Legislature(2005 - 2006)
02/04/2005 08:09 AM House W&M
| Audio | Topic |
|---|---|
| Start | |
| Overview by Department of Revenue | |
| Adjourn |
* 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
February 4, 2005
8:09 a.m.
MEMBERS PRESENT
Representative Ralph Samuels
Representative Paul Seaton
Representative Peggy Wilson
Representative Max Gruenberg
Representative Carl Moses
MEMBERS ABSENT
Representative Bruce Weyhrauch, Chair
Representative Norman Rokeberg
COMMITTEE CALENDAR
OVERVIEW BY DEPARTMENT OF REVENUE
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
TOMAS H. BOUTIN, Deputy Commissioner
Office of the Commissioner Department of Revenue
Juneau, Alaska
POSITION STATEMENT: Presented an overview regarding the
Department of Revenue's fall forecast.
DAN DICKINSON, Director
Department of Revenue Tax Division
Anchorage, Alaska
POSITION STATEMENT: Answered questions and further explained
the Department of Revenue oil and gas tax structure.
MARK GRABER, Income Audit Manager
Tax Division Department of Revenue
Anchorage, Alaska
POSITION STATEMENT: Explained the Alaska corporate income tax
structure.
JOHANNA BALES, Excise Audit Manager
Tax Division Department of Revenue
Anchorage, Alaska
POSITION STATEMENT: Discussed excise taxes.
BRETT FRIED, Chief Petroleum Economist
Department of Revenue
Anchorage, Alaska
POSITION STATEMENT: Discussed mining taxes, timber taxes,
tourism taxes, occupational taxes, and the business license fee.
TIM COTTONGIM, Manager Fish Group
Tax Division Department of Revenue
Juneau, Alaska
POSITION STATEMENT: Discussed the fisher taxes.
CHUCK HARLAMENT, Juneau Section Chief
Tax Division Department of Revenue
Juneau, Alaska
POSITION STATEMENT: Discussed the specifics of the fish tax.
ACTION NARRATIVE
VICE CHAIR PEGGY WILSON called the House Special Committee on
Ways and Means meeting to order at 8:09:34
AM. Representatives Seaton and Moses were present at the call
to order. Representatives Samuels and Gruenberg arrived as the
meeting was in progress.
^OVERVIEW BY DEPARTMENT OF REVENUE
VICE CHAIR WILSON announced that the only order of business
would be the overview by the Department of Revenue.
8:11:34 AM
TOMAS H. BOUTIN, Deputy Commissioner, Office of the Commissioner
Department of Revenue, recapped the Department of Revenue's
overview meeting with the House Special Committee on Ways and
Means. He reminded the committee that during the previous
meetings the department discussed: the financial condition of
state government, cash flow reserves and liquidity, credit
ratings, the revenue forecast, ELF [economic limit factor], and
oil taxes. He related that Commissioner Corbus has said that
the short-term and very long-term financial condition of the
state is "good," but the period in between could be bad. In
discussing solutions for the fiscal gap, Commissioner Corbus has
discussed the percent of market value (POMV) and the development
of natural resources. He indicated that the POMV is still a
solution worthy of review.
8:13:06 AM
DAN DICKINSON, Director, Tax Division, Department of Revenue,
discussed the structure of taxes. He presented a visual diagram
of a pie chart entitled, "Tax Division Responsibilities for
General Fund Unrestricted Revenue, FY 2004," detailing the
general fund revenues totaled $4.6 billion and the Tax Division
divided the revenue amongst four categories. The largest
category is the federal dollars that total $1.9 billion, which
is followed by taxes administered by the Tax Division that total
$1.2 billion. The third category, administered by the
Department of Natural Resources, is the [oil and gas] royalties
in the amount of $1.1 billion, and lastly is the all-purpose
"other General Fund revenue raised by the state" totaling $400
million. Of the $1.2 billion of taxes administered by the
division about $1 billion are oil and gas taxes. He said the
focus would be on the $200 million remaining. The tax programs
administered by the division are: oil and gas taxes, excise
taxes, other taxes, corporate income tax (non-oil and gas), and
fisheries taxes. The other responsibilities of the Tax Division
include administering charitable gaming, issuing the salmon
pricing report, and revenue sources reporting, he related.
8:17:12 AM
MARK GRABER, Income Audit Manager, Tax Division Department of
Revenue, discussed the Alaska corporate income tax
statute/regulation AS 43.20.073/15 ACC 20. In FY 04, the Tax
Division collected $39.5 million from corporate income tax. The
taxpayers subject to the corporate income tax structure are
generally large multi state corporations. The basic features of
the tax include water's edge, combination, and apportionment of
federal taxable income. The term "apportionment" refers to the
taxable income determined by formula, as opposed to separate
accounting of the income and expenses within Alaska.
