Legislature(2005 - 2006)
03/04/2005 08:31 AM House W&M
| Audio | Topic |
|---|---|
| Start | |
| Oversight Hearing Personal Income Tax | |
| 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
March 4, 2005
8:31 a.m.
MEMBERS PRESENT
Representative Bruce Weyhrauch, Chair
Representative Norman Rokeberg
Representative Ralph Samuels
Representative Paul Seaton
Representative Peggy Wilson
Representative Max Gruenberg
Representative Carl Moses
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
OVERSIGHT HEARING PERSONAL INCOME TAX
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
DAN DICKINSON, Director
Tax Division
Department of Revenue
Anchorage, Alaska
POSITION STATEMENT: Offered information about income tax
legislation and tax types.
MICHAEL WILLIAMS, Auditor
Tax Division
Department of Revenue
Anchorage, Alaska
POSITION STATEMENT: Offered information about income tax
legislation.
BRETT FRIED, Economist IV
Department of Revenue
Anchorage, Alaska
POSITION STATEMENT: Offered information about income tax
legislation and tax types.
ACTION NARRATIVE
CHAIR BRUCE WEYHRAUCH called the House Special Committee on Ways
and Means meeting to order at 8:31:22 AM. Representatives
Weyhrauch, Wilson, Seaton, and Moses were present at the call to
order. Representatives Rokeberg, Samuels, and Gruenberg arrived
as the meeting was in progress.
^OVERSIGHT HEARING PERSONAL INCOME TAX
8:31:35 AM
CHAIR WEYHRAUCH relayed that today's meeting would be an
overview on alternative income tax measures. After the state
began receiving money from the oil pipeline, during the early
1980's, the state income tax was repealed by Governor Jay
Hammond. Since then the fiscal gap has become more acute and
both Representatives Wilson and Moses have introduced
legislation to reinstitute an income tax. The aforementioned
legislation proposed different methodologies for obtaining
revenue. He added that the committee should deliberate the
different income tax scenarios in order to determine the
implications on the long-term fiscal picture.
CHAIR WEYHRAUCH turned to The New York Times, March 4, 2005,
article entitled, "Fed's Chief Gives Consumption Tax Cautious
Backing", which reports that Alan Greenspan, the Federal Reserve
chairman, is endorsing a structural change in the nation's tax
system from an income tax to a consumption tax. A consumption
tax in lieu of an income tax would promote savings and tax only
for consumption and not on income. He related his belief that
the fore mentioned dialogue taking place at the national level
is [applicable] to the changes taking place at the state level.
8:34:07 AM
REPRESENTATIVE WILSON related that the possibility of a federal
sales tax concerns her.
CHAIR WEYHRAUCH replied that the federal sales tax is basically
the aforementioned consumption tax and he related his belief
that the nation could be "a long way from that" considering the
current dialogue about social security policies.
The committee took an at-ease from 8:35:24 AM to 8:36:10 AM.
8:36:16 AM
CHAIR WEYRAUCH said the Department of Revenue has analyzed the
potential fiscal impacts of the aforementioned legislation.
8:37:36 AM
DAN DICKINSON, Director, Tax Division, Department of Revenue,
related that the department would be explaining the following
issues: how to measure various sectors of the economy and their
relative contribution; the tax contribution versus the relative
contribution to the overall economy of the state; the
implications of the bills introduced during the Twenty-Third
Legislature, House Bill 470 and House Bill 321; and a comparison
of the aforementioned bills with the original income tax
legislation.
8:38:53 AM
CHAIR WEYRAUCH asked if the Department of Revenue would explain
the aforementioned legislation.
8:38:57 AM
MICHAEL WILLIAMS, Auditor, Department of Revenue, turned to the
comparison chart entitled, "Projected Income Tax Revenue
Comparison of 3 Proposals" which details revenue generated under
the prior income tax law, House Bill 470, and House Bill 321.
Due to the ramp-up provisions in House Bill 470 and House Bill
321, for comparison purposes it was necessary to estimate the
value based on the total annual revenue beyond a third year.
According to the chart, if prior law were still in place there
would be over $758 million in personal income taxes.
