" should be the last
method. If revenue sharing is cut while local governments
continue to face mandates [by the state], then [the statewide
sales tax] is the worst thing that could be done to the local
governments at this time. For some municipalities, the sales
tax is the only method available to raise revenue.
Representative Moses suggested that the committee wake up and
realize what is being done to the local governments, especially
when the legislature encourages the formation of local
governments as a method of solving some of the problems in the
Bush. He emphasized that the state has other ways to raise
revenue that the municipalities don't. Therefore, if methods to
raise revenue at the local level are taken away, then other
methods to raise revenue should be made available. However, it
appears that the [legislature] doesn't have the "guts" to use
some of those methods to raise revenue, whether it is the income
tax or resource tax or permanent fund money. Representative
Moses concluded, "The time is long overdue and now we try to
undermine our local governments. And I think it's absolutely
wrong."
Number 2804
CO-CHAIR WHITAKER announced that the committee could discuss the
income tax versus a sales tax for the next 10 minutes.
REPRESENTATIVE HEINZE reiterated that her constituents prefer an
income tax, which she views as fairer to those at the lower
income levels.
REPRESENTATIVE WILSON stated her belief that a [statewide] sales
tax is the wrong way to go while an income tax is fairer. With
an income tax, the economic impact on the state would be less
than under a [statewide] sales tax. Furthermore, an income tax
can be deducted from the federal income tax and thus the federal
government would be paying part of it. Moreover, nonresidents
would pay a larger portion than under the [statewide] sales tax.
She informed the committee that under an income tax nonresidents
would pay from 22-25 percent as opposed to the 7-10 percent
under a [statewide] sales tax. Also, [an income tax] would be
easier for the people of Alaska. Representative Wilson referred
to separate studies from the University of Alaska Institute of
Social and Economic Research and the Alaska Department of
Revenue. The university study specified that a sales tax paid
by nonresidents [generated] 7 percent [of the total revenue
generated by that sales tax] while under the income tax
nonresidents contributed 25 percent. The departmental study
relates that nonresident portions under the sales tax would be
about 10 percent while under the income tax [nonresident
portions] would be about 22 percent. Furthermore, an income tax
would have less bureaucracy at the state level. If an income
tax was implemented, Representative Wilson suggested that it be
adjusted to one's federal adjusted income. The local option of
a sales tax is important to communities, and a [statewide] sales
tax wouldn't promote economic development. The income tax is
easier and allows more money at the local level to fund services
at the local level. The burden of a [statewide] sales tax is
felt more by lower income people than an income tax under which
a percentage is paid based on the individual's income.
Representative Wilson highlighted that the Alaska Municipal
League is opposed to the [statewide] sales tax and therefore the
majority of the cities are opposed. Furthermore, an income tax
is fairer for senior citizens. Representative Wilson said a
[statewide] sales tax isn't fair to everyone in the state and
legislators, although they certainly represent their districts,
must also think of the state as a whole. Representative Wilson
concluded by saying that an income tax is the easiest, most
popular, and cheapest choice and thus it's the right choice.
Number 2208
REPRESENTATIVE OGG indicated that he agrees with Representative
Wilson's comments. Representative Ogg recalled that most of the
testimony the committee has heard has been in opposition to the
[statewide] sales tax. Only the metropolitan areas have said
that they want the sales tax while the other communities want an
income tax. Representative Ogg announced that he favors an
income tax, although he recognized that the legislature works by
majority.
REPRESENTATIVE GRUENBERG specified that he isn't taking a
position on the income tax, but he is taking a position on
fairness. Representative Gruenberg echoed previous comments
that it's not fair to only consider one alternative. There
needs to be a broad approach with hearings and the official
consideration of various types of legislation. By only allowing
a couple of pieces of legislation on the table and not
encouraging people to express their views on all the
alternatives suggests that the [legislature's] mind is closed to
certain alternatives.
REPRESENTATIVE KOHRING remarked that an income tax merely
penalizes the producers of society. He said he didn't believe
an income tax would truly aid the economy and encourage economic
growth. He indicated that raising taxes, particularly an income
tax, takes money out of the private sector and redirects it
toward government programs. Furthermore, Representative Kohring
said he was philosophically concerned with placing [tax
receipts] in the general fund and doling it out to various
special interest groups.
Number 1845
REPRESENTATIVE SEATON noted his agreement with Representative
Wilson. He reiterated that under an income tax 20 percent of it
is paid by the federal government because it can be written off
on the federal tax. Furthermore, 17.8 percent of those employed
in Alaska are nonresidents and [under an income tax] those
people would pay the tax, which wouldn't include fishermen who
are paid on 1099s. Furthermore, an income tax seems to be
cheaper to collect and there wouldn't be the enforcement
problems that exist under a [statewide] sales tax.