"Combination" refers to the apportionment formula applied to the
total taxable income of a combined group of corporations, not
just the affiliate doing business in Alaska. "Water's edge"
refers only to the income and factors of the affiliates doing
business in the U.S., as opposed to the worldwide combination
and apportionment that is used for the oil and gas companies.
8:20:09 AM
MR. GRABER, in response to Representative Seaton, clarified the
details of water's edge. He relayed that in 1991 the Alaska
State Legislature passed the Water's Edge legislation. Prior to
that legislation, the Tax Division combined and processed its
calculation based on the worldwide group of corporations, which
means that foreign subsidiaries of the unitary group were
included in the formula. He stated that under the Water's Edge
legislation, foreign corporations are excluded so that only
corporations that do business in the United States are included.
In further response to Representative Seaton, Mr. Graber
confirmed that water's edge essentially refers to anything
controlled by the United States.
MR. GRABER described the basic formula the Tax Division uses for
corporate income tax. The basic formula starts with U.S.
federal consolidated taxable income, multiplied by the Alaska
apportionment factor, which equals the Alaska taxable income.
The Alaska taxable income is then multiplied by a tax rate - the
corporate rates graduate up to a maximum of 9.4 percent - to
arrive at the Alaska tax. The apportionment factor is an
average of three factors that are considered to be the
activities that produce income. The formula for the three
apportionment factors adds: the Alaska property divided by the
U.S. property, the Alaska payroll divided by the U.S. payroll,
and the Alaska sales divided by the U.S. sales. Add the three
factors and divide by three to arrive at an average factor,
which is the percentage applied to the corporation's total
income to attribute income to Alaska.
8:22:42 AM
MR. GRABER, in response to Representative Wilson, relayed that
he was not able to answer whether the current tax structure has
encouraged more companies to do business in Alaska.
8:23:11 AM
REPRESENTATIVE WILSON mentioned that Alaska has to be careful
with its tax structure so as to not discourage companies from
conducting business in Alaska. She asked if Alaska's current
structure was similar to other states.
MR. GRABER relayed that 38 of the 50 states apportion income.
He informed the committee that Alaska uses the traditional
formula, which he characterized as fairly neutral.
8:24:53 AM
REPRESENTATIVE SEATON asked about the specific exclusions
included in the non-oil and gas corporate tax.
8:25:16 AM
MR. GRABER explained that the Tax Division generally follows the
Internal Revenue Code's guidelines, and therefore non profits
and charitable organizations are tax exempt. He added that some
of the larger industries are exempt by Alaska statute, such as
the cruise ship industry and any company involved in air
transportation or cargo transportation.
8:26:02 AM
MR. DICKINSON clarified that the cruise ship industry is not
fully exempt; it is merely the foreign flag carriers that are
exempt.
MR. GRABER noted that the same applies for foreign air carriers
and foreign transportation companies.
8:26:33 AM
REPRESENTATIVE SEATON surmised then that a U.S. airlines
carrying freight through the state on international flights
would be subject to the corporate tax, while a foreign airline
flying the same route would not be subject to the corporate tax.
8:26:56 AM
MR. GRABER stated that Representative Seaton was correct. The
federal government has arrangements with foreign governments
such that each country taxes its own transportation company.
8:27:39 AM
MR. GRABER added that S Corporations are not subject to Alaska's
Corporate income tax. According to the Internal Revenue Code, S
Corporations include Subchapter S corporations which are treated
as partnerships and corporate income is passed through to the
individual shareholders, he noted.
8:28:16 AM
REPRESENTATIVE GRUENBERG asked for a comprehensive statement
about every type of fee and revenue raising measure upheld
against the cruise ship industry in the country.
MR. GRABER stated that he would try to get that information.
REPRESENTATIVE GRUENBERG stated that he was interested "in those
that have been upheld and ... those that have been struck down
and the courts reasoning in each case."
MR. DICKINSON noted that the latter discussion on tourism taxes
might answer those questions.
8:29:34 AM
MR. GRABER relayed the status report of the Tax Division: the
non-oil and gas corporations are second priority to oil and gas.
Since the division has limited audit resources, it focuses on
known problems by using the IRS tax shelter information and
single issues referred to as "slam dunk issues." He noted that
the division is looking at the inclusion of tax haven
corporations in [the water's edge group].
8:31:31 AM
MR. DICKINSON, in response to Representative Seaton, relayed
that the administration has been asked to analyze the issue of S
Corporations, but currently there are no proposals on the table.
8:32:08 AM
MR. GRABER continued by stating that the division needs to
rebuild auditor ranks. He related that [the division] is
considering and developing a professional contract to review the
water's edge audit procedures.
8:33:01 AM
MR. DICKINSON, in response to Representative Gruenberg, agreed
to provide the committee with the division's request for the
Audit Division's increased funding.