MR. WILLIAMS, in response to Chair Weyhrauch, replied that the
acronym "AGI" stands for "adjusted gross income." He relayed
that the chart shows the total aggregate revenue from each gross
income class which categorizes the incomes between the lowest,
those incomes less than $20,000, and the highest, incomes over
$200,000. The aggregate revenue from each percentile of income
mirrors the information received by the Internal Revenue Service
(IRS), which is helpful for comparison purposes, he noted. He
reiterated that if the prior income tax law were still in place
it would generate $758 million. He added that if House Bill 470
had been adopted it would have generated $107 million, and if
House Bill 321 had been adopted it would have generated $300
million. The House Bill 470 property tax credit provision
complicates an accurate projection for the various income
percentiles, he related.
CHAIR WEYHRAUCH asked if the figures on the right of the chart
were gross revenue and do not account for the state's overhead.
MR. WILLIAMS answered that was correct. He relayed that the
chart aggregates beyond the forth year of enactment because
House Bill 470 has a ramp-up provision which effects revenue
potential. For instance, the first year expected revenue would
be $19 million, and the second year would be $55 million.
8:43:48 AM
REPRESENTATIVE WILSON asked what the implications of House Bill
321 would be without the $20,000 cap.
MR. WILLIAMS replied that the chart projections don't include
that cap because of data limitations. However, due to the tax
liability cap of $20,000 for a single person and $30,000 for
married filing jointly, there will be revenue loss; presumably
for incomes over $1 million because the maximum tax liability
will only be $30,000 to the state.
REPRESENTATIVE WILSON related that the cap was a committee
substitute (CS) proposed after people offered testimony. She
asked what the case would be without the added CS provisions.
MR. WILLIAMS reiterated that the $300 million projection doesn't
take into account the cap.
8:45:29 AM
MR. WILLIAMS turned to the chart entitled, "Comparative
Analysis", which analyzes "what if scenarios" about the
aforementioned income taxes. The first column provides examples
of different tax scenarios [i.e. income, home owner, marital
status, ect.], which assess the income tax schemes between the
federal tax liability and the effective rate of their Alaska tax
divided. He noted that the "what if scenarios" shows how the
bills could impact any family's deductions, credits, and various
rates set.
8:47:27 AM
CHAIR WEYRAUCH asked if House Bill 321 proposed a link to the
constitutional budget reserve (CBR).
MR. WILLIAMS replied that his copy of House Bill 321 doesn't
include any link to the CBR.
REPRESENTATIVE ROKEBERG commented that Chair Weyhrauch was
referring to a "trigger mechanism," but he cannot recall if it
was amended in the aforementioned bill.
8:48:17 AM
MR. WILLIAMS, in response to Representative Seaton, related his
belief that dual income families with a mortgage of $150,000 or
$225,000 don't pay income tax under House Bill 470. House Bill
470 has a property tax credit provision, which assumes that the
individuals living in a city or a borough have a property tax;
therefore, they have already paid sufficient property tax such
that it would "wipe out" any Alaska income tax liability.
8:49:12 AM
REPRESENTATIVE WILSON asked what percentage of Alaskans fall
into the aforementioned income percentiles.
MR. WILLIAMS relayed that is difficult to answer. According to
the U.S. Census Bureau, home ownership in Alaska is roughly 67
percent. However, there is no correlation regarding how the
data is distributed on the income scale, he added. In further
response to Representative Wilson, Mr. Williams said the
property tax credit provision is very substantial in House Bill
470.
8:50:07 AM
REPRESENTATIVE ROKEBERG relayed that he is interested in the
"particulars" of the aforementioned legislation but not the
background.
CHAIR WEYHRAUCH replied that the legislation will be analyzed,
but first the committee needs a general overview on the
implications.
8:50:28 AM
REPRESENTATIVE SEATON asked if the aforementioned exemptions in
House Bill 470 were anomalies.
REPRESENTATIVE ROKEBERG answered the exemptions aren't anomalies
and that is why the committee needs to discuss each bill.
8:50:46 AM
MR. WILLIAMS, in response to Representative Samuels, explained
that those individuals who can itemize deductions on their
federal income tax returns can include the state income tax as a
deduction. Although there is no capability to accurately
reflect the aforementioned offset provisions, it wouldn't be a
significant impact of revenue under the proposed legislation.
8:51:53 AM
REPRESENTATIVE SAMUELS asked how much a dual income family with
$150,000 mortgage would pay out-of-pocket.