Representative Seaton pointed out that the [statewide sales tax]
would be an additional burden on businesses that wouldn't exist
under the income tax. Representative Seaton also pointed out
that his district almost unanimously would prefer an income tax.
Number 1648
REPRESENTATIVE HEINZE suggested that the committee think about
the fact that [not imposing] the seasonal tax would mean walking
away from $20 million. With regard to the income tax,
Representative Heinze inquired as to the number of nonresident
workers there are and how much would be generated if those
nonresident workers were taxed.
MR. PERSILY said that the department's numbers are a little less
than those of the university. One reason for confusion is that
when the Department of Labor & Workforce Development (DLWD)
reports nonresident hire each year, many of those people
classified as nonresidents are new residents. The DLWD reviews
the dividend application list and thus many of those it counts
as new residents are really residents who haven't lived here
long enough to qualify for a dividend. The Department of
Revenue would estimate that 6-7 percent of the total wages
earned in Alaska are wages earned by nonresidents, which could
be recouped under an income tax. In response to Representative
Heinze, he confirmed that the above percentage includes workers
on the North Slope. That 6-7 percent would amount to about
$600-$700 million of the $9-$10 billion in total wages earned.
MR. PERSILY returned to the question of how much would be earned
from a seasonal sales tax versus a flat year round tax. He
pointed out that the assumptions in that model assumed no
elasticity, no change in buying habits. The model merely looked
at the current activity and applied a sales tax to it. He
acknowledged that the great unknown is how any tax will impact
an individual's purchasing and spending habits.
The committee took an at-ease from 10:13 a.m. to 10:23 a.m.
Number 1241
REPRESENTATIVE SEATON related his understanding that the figures
Mr. Persily has been discussing in relation to an income tax are
based on employees, which don't include the 1099 self-employed
fishermen who aren't registered as employees in the state.
MR. PERSILY clarified that he is talking in terms of wages that
are reported. "That is correct," he said.
REPRESENTATIVE SEATON highlighted that if the income was
attached through a 1099 mechanism, then the [wages] number would
change.
Number 1142
REPRESENTATIVE GRUENBERG announced that upon more reflection he
has reconsidered his position and would be more in favor of a
flat year round tax.
REPRESENTATIVE HEINZE announced that she would also like to
change her support to the [year round] flat tax.
REPRESENTATIVE WEYHRAUCH returned to the issue of the income tax
and said that legislators deal with the form and substance. He
further said that the substance of the problem is diminished by
dismissing the form of the tax. As a policy-making body, the
legislature shouldn't diminish the substance of the issue by
simply dismissing the tax because it may be unpopular.
Therefore, the income tax must be on the table for discussion.
CO-CHAIR WHITAKER noted that he understands the view of many
members of the legislature. The discussion with regard to the
sales tax in no way impedes any member from introducing an
income tax bill, which he assumed would be referred to this
committee. Upon such a referral, the committee could have a
specific discussion on the merits of a specific piece of
legislation. Co-Chair Whitaker said that he wanted to return to
the sales tax legislation and Representative Weyhrauch's point
regarding the implementation of regulations.
Number 0824
REPRESENTATIVE WEYHRAUCH reiterated his suggestion to gut the CS
and replace it with three sections. Section 1 would simply be
the imposition of the sales tax, Section 2 would specify that
the department would implement Section 1 through regulations in
one year, and Section 3 would specify that nothing in this
legislation prohibits a municipality from imposing and
collecting its own sales and use tax. Representative Weyhrauch
explained that under HB 293 the bureaucracy is coming to the
legislature and requesting the implementation of the regulations
in the form of statute with all the morass. What started as a
sales tax exemption bill is going to be "Christmas treed" by
every lobbyist and interest group in the state. The
aforementioned shouldn't be ignored. To that end,
Representative Weyhrauch noted that he has prepared an amendment
that included the Municipality of Juneau's exemptions as well as
every profession governed under Title VIII because that's what
is going to happen. The aforementioned is an affront because
the administration has already set the standard. Therefore, he
clarified that he wanted to, as a policy matter, specify that
the legislature has set the policy for a tax and then the
[department] would bring forward the tax in regulation, and if
that tax doesn't comport with the legislature's intent a statute
would be passed to make it clear. Nothing is taken away from
the legislature, as a policy matter to deal with a sales tax
implemented by the executive branch. The bureaucratic
discussion would be transferred from this branch of government
to the bureaucracy where it began.
REPRESENTATIVE WEYHRAUCH said the legislature doesn't have the
tools, the inclination, the intelligence, or the ability to deal
with this complex issue in this short period of time.
Therefore, as a policy matter his proposal would express the
need to implement it. Right now, Representative Weyhrauch said
he can't explain this to a professor or his children and if it
can't be explained to his children, it isn't worth it as a
policy matter. The people of the state have to be able to
understand it, he stressed.