8:33:56 AM
JOHANNA BALES, Audit Manager, Tax Division Department of
Revenue, related that she is responsible for administering five
of the excise tax types administered by the department. She
turned to the motor fuel tax, which is levied on all motor fuel
sold, transferred, or used within Alaska. The Division collects
motor fuel taxes primarily from the wholesalers and distributors
who hold "qualified dealer" licenses issued by the division. In
FY 2004, the number of taxpayers for this tax type was 255. The
tax rates for the motor fuel tax are: highway use is $0.08 per
gallon, marine use is $0.05 per gallon, aviation gasoline is
$0.47 per gallon, jet fuel is $0.032 per gallon, and off-highway
use is taxed at $0.02 per gallon. The actual revenue received
for the motor fuel program in FY 04 was $41,367,326. The
division projects revenue in the amount of $39.5 million for the
next two years.
8:36:46 AM
REPRESENTATIVE GRUENBERG asked why the projected revenue [for
the motor fuel tax] is decreasing for FY 05 and FY 06.
MS. BALES deferred to Mr. Fried.
8:37:36 AM
DAN DICKINSON, Director, Tax Division Department of Revenue,
answered that the projections are not trending down. He
explained that in FY 04 the Tax Division had larger than normal
assessment. Therefore, it's are actually a level trend, he
noted. In response to Representative Gruenberg, Mr. Fried
specified that the assessment had to do with a single taxpayer.
8:38:15 AM
MS. BALES, in response to Representative Seaton, related that
the last increase for jet fuel and aviation gasoline was in
1994, while the last increase for highway fuel was in 1970.
Marine fuel was last increased in 1977.
8:39:13 AM
MS. BALES continued her discussion of excise tax types by
explaining the tire fee. The effective date for the tire fee
was September 26, 2003. The tire fee is assessed on all new
tires sold in the state that are for use on a motor vehicle.
For the sale of new tires the price is $2.50 per tire. An
additional fee for studded tires became effective July 1, 2004.
The studded tire fee is $2.50 per new tire. Heavy studs, which
weigh more than 1.1 grams, incur an additional fee of $5.00 per
tire. In addition, the $5.00 fee applies to stud installation
services.
8:41:01 AM
REPRESENTATIVE WILSON asked if the weight of studs make a
difference in regard to the size of the tires.
8:41:25 AM
MS. BALES relayed that most of the aluminum studs weigh less
than 1.1 grams, regardless of the tire size. However,
regardless of the tire size, all of the steel studs weigh more
than 1.1 grams. The intent of this law was to get Alaskans to
use aluminum studs because they are road friendly and do not
cause the damage that the steel studs do, she noted.
8:42:41 AM
MS. BALES continued her explanation of the tire fee. In FY 04,
the number of taxpayers was 131 and the tire fee generated
$126,000. The expectation for FY 05 and FY 06 is that the tire
fee will generated $2.6 million. The reason for the additional
increase is attributed to the studded tire fee, which was not in
effect in FY 04.
8:43:27 AM
MS. BALES turned to the vehicle rental tax, which became
effective January 1, 2004. The vehicle rental tax is assessed
at the rate of 10 percent on the rental of passenger vehicles
and 3 percent on rentals of recreational vehicles. If the
vehicle is rented for more than 90 days, no vehicle rental tax
is assessed at that time. The number of vehicle rental
taxpayers is 122. In FY 2004, the actual revenue generated was
$2.7 million and the expected revenue generated going forward
will be $6.7 million per year.
8:44:44 AM
MS. BALES moved to the tobacco tax, which she characterized as
one the most complex taxes the department administers. Alaska
levies a tax on cigarettes imported into the state for sale or
personal consumption. The tobacco products tax is levied on
other tobacco products imported into the state for sale. The
division collects tobacco taxes primarily from licensed
wholesalers, distributors, and retailers. The tax rates for the
cigarette tax were $0.05 per cigarette thru December 31, 2004.
However, the new legislation effective January 1, 2005, through
June 30, 2006, will increase the tax rate to $0.08 per
cigarette. There will be an increase of $0.09 per cigarette
from July 1, 2006, through June 30, 2007. An additional
increase of $0.10 per cigarette will occur July 1, 2007. In
addition to the aforementioned tax increases, Senate Bill 1001
of the twenty-third legislature imposes an additional tax of
$0.25 per pack on cigarettes that are manufactured by non-
participating tobacco manufacturers, which are the manufacturers
that didn't sign the Tobacco Masters Settlement Agreement.
Beginning July 1, 2007, after the full graduated tax becomes
effective, the tax for non-participating manufacturer products
will be $2.25 per pack.
8:47:31 AM
REPRESENTATIVE WILSON asked a question regarding the non-
participating manufacturers. She asked which of the non-
participating manufacturers did not sign the Tobacco Masters
Settlement Agreement.
MS. BALES answered that of the thousands of cigarette
manufacturers, the majority of those companies did not sign the
agreement. Some of the large companies who signed the agreement
were Phillip Morris, RJ Reynolds, Lorillard Tobacco, Liggett,
and Brown and Williamson.