MR. WILLIAMS relayed the aforementioned example under the prior
Alaska law would generate an income tax of $2,269 and if they
were able to itemize deductions 15 percent would save $340 on
their federal taxes.
REPRESENTATIVE ROKEBERG pointed out that the aforementioned
doesn't take into account the alternative minimum tax (AMT). He
remarked that in 2004 there will be a sales tax offset for the
first time in Alaska in decades, and one of the previous
concerns regarding the sales tax is it did not have the offset
whereas the income tax did; it is yet to be seen how the new
provision under federal law allows for a sales tax offset.
8:53:57 AM
MR. WILLIAMS highlighted that the "self tax deduction" is only
allowed for residents living in cities within boroughs that
impose a local sales tax. For instance, the residents of
Anchorage or Fairbanks do not benefit from that provision,
unless they have receipts detailing sales taxes paid elsewhere
in Alaska.
MR. DICKINSON added that if the state were to pass a statewide
tax, under federal law it would go under the "normal table." He
related his belief that Representative Rokeberg was pointing out
that a state's choice between income and sales tax doesn't
equalize in terms of its relationship with the federal
deductibility.
8:54:57 AM
MR. DICKINSON, in response to Representative Samuels, specified
that as a general rule any self-employed or pass-through entity
would be included in the $758 million projection for the
previous income tax law. In further response to Representative
Samuels, Mr. Dickinson added that although limited liability
companies (LLCs) in its current structure were not widely used
vehicles in 1977, LLCs would be just taxed once at the owner
level.
8:56:13 AM
REPRESENTATIVE ROKEBERG asked if the committee will discuss the
impact of taxation for the adjusted gross sales via Alaska gross
products.
MR. DICKINSON replied that the department will address that
after the comparison of the three income tax bills.
8:56:52 AM
MR. DICKINSON, in response to Chair Weyhrauch, replied that
there was no presentation prepared that compared the background
of the three income taxes other than from the revenue
perspective.
8:58:22 AM
BRETT FRIED, Economist IV, Department of Revenue, turned to the
pie chart entitled, "General Fund Revenue by Tax Type Including
Oil and Gas", which shows that FY 04 general fund (GF) tax
revenue totaled $1.2 billion of which 82 percent is oil and gas
and the remaining 18 percent is non oil and gas totaling $240
million. He turned to the second pie chart entitled, "GF Tax
Revenue Excluding Oil and Gas" which excludes the 82 percent of
oil and gas and details the non oil and gas revenues of 18
percent.
9:00:05 AM
MR. FRIED, in response to Representative Seaton, said the pie
chart entitled, "Alaska Gross State Product" doesn't include oil
and gas, which he plans to explain later. Mr. Fried continued
with detailing the non oil and gas revenues, which includes the
following tax types:
Tax Types: Amount: Percentage of
GF:
insurance $49 20 percent
premium million
fisheries * 19 percent
motor fuel $41 17 percent
million
corporation $40 17 percent
general million
alcohol $33 14 percent
million
tobacco $16 7 percent
million
[ * amount unstated]
9:01:26 AM
REPRESENTATIVE ROKEBERG pointed out that the pie chart shows 1
percent for mining, and asked if the mining portion includes the
real and personal property taxes paid to organized boroughs.
MR. FRIED replied that the chart only includes the GF taxes;
therefore, it excludes the local sales taxes, property taxes,
and restricted revenues. In further response to Representative
Rokeberg, Mr. Fried related that fish tax is GF revenue as are
the aforementioned share tax revenues. In contrast, the school
fund is a dedicated fund that excludes any local sales tax.
9:02:39 AM
REPRESENTATIVE ROKEBERG opined that the Red Dog mine's tax
contribution to the Northwest Arctic Borough cannot be truly
represented by 1 percent. He recalled that the legislature has
made policy calls for investment credits for mining incentives.
He said he is interesting to see the gross government take
versus the state GF take.
CHAIR WEYRAUCH commented that the fish tax doesn't go to the GF,
but instead it's re-appropriated to specific purposes.
9:03:32 AM
REPRESENTATIVE ROKEBERG related that he is interested "to see
who was paying what freight." He added that the oil and gas
component on the real property tax for the North Slope Borough,
Fairbanks, and Valdez are significant, "so it should be apples
and oranges anyway." In response to Chair Weyhrauch,
Representative Rokeberg clarified it's "apples and oranges" when
comparing the sources of funds with the tax burdens placed on
the different industries.