Number 0357
CO-CHAIR WHITAKER identified that there seems to be different
issues that aren't separable: the implementation of sales tax
through regulation and the affect that will have on
municipalities.
REPRESENTATIVE WEYHRAUCH explained that for those communities
that have already implemented a sales and use tax scheme, his
[statewide] sales tax proposal would be layered on top of that
and nothing would prohibit those municipalities from imposing or
collecting the local sales tax.
Number 0220
REPRESENTATIVE OGG remarked that a local sales tax with a
regulatory sales tax, as proposed by Representative Weyhrauch,
don't mesh. He inquired as to what a merchant would do.
REPRESENTATIVE WEYHRAUCH said that the merchant would need to
obtain an opinion letter from the [public servants].
REPRESENTATIVE WILSON echoed her earlier comments that she is
present to ensure that her constituents are taken care of in the
scope of something that is fair for everyone. The legislature
does that when legislators are concerned about their districts.
TAPE 03-28, SIDE A
REPRESENTATIVE WILSON highlighted that legislators know their
districts and think in terms of impacts and benefits to their
districts as well as the state while public servants think in
terms of the state [as a whole].
Number 0132
REPRESENTATIVE GRUENBERG said the question of "who decides" is
one of the issues, specifically in relation to the exemptions.
Representative Gruenberg recalled that in 1985-1986, the federal
government required states to establish child support guidelines
and a task force was established by Alaska's governor.
Representative Gruenberg noted that he, as a legislator, sat on
the task force. Ultimately, the legislature was unable to deal
with the problem and by default the Alaska Supreme Court
promulgated Civil Rule 90.3. The legislature passed the
responsibility to another branch of government and has never
seized control of that issue again. If the legislature ducks
this issue of the sales tax and passes the responsibility to the
public servants, the legislature will never regain control of
that issue either, he predicted. Representative Gruenberg
emphasized that the issue has to be decided and if this
legislature doesn't have the fortitude to do so, perhaps others
should be sitting in the legislature. Representative Gruenberg
said that he didn't want to give up the legislature's authority
and responsibility per the constitution.
REPRESENTATIVE HEINZE commented on the need for more experts.
She related that she believes she was elected to obtain the best
knowledge in order to make the best decisions possible.
Therefore, she doesn't view passing this responsibility to
public servants [as appropriate].
Number 0544
REPRESENTATIVE SEATON returned to the issue of how
Representative Weyhrauch's proposal could mesh in those
communities that already have a local sales tax. He said this
is done all the time when fish are sold. He explained that
there is a fish ticket and 2 percent of the sale is deducted for
the aquaculture tax and 1 percent of the sale is deducted for
the Alaska Seafood Marketing Institute (ASMI) tax, and the
processor takes a 3 percent raw fish tax. An existing
municipality that has exemptions and caps already includes those
items in their calculations and forms, which would remain the
same under Representative Weyhrauch's proposal, and then the
calculation and forms would specify 3 percent of the total
sales. He opined that it's not that difficult. Furthermore,
most of the businesses in the state don't collect sales tax now.
A problem does arise if there is the desire to have a unified
collection system in which everything is melded into one
[system] and broken apart later.
CO-CHAIR WHITAKER announced his understanding with regard to the
implementation of a sales tax through regulation or legislation
that it appears the committee has reached some consensus
regarding the need to do this through the legislative process.
Therefore, he specified that the next issue at hand will be with
regard to how municipalities that already have a sales tax would
be impacted by a [statewide] sales tax.
REPRESENTATIVE WEYHRAUCH remarked that the [statewide] sales tax
is simply overlayed on what a community already does in terms of
the local community's collection and exemptions. If the state
specifies that municipalities can't exempt certain items, then
there may be upheaval in those local communities that may gut
the entire reason for having the sales and use tax in their own
local community. As a state policy matter, he said he didn't
believe the legislature should dictate what exemptions should
exist in local communities that already have a sales and use
tax.
CO-CHAIR WHITAKER surmised then that Representative Weyhrauch is
suggesting that there be no meshing of the two taxes and no
override of state policy with regard to exemptions relative to
existing local exemptions.
Number 1152
REPRESENTATIVE WILSON inquired as to how a local sales tax with
exemptions and the statewide sales tax would work at the cash
register.
MR. PERSILY said that a sophisticated cash register and
accounting system will be able to handle it whereas some of the
smaller businesses will have to use either the two code books in
their head or purchase [a new register]. Mr. Persily noted that
another matter to consider is sourcing requirements, which is
where the taxable transaction is located. He noted that the
state and municipal codes may differ on the sourcing
requirements, which will present serious administrative problems
for businesses.