8:49:06 AM
REPRESENTATIVE WILSON asked if there was a significant amount of
non-participating manufacturing cigarette products in the state.
MS. BALES relayed that across the world there a "quite a few"
non-participating manufacturers and several of those do sell
cigarettes in the country. However, in Alaska the non-
participating manufacturer product makes up less than .4 percent
of the total cigarettes consumed in Alaska.
8:49:43 AM
REPRESENTATIVE GRUENBERG asked about how the division was able
to collect taxes from the tobacco products sold over the
Internet.
8:50:02 AM
MS. BALES stated that the Internet sales can be difficult.
However, a federal law called the Jenkins Act "requires that
anyone who sells cigarettes in interstate commerce, is required
to notify the tax administrator in the state where the
cigarettes were sold." The Jenkins Act allows the division to
collect the tax from the individual who imported the product in
the state. Despite the federal law not many companies
voluntarily comply with the law. However, over the past few
years stronger enforcement by the federal government has
occurred. The National Association of Attorneys General is
currently trying to get credit card companies to provide
information about tobacco sales purchased with credit cards.
8:51:56 AM
MS. BALES returned to her overview, and relayed that the actual
revenue in FY 2004 for cigarette and tobacco products tax was
$48.8 million. The expected revenue for FY 2005 is $51.8
million and in FY 2006 $64 million.
8:52:36 AM
MS. BALES continued explaining the alcoholic beverage tax.
Alaska levies a tax on the first sale of alcoholic beverages
made in Alaska. The division collects alcoholic beverage taxes
primarily from the wholesalers and distributors. The tax rate
on alcoholic beverages is as follows: liquor, alcohol with an
alcoholic content greater than 21 percent by volume, has a tax
rate of $12.80 per gallon; wine and other beverages with an
alcoholic content of 21 percent or less by volume have a tax
rate of $2.50 per gallon; malt beverages such as beer and hard
cider have a tax rate of $1.07; and small breweries have a tax
rate of $0.35 per gallon. The division piggybacked the federal
law to decide what qualifies as a small brewery. She explained
that under the federal law, a small brewery is defined as a
company that produces no more than 2 million barrels of beer per
year, which is the equivalent of 62 million gallons of beer.
The first 60,000 barrels, which is the equivalent of 1.8 million
gallons, of the product that the company sells qualifies for the
reduced rate of tax.
8:54:26 AM
MS. BALES, in response to Representative Wilson, stated that no
small breweries exceed the aforementioned amount of production.
MS. BALES continued by stating that the revenue generated in FY
04 was $32.7 million. The projected revenues are $31.8 million
going forward, she related.
8:54:55 AM
MS. BALES, in response to Representative Seaton, stated that the
tax per serving is $0.10 cents per drink. The [division]
defines "drink" as follows: wine is 5 ounces per drink, beer is
12 ounces per drink, and liquor is 1 ounce per drink.
8:55:35 AM
MR. FRIED, in response to Representative Gruenberg, related that
the reason for the declining projected revenue is because the
division added an additional 15 days of accrual, which accounts
for the difference between FY 04 and FY 05. The change in the
accounting accrual was to accommodate the quarterly taxes.
8:56:23 AM
MS. BALES, in response to Representative Samuels, relayed that
the division is unable to provide small brewery examples due to
confidentiality reasons.
8:56:43 AM
MS. BALES, in response to Representative Seaton, stated that
there are no large breweries in Alaska. During the prior tax
increase, the small brewery exemption was pushed by the Alaskan
Brewing Company, she noted.
8:57:16 AM
REPRESENTATIVE SEATON asked whether any of the excise taxes are
exclusive, or could they be applied at the local level.
MS. BALES related that the state statute regarding alcoholic
beverages details that the local level can only levy a property
tax on alcoholic beverage inventories and a sales tax. However,
the sales can only be levied if the localities levy a sales tax
on some other commodity. For example, if a municipality had a
vehicle rental tax or a bed tax it could then have a sales tax
on alcoholic beverages, she noted. Municipalities are
prohibited from levying their own excise tax on alcoholic
beverages although she was unaware of any prohibition on any
other [excise] tax types.
8:58:41 AM
MR. DICKINSON related his belief that Fairbanks, Anchorage, and
Yakutat, have a vehicle rental tax. Fairbanks and Anchorage
have tobacco taxes, but he is unaware of any other
municipalities that have a tire fee or motor fuel taxes.
8:59:06 AM
REPRESENTATIVE SEATON asked, "Motor fuel is not a state category
as well, individual communities can also have a motor fuel tax?"
8:59:23 AM
MR. DICKINSON related that, "I do not believe that it is
specifically excluded, and in fact, if the community has a
general sales tax, typically that would be included."
MS. BALES agreed with Mr. Dickinson, and related that she isn't
aware of anything that prohibits municipalities from assessing a
motor fuel tax.