9:04:11 AM
REPRESENTATIVE SEATON remarked that the fish tax includes the
raw fish taxes collected, which is shared back to the
communities where the revenue was generated, but it excludes the
severance taxes charged by boroughs like Kodiak which has a 7.5
percent severance tax on all fish products landed. Therefore,
the total burden for each industry would be helpful to see.
MR. DICKINSON related that [the division] would take that
assignment, although those diagrams will be open to varying
interpretations.
MR. FRIED added that "other revenue sources" such as licensing,
permits, fines, forfeitures, and charges for services are not
included because they are difficult to break down.
CHAIR WEYHRAUCH asked if there was a ballpark estimate on the
other revenue sources.
MR. FRIED replied not at this time.
MR. DICKINSON added that the taxes in the GF amount to $300
million, and reiterated that other categories are more complex
to define.
MR. FRIED reiterated that the other categories deal with
restricted revenues like the Alaska Department of Fish and Game
permits, which total $20 million, or the tobacco settlement
revenue. To help highlight his point he turned to the pie chart
entitled, "Alaska Gross State Product," detailing the gross
economic measure of output in the economy.
9:07:56 AM
REPRESENTATIVE WILSON recalled that fisheries wanted to be taxed
in order to fund the cuts to the Alaska Department of Fish and
Game. She then turned to the aforementioned chart and asked for
an explanation on the yellow portion entitled, "Insurance
Premium."
MR. FRIED related that the yellow portion represents the
insurance premium tax that insurance companies pay in lieu of
corporate income taxes or other state taxes.
CHAIR WEYHRAUCH, for clarification purposes, asked if the
insurance tax is based on the premiums paid by individuals and
entities.
MR. FRIED replied yes.
9:09:55 AM
REPRESENTATIVE GRUENBERG relayed that the committee is
interested in the various sources of revenue, including sub-
categories that detail all the fines, royalties, exemptions, and
credits. He said that he is specifically interested in
university tax credits on a yearly basis, and how those vary
over time versus the maturity of other developing credits.
MR. DICKINSON related that the Department of Revenue does a
credits and operations report required by statute which sets out
all credits taken. The Revenue Sources Book lists all the
governmental fund revenues, such as taxes and charges for
services, which accounts for $4 billion. He reiterated that how
the line is drawn regarding what to account for makes the
exercise "more or less useful and more or less difficult."
REPRESENTATIVE GRUENBERG reiterated that gathering the
aforementioned information would be helpful for the committee.
9:13:27 AM
CHAIR WEYHRAUCH said that he would note the committee's requests
for information.
REPRESENTATIVE ROKEBERG offered that it might be helpful if
Representative Gruenberg put his request in writing.
REPRESENTATIVE GRUENBERG clarified that he made a general
request to have all the information put into a form for all the
committee members, [specifically for] university tax credits.
REPRESENTATIVE ROKEBERG noted that the requested information is
already in the Revenue Source Book. He noted that the 20
percent insurance premium tax generates $49 million, which is a
larger portion than the general corporate taxes. Representative
Rokeberg asked if the $9-12 million in mutual fund type fees
from the Division of Banking and Securities was still a source
of income.
MR. FRIED replied that the aforementioned revenue is aggregated
with "supported services" under charges for services in the
sources book. In further response to Representative Rokeberg,
Mr. Fried said the aforementioned is not included in the chart
because it's a charge for services and not tax revenue.
9:16:14 AM
REPRESENTATIVE SEATON related that he is concerned that the
insurance premium tax accounts for a large portion of the [GF].
He asked if a comparison on the insurance premium tax versus the
corporation general tax was available.
MR. DICKINSON replied that most states have gone to this
methodology because the nature of insurance company income is
hard to track. In further response to Representative Seaton,
Mr. Dickinson reiterated that the insurance premium tax was in
lieu of a corporate tax.
9:18:13 AM
REPRESENTATIVE GRUENBERG asked if some states are looking at
other ways to tax "banks and financial institutions" through a
general corporate tax.
MR. DICKINSON related his belief that some states deal with
financial institutions in different measures than the typical
gross income; however, he related the need to do more research
before commenting on specifics.