MR. PERSILY, in response to Co-Chair Whitaker, explained that
the Streamlined Sales Tax project is a nationwide effort with
the intent to simplify sales tax administration nationwide,
particularly in these times of interstate commerce and Internet
commerce. States, cities, and counties are finding that they
are losing a lot of money through interstate commerce and thus
they are looking for a collective answer. The answer is for the
state and business community to come together and agree on some
basic rules and go to Congress to change the law. Therefore, in
the case of Alaska, if there was a statewide sales tax, the
state could collect sales tax on Internet sales. In order to do
the aforementioned, one must have one administration statewide
because businesses don't want to deal with a separate taxing
authority in every city and county.
MR. PERSILY specified that the [Streamlined Sales Tax Agreement]
would require that the state have centralized administration and
a set of rules and exemptions statewide, applying to all
jurisdictions. Without the aforementioned, the state wouldn't
participate and would relinquish the opportunity to do so.
REPRESENTATIVE HEINZE surmised that if the municipalities are
allowed to collect the tax, then Alaska wouldn't be part of the
Streamlined Sales Tax Agreement project.
Number 1558
REPRESENTATIVE WILSON informed the committee that
[Representative Crawford] has discussed with her what occurred
when the State of Louisiana decided it would collect all the
taxes at the local level. In Louisiana when the local level
[took back] the tax collection, 70 percent more was collected.
Therefore, she ascertained that when the locals collect the tax,
it will be done well because part of the money stays in the
locality. Representative Wilson related that she favors
allowing the local entities to collect the taxes in those areas
where the local entities are already collecting local taxes.
REPRESENTATIVE SEATON specified that the committee is dealing
with two different problems. One problem is that the committee
is, in an extremely short period of time, trying to craft a
sales tax without totally interfering with all the communities
that collect sales tax. Representative Weyhrauch's suggestion
takes care of the aforementioned. However, to enter into the
Streamlined Sales Tax Agreement project [requires] more time
[because] when one tries to coordinate exemptions and overlay
caps there will be massive upheaval. The aforementioned could
be eliminated under Representative Weyhrauch's suggestion.
Number 2133
REPRESENTATIVE GRUENBERG said that he understood that there are
benefits to streamlining the system. He suggested that there
must be some way to solve these problems and still streamline
the process.
MR. PERSILY clarified that Representative Weyhrauch's suggestion
wouldn't allow Alaska to join the Streamlined Sales Tax
Agreement project. The purpose of the Streamlined Sales Tax
Agreement project is that it's business friendly, which wouldn't
be the case if a business has to program its cash registers and
accounting system to maintain two sets of tax return books on
the same transaction. That would be a policy call, he said.
REPRESENTATIVE GRUENBERG surmised then that the [legislature]
has to decide whether to do this in a manner with which the
municipalities can live or the businesses can live. He inquired
as to how this dilemma can be resolved.
MR. PERSILY suggested that the best way to deal with it is to
take a vote on the best piece of legislation the committee can
craft. He stressed that he wasn't sure there was a solution
that maintained local control over 97 communities, boroughs, and
municipalities that have 97 different tax codes while imposing a
statewide tax over it all rather than going to just one [tax].
Number 2356
REPRESENTATIVE OGG characterized Representative Weyhrauch's
suggestion as an issue of sovereignty; sovereignty at the local
level versus that at the state level. If the desire is to move
to the Streamlined Sales Tax Agreement project, there can't be
two entities with sovereignty over taxation. Representative Ogg
posed a situation in which a young person owns a bait business.
Under [Representative Weyhrauch's suggestion], this young
business person would have to determine which items are exempt
under the local tax and which are exempt under the state sales
tax. However, under the Streamlined Sales Tax Agreement project
this young business owner would only have one set of exemptions
that would apply to everything, which Representative Ogg viewed
as simpler. Representative Ogg identified a second issue in
regard to how one would deal with collection and those municipal
tax employees. He asked if [under Streamlined Sales Tax
Agreement project] the collection would be shifted to the state
or would the state be allowed to contract with local
municipalities with existing sales tax structures. He informed
the committee that Wyoming has 10 field offices to collect the
[state's] sales tax and these [local collectors] need to be
there to address the problem mentioned by Representative Wilson.
Therefore, Representative Ogg expressed the need to include
language in the CS allowing the existing municipalities to act
as agents or the field office on a contractual basis with the
state. Representative Ogg opined that one sovereignty is
necessary to allow [small businesses] to be good entrepreneurs.
Number 2709
CO-CHAIR WHITAKER highlighted that a single sovereignty would be
advantageous, especially if the state is conforming with a
streamlined national program in the future and simplifying the
method by which the tax is collected and paid. He related his
understanding of Representative Ogg's belief that there is a
middle ground in which the local collection system could be
combined with the state program being discussed.
CO-CHAIR WHITAKER announced that the committee would reconvene
tomorrow at 5:00 p.m.
[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
11:05 a.m.
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