8:59:57 AM
REPRESENTATIVE GRUENBERG asked if any jurisdiction exercised an
excise tax on Internet sales.
MS. BALES related that there is an excise tax on Internet sales,
in that the tax is levied against the person who imports the
product. In further response to Representative Gruenberg, Mr.
Bales explain that the first person who imports cigarettes,
regardless of the importation method, is responsible for the
cigarette tax. In contrast, the Alaska law the alcoholic
beverage tax details that the tax is only levied on alcoholic
beverages sold within the state. Hence, the importation of
alcohol for personal consumption means an individual would not
pay the alcoholic beverage excise tax, she related.
9:02:03 AM
REPRESENTATIVE GRUENBERG related his understanding that
municipal taxation does not reach sales over the Internet.
Therefore, the products purchased on the Internet, regardless of
the municipality's sales tax, are imported into the state tax
free, he concluded.
9:02:47 AM
MS. BALES relayed that the aforementioned depends upon the tax
structure. If the municipal code or state law included a "use
tax" as a sales tax, then the individual would be required to
pay the use tax on the imported product.
MR. DICKINSON noted that Juneau has a use tax. Many communities
with sales taxes don't have associated use tax provisions.
9:03:53 AM
MS. BALES, in response to Representative Gruenberg, confirmed in
order to get at [Internet sales] a use tax could be employed.
9:04:22 AM
TIM COTTONGIM, Manager, Fish Group, Department of Revenue,
informed the committee that he is responsible for five fish
taxes. In FY 04, the fisheries business tax collected $29.24
million, of which $14.39 million was shared with local
municipalities, and $14.84 million was retained by the state.
There were 525 taxpayers. This tax is imposed upon processors
and exporters of unprocessed fish. The tax is based upon the
raw value of the product. There are three tax rates imposed:
the highest rate five percent is on floating processors, the
next [highest] is for salmon canaries at a rate of 4.5 percent,
and lastly the shore-based processors are taxed at a rate of
three percent. The tax rates imposed are assuming the product
is an established species, he noted. The companies processing
and exploring "developing" species are allotted a two percent
discount.
9:06:03 AM
MR. COTTONGIM, in response to Representative Seaton, stated that
"developing" species is a designation made by the Alaska
Department of Fish and Game (ADF&G) on a yearly basis. The
developing species may be a species that is under-fished, so
there needs to be further incentive to encourage fishing. The
term can also be used to describe a fishery that is not
developing except for in a centralized location.
MR. COTTONGIM, in response to Representative Seaton, stated that
all the information regarding the types of fish on the
developing species list are submitted by the ADF&G, and is
available on the Internet website, on the tax return form.
9:07:13 AM
MR. COTTONGIM, in response to Representative Wilson, stated that
some aquatic fisheries are considered new and developing while
others are taxed.
9:07:39 AM
REPRESENTATIVE SEATON clarified that the fisheries business tax
is a wild resource tax so farmed fish do not fall under this
tax.
MR. COTTONGIM agreed. However, he explained that the tax is an
occupation tax so it applies to the occupation of processing or
exporting. Therefore, whether the product is farmed or brought
in from Canada, if the product is first processed in Alaska,
then it is subject to the tax.
9:08:38 AM
MR. COTTONGIM continued with the next largest tax type, the
resource landing tax, AS 43.77. In FY 04, the division
collected $6.86 million, of which $4.36 million was shared with
the local municipalities, and $2.50 million was retained by the
state. The number of taxpayers was 42. This tax is imposed on
at-sea processors that are processing outside the three-mile
limit and land their fish in the state. The tax is based on the
"statewide average price," which is a list from the commercial
ADF&G operators' annual report established. Each of the
taxpayers are required to pay quarterly estimated tax each year.
The tax rate for landing is three percent. However, for
"developing" species, it is discounted by two percent.
9:09:45 AM
MR. COTTONGIM, in response to Representative Seaton, stated that
farm products exported from the state unprocessed are subject to
the fisheries business tax. The amount shared with local
municipalities is shown on table 2 on page 14 of the Tax
Division's Annual Report. He noted that the division also
publishes the shared taxes report, which reports the specific
breakdown of the sharing for the business fisheries tax.
9:11:21 AM
MR. COTTONGIM continued the presentation by explaining the
seafood marketing assessment tax, which "comes from both the
fisheries business and the resource landing tax return." He
highlighted that there must be a value of $50,000 or greater
before it kicks in. For fisheries business taxpayers, the
seafood marketing assessment tax is imposed on all their fish
processed in the state and those exported unprocessed. For
landing taxpayers, this tax [is imposed] on any fish first
landed in the state and processed at sea. Proceeds from this
tax help to fund the Alaska Seafood Marketing Institute (ASMI).
The tax rate for all processors is 0.5 percent. The
aforementioned rate took effect January 1, 2005.