REPRESENTATIVE GRUENBERG said he was very interested in knowing
more about that.
MR. DICKINSON related that he has taken note of the assignment.
REPRESENTATIVE GRUENBERG asked if other state's industries,
because of sophisticated technology, are getting away from the
general corporate tax and are examining alternative ways of
taxing specific industries that may be more realistic.
MR. DICKINSON offered that he would rather not speculate before
obtaining more information, however, he noted that in Alaska
telephone and electric cooperatives are exempted from income
taxes and pay a fee calculated on its economic output. He
highlighted that the pie chart entitled, "General Fund Tax
Revenue Excluding Oil and Gas" details an electrical and
telephone cooperative portion of 2 percent. In further response
to Representative Gruenberg, Mr. Dickinson reiterated that the
department would try to obtain more information.
9:21:07 AM
REPRESENTATIVE SEATON clarified "that answer was good enough for
me."
9:21:26 AM
REPRESENTATIVE SAMUELS surmised that if an entity like WalMart
lost money nationally, it wouldn't pay tax in Alaska despite the
success of the store.
MR. DICKINSON said correct because WalMart's income is based on
its national [revenue accrual].
MR. WILLIAMS cautioned about using such analogies because
separate accounting issues are open to manipulation, as are
other methods of accounting.
9:22:19 AM
CHAIR WEYHRAUCH asked whether the issue of the mining tax burden
has been fully addressed.
9:22:46 AM
REPRESENTATIVE ROKEBERG said the [legislature] needs to
understand shared revenue tax policies, and the impact of the
government's take. He remarked that the [legislature] should be
sensitive to changing tax policies including encroaching on
sales tax areas, which in turn impacts the government because
it's partly dependant upon these industries.
MR. DICKINSON noted that the next step in the aforementioned
analysis would be to account for the services the [industries]
receive from the government and how to differentiate those
services by industries, which "isn't necessarily a transparent
set of numbers to calculate."
9:23:36 AM
REPRESENTATIVE SAMUELS asked, for clarification purposes, if S
corps, private practices, or LLCs pay no taxes at all.
MR. DICKINSON related that when an LLC files a federal return it
has the option of creating a "pass through," which pays no taxes
in certain cases, and the owners receive their due share of the
income to pay taxes when appropriate. In further response to
Representative Samuels, Mr. Dickinson said that under the
current law S Corporations are taxed the same as C Corporations.
If [House Bill 321 and House Bill 470] had been implemented, it
would generate $30 million.
9:25:13 AM
MR. DICKINSON, in response to Representative Gruenberg, replied
that S corporations taxes pass through to the owners. In the
state of Alaska those owners pay federal tax but no income
taxes, however, in other states owners are subject to both the
federal and income taxes.
REPRESENTATIVE GRUENBERG asked if the $30 million was "really
lost to the state."
MR. DICKINSON reiterated that the calculations are based on
taxing at the entity level; not taxing both the pass through and
personal income tax because that would combine the federal
income tax and state income tax.
9:26:45 AM
MR. FRIED returned to the pie chart entitled, "Alaska Gross
State Product" and said the data was from the Bureau of Economic
Analysis, which uses the North American industrial
classification system methodology for government entities to
classify industries, earnings for employment, and the gross
state product. The mining portion is "broken out" into the
following components: oil and gas extraction is 16 percent,
support activities and mining excluding oil and gas is 2
percent. The aforementioned body classifies the following
industries accordingly: the oil and gas extraction under
"Mining" is also categorized under "Manufacturing" and
"Transportation"; fish is under "Agriculture, forestry, fishing,
and hunting" and only includes fish harvesting; and seafood
processing would be under "Manufacturing", of which 1 percent
would be the seafood processing. He concluded that the tourism
industry is especially hard to break out because of all the
different aspects tourism encompasses.
9:29:44 AM
MR. FRIED, in response to Representative Rokeberg, said that in
2002, according to the U.S. Department of Commerce, Alaska's
gross state product was $29.7 billion.
9:30:08 AM
REPRESENTATIVE ROKEBERG said "It's kind of interesting to see
the mining versus the seafood and fishing component ... It's
kind of shocking in a way. Is this because of offshore
processing ... or added value isn't working here, or what?"