9:12:44 AM
MR. COTTONGIM, in response to Representative Seaton, confirmed
that the seafood marketing assessment tax is levied from
mariculture farm product that is exported.
MR. COTTONGIM continued by describing the salmon enhancement
tax, which collected $3.3 million. The number of taxpayers was
195. The tax is paid by fisherman on salmon sold in or exported
from established aquaculture regions. Proceeds from this tax
are appropriated back to the applicable regional aquaculture
association, which helps to subsidize the hatcheries in the
regions.
9:13:46 AM
MR. COTTONGIM moved on to explain the dive fishery management
assessment tax. The Southeast Dive Fishery Development
Association has established a region where they self-impose this
tax, because it's appropriated back to the region to subsidize
the association. The tax is paid by three dive fisheries on
geoducks, sea cucumbers, and sea urchins. The 7 percent tax
rate on the geoduck took effect October 1, 2004, and the
previous rate was 5 percent.
9:15:03 AM
MR. COTTONGIM, in response to Representative Gruenberg, answered
that plant sea life is not taxed. In further response to
Representative Gruenberg, Mr. Cottingim said he didn't know that
such an industry [specifically seaweed harvesting] exists in the
state.
MR. COTTONGIM, in response to Representative Samuels, related
that herring roe is subject to tax.
9:15:37 AM
REPRESENTATIVE SEATON inquired as to whether the salmon
enhancement tax is taken where the fish was caught or sold.
9:16:05 AM
MR. COTTONGIM explained that if the product is caught and sold
in established aquaculture regions, then the tax return allows
[the fisher] to report both where the fish is caught as well as
where it is sold. Unless, there is a huge discrepancy, the
division usually applies the tax to where the product is sold.
However, if there is a huge discrepancy the legislature has the
authority, in the appropriation, to compare those figures
prepared by the Department of Administration and share the
revenue with the place where it was caught rather than where it
was sold.
9:17:19 AM
MR. COTTONGIM added:
Assuming that we [the Tax Division] are given a heads
up on the elections ... we're usually working close
with the organization to understand how they're going
to self-impose the tax, because we need to obviously
design our tax returns and have them ready and
available as soon as they're [the state] ready to
begin to collect the tax.
MR. COTTONGIM said that when elections occur the division works
with the ADF&G and others to verify recordings, mapping, and
other issues.
9:18:50 AM
MR. COTTONGIM, in response to Representative Wilson, related
that the division's "good relationship" with ADF&G and its
willingness to share basic fish ticket information helps with
enforcement. Another tool of compliance is comparing the salmon
fisheries business tax returns to those of the salmon
enhancement tax returns. The fish tickets are a tool. Lastly,
compliance from the industry helps ensure that the proper taxes
are collected.
9:19:49 AM
REPRESENTATIVE SEATON asked how the taxes on salmon caught in
Southeast Alaska and exported to Prince Rupert for processing
would be apportioned.
MR. COTTONGIM responded that salmon caught and exported from
Southeast would be subject to the salmon enhancement tax. If
the product is unprocessed, then the exporter is responsible for
the tax and the same principle would apply to the fisheries
business tax. Due to the exportation of the salmon, it would
not be subject to tax within an organized borough. Thus, the
fisheries business tax is apportioned amongst communities in the
pool based upon the formula used.
9:21:09 AM
REPRESENTATIVE SEATON posed a situation in which the fish was
caught in a borough and exported unprocessed, and asked what
would occur with [the taxation].
MR. COTTONGIM relayed that the division focuses on where the
product is taxable. In a situation in which the product was
landed in a community and [exported] for processing, the product
is subject to tax when it crosses the border. That is where the
division looks to share the proceeds, he noted.
9:22:04 AM
REPRESENTATIVE SEATON asked, "So the fish that are caught in
Ketchikan go in through their port, transship, whatever and
leave on a tender down, and that tax comes in and goes to
Department of Commerce, which doesn't share that necessarily
back to ... that ... community because it went through a border
crossing, so it goes broadly across the state?"
MR. COTTONGIM, in response to Representative Seaton, noted that
the sharing information [in regards to border crossing] is
voluntarily provided. Most of the companies filing a fisheries
business tax return would probably indicate the location and the
division honors the provided location as the place the proceeds
will be shared back.
9:22:57 AM
MR. COTTONGIM, in response to Representative Wilson, relayed
that the income shared amongst the municipalities is statewide.
The Department of Commerce, Community, & Economic Development
(DCCED) is responsible for the allocation process.
9:23:45 AM
CHUCK HARLAMENT, Juneau Section Chief, Tax Division Department
of Revenue, in response to Representative Seaton, relayed that
any product exported unprocessed is expected to be reported by
the taxpayers on a Schedule IV and all the tax associated with
that fish is split between the general fund and DCCED. The
DCCED distributes the tax to communities across the state. The
formula by DCCED is very much based upon the volume of processed
product in the regions across the state. A port that's
principally a weigh point for fish going out of state isn't
going to see any [indisc.] revenue.