9:30:35 AM
REPRESENTATIVE SEATON replied that the mining, 21 percent,
included oil. He asked if 2 percent of that portion includes
minerals.
MR. FRIED clarified that 2 percent was mining except oil and
gas; the oil and gas part only includes the oil and gas
extraction component which is 16 percent. The remaining 3
percent is from the support activities, which also includes oil
and gas support activities, he added.
9:31:33 AM
MR. DICKINSON relayed that the lines used to define the
industries may not be exactly what the committee asked for, but
the graphs show the data with which the Department of Revenue
was allowed to work. The next step would be to define the
project and areas more precisely. He added that the department
[doesn't have] the ability or resources to allow this research,
or the statutory authority to conduct this conservatism or
sensitive information. Therefore, it uses the data available
and it may not line up with the categories the committees think
of as being the primary ones that should be compared.
9:32:46 AM
REPRESENTATIVE ROKEBERG asked if the aforementioned pie chart
included "medical provider" under "Services 20%".
MR. FRIED replied that is correct.
9:33:01 AM
REPRESENTATIVE ROKEBERG pointed to the chart entitled, "Alaska
Gross State Product", which details real estate accounts for 9
percent of the gross product; he opined that real estate
accounts for at least half of the gross product of oil and gas.
9:33:19 AM
CHAIR WEYHRAUCH said the committee should briefly discuss the
income tax legislation. He related his understanding that House
Bill 470 was concerned with people coming into the state, such
as those working in fisheries and oil and gas, and contributing
to local government.
9:34:15 AM
REPRESENTATIVE MOSES said:
That's correct, the chances of a non resident worker
having property tax credit would be quite remote and
if [they] did invest in the state [they] would be
entitled to that credit. There's another catch to
that, areas of the state that do not have property
taxes would not get any credits either. [The]
original intent was to get something on the table and
the percentage of tax could be adjusted according to
whatever [the legislature] wanted to raise. [Are]
fishermen are considered independent businessmen or
labor? In the settlements they get a 1099 and there's
no taxes withheld. I would expect they would be
classified as independent businessmen.
9:35:34 AM
REPRESENTATIVE SEATON relayed that under the previous tax,
fisherman who received a 1099 filed as a business under state
law and wrote a 14 percent check for their federal taxes. He
remarked that the state shouldn't set up a tax for "just the
employed" and fishermen should pay the same taxes as any other
businessmen.
9:36:28 AM
REPRESENTATIVE ROKEBERG said:
I have never been a great fan of writing checks to
government's taxes, like most of [the] constituents
and the citizens of state, so I preface the remark I
am about to make .... I want to compliment
Representative Moses, I have always been intrigued
with this concept that he brought forward a number of
years ago. It has the beauty of being more of like a
rifle approach to those elements of the working public
in our state that [don't] make a contribution, that is
more specifically the out-of-state workers and the
unorganized borough. Because by allowing a real
property tax credit against your liability those
people who own property - and a matter of fact, ... I
have a legal opinion that says not just residential
property, but it would be any owner of property that
paid property taxes in the state of Alaska would have
to be allowed to have the credit for equal protection
in the constitution provisions - but ... it has that
element that has been one of the leading arguments for
some type of a broad-based type tax because there was
people in our labor force coming to the state and not
making a contribution; and this would also lower the
burden on everybody ... this is drafted on the
original draft; there has never been a lot of work on
the bill, that shows those holes in middle income ....
The principle of the exemption ... is something that
should be considered in any future tax scheme in
Alaska and it could be applied to any of the other
bills ....
9:39:18 AM
REPRESENTATIVE WILSON said that many people who don't own
property still pay [property tax] indirectly because landlords
pass their expenses on to renters.
REPRESENTATIVE SAMUELS added that if you don't have a [property
tax] exemption, the cost for rent will increase because costs
always pass through to renters.
9:40:53 AM
CHAIR WEYRAUCH asked if House Bill 321 tied into the value of
the constitutional budget reserve (CBR) regarding when that
proposed income tax would "kick in."
9:41:18 AM
REPRESENTATIVE WILSON said she couldn't recall if the CBR was
incorporated into House Bill 321. However, she highlighted that
the proposed tax included requirments by which a warning about
taxation was printed on commercial fishing license applications.