9:25:59 AM
MR. HARLAMENT, in response to Representative Seaton, said he was
correct. Homer and Craig have a dive fishery that ships out
live product in which the high value fishery is distributed to
the ports with the highest volume of processing.
9:26:53 AM
REPRESENTATIVE SEATON stated that:
Under the department's [Department of Revenue]
definition of processing the troll caught fish and the
direct marketing bill, that we passed to allow more
marketing of troll-caught fish, those fish then will
go through the same [DCCED] ... formula, instead of
through the community where the revenue activity takes
place.
9:27:24 AM
MR. HARLAMENT related that:
A typical troll-caught fish, just princess dressed,
isn't frozen, headed, or filleted is not considered
processed under the Department of Revenue rules. And
yeah, the exact same thing would happen if it got
shipped out fresh princess dressed. The tax
associated with that fish wouldn't be attributed to
the community for which it got shipped [indisc.].
9:27:56 AM
REPRESENTATIVE SEATON commented that an issue of interest for
the committee should be getting the shared revenue back to the
communities that generate the revenue.
9:28:14 AM
MR. DICKINSON pointed out that for each tax type there is a
relatively small number of taxpayers.
9:34:02 AM
BRETT FRIED discussed the mining license tax. Due to technical
difficulties a few seconds of testimony was lost, and the
following was reconstructed from the Tax Division FY 2004 Annual
Report on page 38:
The mining license tax is levied on mining net income
and royalties received in connection with mining
properties and activities in Alaska. The division
collects mining license taxes primarily from the
businesses engaged in coal and hard rock mining.
Mining licensees file annual returns based on the
mining business' fiscal year. Calendar year returns
and payment of tax are due April 30; fiscal year
returns and payment are due before the first day of
the fifth month after the close of the fiscal year.
Except for sand and gravel operations, new mining
operations are exempt from the mining license tax for
a period of three and one half years after production
begins.
MR. FRIED pointed out that the mining licensees can receive tax
credit for contributions for educational purposes to accredited
Alaska universities or colleges. In addition, tax credits may
be received on the mineral exploration incentive, which credits
eligible costs of exploration activities related to determining
the existence, location, extent, or quality of a locatable
material. In FY 04, the revenue from the mining license tax was
$3.2 million and in the previous five years the average was $1.8
million.
9:34:49 AM
MR. DICKINSON, in response to Representative Wilson, related
that the increase in revenue is due to high commodity prices.
For instance, from 2003 to 2004 the commodity price increased
for gold by 13 percent, silver by 37 percent, and zinc by over
20 percent.
9:35:29 AM
REPRESENTATIVE SEATON pointed out that fisheries and oil is a
gross extraction tax, while mining is a net tax. He noted that
mining brings in a relatively small revenue in comparison
averaging only $1.5 million.
9:36:22 AM
MR. FRIED related that the mining taxes are only based on the
mining properties and activities in Alaska. Thus, mining
companies cannot account for income earned in other places
outside of Alaska. The mining tax is not the same as the
corporate income tax, he noted. In further response to
Representative Seaton, Mr. Fried clarified that the mining tax
is based on the net income from the mining properties and
activities in Alaska. The tax is not apportioned.
9:37:26 AM
MR. FRIED, in response to Representative Wilson, related that
[the taxes] for the oil and gas companies [is based on their]
worldwide income and then it's apportioned to Alaska. However,
he said, mining taxes are based on the income earned on the
specific properties and activities in Alaska.
9:38:04 AM
REPRESENTATIVE SEATON related that the federal fisheries have a
set standardized price by the federal government.
Representative Seaton related that the standardized price is to
ensure that the extraction industries do not sell their product
to subsidiaries at a low rate, make little to no net income, and
then shift the profits to another corporation. He said:
It seems like we are leaving ourselves wide-open for
tax gains, when we talk about net income, and let
people shift profits where they want to declare net
income ... unless we're setting, like the federal
government does with fisheries, they set a
standardized price ... and so that is where the taxes
are generated on .... Do we just take their reports
and say ... this is the amount of net profit that you
report, and therefore that's what you pay on.
9:39:05 AM
MR. FRIED related that there was no set price specified by the
Tax Division.
9:39:25 AM
REPRESENTATIVE SEATON opined that there seems to be two
disparate [tax] systems of resource extraction: one system,
fisheries and oil, taxes based on the gross value while the
other, mining, taxes based on the net value. He asked why the
difference in the taxation. He requested that the division
provide figures detailing the difference between the gross
extraction and the net income value.
9:40:04 AM
MR. DICKINSON agreed to provide information on the general
issue.
9:40:26 AM
MR. FRIED, in response to Representative Wilson, agreed the
division would investigate if the current taxation for the
mining industry is the norm across the world.
9:41:17 AM
MR. FRIED continued his presentation by relaying that Alaska has
no statewide timber tax, while all others states have a property
tax on timber. He specified that 38 states base their timber
tax on the value of the timber, 11 states base it on the per
acre amount, and 18 states have severance taxes on timber. Of
those with a severance tax, eight tax on the amount of harvested
timber, and ten tax on the value of harvest. In 2003, the
export value of timber was $141 million, which increased to $120
million in 2002.
9:42:05 AM
REPRESENTATIVE GRUENBERG requested the timber statistics in
writing.
9:42:37 AM
MR. FRIED, in response to Representative Wilson, stated that the
timber industry has declined over the years and at a later date
he could provide the historical data detailing the drop.
REPRESENTATIVE SEATON added that he would like the data to be in
spreadsheet form in order to make comparisons between other
states' tax structures.
9:43:28 AM
MR. FRIED went on to discuss tourism taxes, specifically the bed
tax. Alaska does not have a statewide bed tax, however, 38
Alaska cities have a bed tax including, Anchorage, Fairbanks,
and Juneau, he noted. The tax base is about $300 million, he
estimated. Currently, there are 48 states that have either a
statewide bed tax or a statewide sales tax.
9:44:42 AM
MR. FRIED, in response to Representative Seaton, said that none
of the revenue source books include the statewide bed tax
because the books only include taxes that Alaska has.
MR. DICKINSON noted that there is a statistical report, which
the division will provide at a later date.
9:45:14 AM
REPRESENTATIVE GRUENBERG added that a request submitted by one
member should be transmitted to the full committee body.
9:45:43 AM
MR. FRIED continued discussing tourism taxes, and explained the
cruise ship tax. Alaska, and no other state, has a statewide
head tax on cruise ship passengers. However, there are six
states that have port head taxes. For example, Seattle levies a
$6.00 tax to get on and off a cruise ship. In Alaska there are
two communities with cruise ship passenger head taxes: Juneau
has a $5.00 head tax and Ketchikan has a $2.00 tax if the
passenger is lightered in, and a $4.00 tax if the cruise ship is
docked. In 2004, 876,000 cruise ship passengers passed through
Juneau and approximately 99.5 percent of cruise ship passengers
go through Juneau. In 2005, 900,000 passengers are expected to
come through Juneau. Many other countries, such as the
Caribbean, have passenger head taxes, he noted.
9:47:48 AM
REPRESENTATIVE GRUENBERG asked whether the port cities only tax
people who get off the vessel.
MR. FRIED related his understanding that the passengers in
Seattle, getting on or off the vessel, are subject to the $6.00
tax. In further response to Representative Gruenberg, Mr. Fried
related his belief that the passenger head tax for Juneau and
Ketchikan covers any person aboard the vessel.
9:48:33 AM
MR. FRIED discussed occupational taxes, specifically the recent
increase in the business license fee, which increased from $50
to $200. He related that the fee is administered by the DCCED.
9:49:17 AM
REPRESENTATIVE WILSON asked if most of the business license fees
go to the general fund.
MR. FRIED related that the business license fee is a receipts
support service so those are general fund revenues available for
appropriation by legislative receipt support service.
9:49:44 AM
MR. FRIED relayed that the number of business licenses issued in
FY 03 was 74,600 and decreased to 70,500 in FY 04. The DCCED
believes it may drop in revenue in FY 05 to $4.9 million. In
further response to Representative Wilson, Mr. Fried explained
that one reason for the revenue loss is the change in statute
allowing individuals to obtain a one-year license, as opposed to
two-year, license. He stated another reason could be a
[decreases in the number of businesses].
9:50:57 AM
REPRESENTATIVE WILSON commented that in some instances the cost
of the license is more than the realized profit, which seems to
discourage small businesses.
9:51:25 AM
MR. FRIED, in response to Representative Gruenberg, related that
the DCCED offers an option that an individual could purchase
one-year or two-year business license.
9:51:57 AM
MR. FRIED mentioned that Alaska used to have a school tax that
applied to any employee over the age of 19; the tax was $10 and
was repealed in 1980. At the time, the tax raised $2.6 million
per year. Of the estimated 430,000 workers in Alaska he
estimated that 16 percent are non-residents. In response to
Representative Wilson, Mr. Fried said he did not know how much
revenue the employee head tax would generate if it was still in
place. He said that if the tax was at the $10 rate, it would
raise about $4.3 million.
9:54:04 AM
REPRESENTATIVE SEATON asked if the administrative order for the
ELF has gone into effect.
9:54:25 AM
MR. DICKINSON answered, " ... it was a notice that effective
this date, is when we would start considering these properties
as one, those returns that will be affected by that decision
won't be filed until the last days of March." He said that he
was unaware of any formal appeal on that decision.
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Ways and Means meeting was adjourned at
9:55:04 AM.
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