The aforementioned requirement is found in Section 1 of House
Bill 321, which specifies that notice be printed on the
commercial fishing license warning that the licensee is
obligated to pay Alaska state income tax and federal income tax.
Section 2, imposes an income tax of 3 percent of a person's
federal taxable income or $100, which ever is greater. She
added that provision is incorporated to ensure everyone paid
something and the low income base is covered. Section 3 is a
conforming amendment to a corporate income tax. Section 4
required taxpayers to file returns and remit their taxes the
same day the federal return was due and those that owed a $100
could have the tax deducted from the permanent fund, if they so
wished. She added that non residents whose only income from the
state is from a trust or corporation could opt to withhold the
taxes and file their returns. The tax liability is capped at
$20,000 for single individuals and $30,000 for married filing
jointly. She reiterated that the legislation was trying to
appease everyone and it resulted in a floor of $100 and a
ceiling not to exceed $30,000. The legislation also tried to
incorporate the education tax and it set an employee age limit
of 19. Furthermore, there was a provision that allowed
employers to withhold some of that tax.
9:45:02 AM
MR. DICKINSON related that last session Representative Wilson
introduced another tax bill that included the CBR.
9:45:32 AM
MR. WILLIAMS, in response to Chair Weyhrauch, relayed that the
graph entitled, "Projected Income Tax Revenue" has asterisks
across the House Bill 470 row, because it's difficult to produce
a distributional analysis of the revenue generated from each
class of income. He explained that the methodology used an
aggregate approach for the total revenue because it had to
assume the rate of home ownership and who would be eligible for
those credits. In further response to Chair Weyhrauch, Mr.
Williams said $107 million was the estimated total gross income
from the taxes implemented under House Bill 470.
9:47:13 AM
MR. DICKINSON recalled that Representative Wilson's legislation
for the billion-dollar CBR floor and suspension of the tax when
it was greater than $2.5 billion was House Bill 236.
CHAIR WEYHRAUCH noted that the questions regarding the legal
technicalities of using the CBR and the permanent fund earnings
to fill the fiscal gap have yet to be been received.
9:48:16 AM
REPRESENTATIVE ROKEBERG turned to the "2002 Revenue Source Book"
analysis on income tax, detailing the revenue of the [original
income tax]. He asked if the reason the spreadsheet shows $750
million adjusting for inflation to $660 million is because of
nominal versus inflated dollars.
MR. WILLIAMS said that is correct, the old law unchanged would
be [$750 million] but if the brackets had been adjusted for
inflation then it would be $660 million. He related his belief
that the old law wouldn't survive intact to the present because
there would have been a tax revolt such that the brackets would
have been simplified and the personal income more than likely
would have regressed to a more national average, which is
roughly 6 or 7 percent of federal taxable income generating an
estimated $300-$350 million. In further response to
Representative Rokeberg, Mr. Williams reiterated that the $750
million is a true representation if the old law were in place
and remained unchanged.
9:50:52 AM
MR. WILLIAMS, in response to Representative Rokeberg, replied
that the "Tax Division Annual Report" Appendix B includes a
chart showing the personal income tax rate of the various states
in the nation, which range from 5-6 percent based on the federal
taxable income. He added that the effective rate of the old
income tax, if it had remained intact, would have made Alaska
the highest taxing state in the nation.
9:52:44 AM
MR. WILLIAMS, in response to Chair Weyhrauch, said the old
income tax would generate $660 million and oil and gas taxes are
about $2 billion. In further response to Chair Weyhrauch, he
said in comparison the old law would generate approximately one
quarter of what oil and gas generates.
9:53:23 AM
REPRESENTATIVE ROKEBERG commented that it's important to pursue
the last line of questioning because it's important to consider
[income taxes] in a national context and address "whether the
state can afford itself." The committee needs to look at the
potential anticipated revenue streams and assess what can be
relied on for the future, he opined. For instance, the
aforementioned $750 million would not be a potential tax revenue
stream because it would cause a "mutiny."
CHAIR WEYHRAUCH added it would cause an outflow of industry.
REPRESENTATIVE ROKEBERG added that the impacts on the economy
would be devastating.
ADJOURNMENT
9:54:28 AM
There being no further business before the committee, the House
Special Committee on Ways and Means meeting was adjourned at
9:54 a.m.
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