Legislature(2021 - 2022)
09/03/2021 01:00 PM House WAYS & MEANS
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| Audio | Topic |
|---|---|
| Start | |
| HB3006 | |
| Overview: Revenue Options | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB3006 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| + | TELECONFERENCED |
ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON WAYS AND MEANS
Anchorage, Alaska
September 3, 2021
1:03 p.m.
MEMBERS PRESENT
Representative Ivy Spohnholz, Chair
Representative Adam Wool (via teleconference)
Representative Andy Josephson
Representative Calvin Schrage
Representative Andi Story
Representative Mike Prax
Representative David Eastman (via teleconference)
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
HOUSE BILL NO. 3006
"An Act relating to a state sales and use tax; relating to sales
and use taxes levied by municipalities; authorizing the
Department of Revenue to enter into the Streamlined Sales and
Use Tax Agreement; and providing for an effective date."
- HEARD & HELD
OVERVIEW: REVENUE OPTIONS
- HEARD
PREVIOUS COMMITTEE ACTION
BILL: HB3006
SHORT TITLE: STATE SALES AND USE TAX
SPONSOR(s): REPRESENTATIVE(s) TARR
08/30/21 (H) READ THE FIRST TIME - REFERRALS
08/30/21 (H) W&M, STA, FIN
09/03/21 (H) W&M AT 1:00 PM ANCH LIO DENALI Rm
WITNESS REGISTER
REPRESENTATIVE GERAN TARR
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: As prime sponsor, presented HB 3006.
DAVID SONG, Staff
Representative Geran Tarr
Juneau, Alaska
POSITION STATEMENT: During the hearing on HB 3006, read the
sectional analysis on behalf of Representative Tarr, prime
sponsor.
BRIAN FECHTER, Deputy Commissioner
Department of Revenue
Anchorage, Alaska
POSITION STATEMENT: Co-provided a PowerPoint presentation,
titled "Revenue Options Discussion," dated 9/3/21.
NICOLE REYNOLDS, Deputy Director
Tax Division
Department of Revenue
Anchorage, Alaska
POSITION STATEMENT: Co-provided a PowerPoint presentation,
titled "Revenue Options Discussion," dated 9/3/21.
DAN STICKEL, Chief Economist
Tax Division
Department of Revenue
Juneau, Alaska
POSITION STATEMENT: Co-provided a PowerPoint presentation,
titled "Revenue Options Discussion," dated 9/3/21.
COLLEEN GLOVER, Director
Tax Division
Department of Revenue
Anchorage, Alaska
POSITION STATEMENT: Co-provided a PowerPoint presentation,
titled "Revenue Options Discussion," dated 9/3/21.
ACTION NARRATIVE
1:03:28 PM
CHAIR IVY SPOHNHOLZ called the House Special Committee on Ways
and Means meeting to order at 1:03 p.m. Representatives
Schrage, Prax (via teleconference), Josephson, and Spohnholz
were present at the call to order. Representatives Wool (via
teleconference), Eastman (via teleconference), and Story arrived
as the meeting was in progress.
HB 3006-STATE SALES AND USE TAX
1:04:26 PM
CHAIR SPOHNHOLZ announced that the first order of business would
be HOUSE BILL NO. 3006, "An Act relating to a state sales and
use tax; relating to sales and use taxes levied by
municipalities; authorizing the Department of Revenue to enter
into the Streamlined Sales and Use Tax Agreement; and providing
for an effective date."
1:04:33 PM
REPRESENTATIVE GERAN TARR, Alaska State Legislature, as prime
sponsor, presented HB 3006 [hard copy of presentation included
in the committee packet]. She gave a brief history of the
bill's inception, emphasizing her willingness to see it modified
and the importance of having the support of both bodies, as well
as the governor. She talked about "spreading the burden among
all who benefit from public services" and indicated an
acceptance of the idea to establish a sales tax. She noted the
burden on Alaska's small population to pay for all goods and
services. She said 20 percent of the state's workforce is from
out of state, and 2.26 million visitors come to Alaska. She
said Alaskans who travel outside the state pay taxes to those
locales, and she opined that visitors to Alaska should do the
same.
1:06:58 PM
REPRESENTATIVE TARR advised that in coming up with a plan to
raise revenue, two questions to ask are how much revenue could
be raised by any single proposal and how soon that revenue could
come to the state. One benefit of the proposal under HB 3006,
she said, is that it can be implemented sooner. With an
effective date of July 1, 2022, for Fiscal Year 2022 (FY 22),
that would happen faster than an income tax, which is based on a
calendar year. Pointing to a chart, labeled "Who pays, how
soon," she listed payers as Alaskans, out-of-state workers,
tourists, and businesses/oil companies, and she said it is
likely that everyone would contribute to state services [through
a sales tax]. She said that is not likely to be true with the
other revenue sources [being considered]. She questioned what
the public's reaction would be to multiple revenue source
proposals being introduced at one time.
1:12:39 PM
REPRESENTATIVE TARR turned to consideration of exemptions, shown
on the next two pages of the presentation. Basic essentials
would be exempted from sales tax, including groceries, medical
expenses, child care services, and feminine care products. She
mentioned deductions that must be included, and she indicated
those have to do with the state not being allowed to tax the
federal government or tribes. Other deductions to be considered
may include financial services and non-profit agencies.
REPRESENTATIVE TARR talked about management and said HB
3006 envisions a streamlined approach for general sales and
use tax; the bill has provisions to allow municipalities
and boroughs the ability to levy tax, and the state would
collect the tax and distribute it back to those local
governments. She indicated that the exemptions previously
mentioned would also become exemptions at the local level.
She said her staff would offer a sectional analysis of HB
3006. She said it would include Title 28, regarding motor
vehicles; Title 29, regarding municipal government; and
Title 43, regarding revenue and taxation.
1:17:22 PM
REPRESENTATIVE TARR spoke about the beginnings of her efforts
toward HB 3006 and other legislation addressing the issue of
revenue. She spoke of issues that effect the economy. She
addressed the impact of the proposed legislation, which would be
a 2 percent general sales and use tax. She said those in the
lower economic income brackets would "come out ahead" under the
proposed legislation, while those on the higher end, who may not
consider their permanent fund dividend (PFD) as necessary
income, could view their PFD as a way to pay the higher sales
tax on expensive purchases, such as a new vehicle. She called
this a "win-win" situation.
1:22:39 PM
REPRESENTATIVE TARR offered ideas for further consideration,
such as including exemptions for diapers and other supplies for
children, which she noted could be included under the food
definition if it were amended. She said some have questioned
the necessity of state management. She explained that [HB 3006]
was based off a draft former Governor Bill Walker had created in
2015. Since then an online sales tax has been implemented, and
municipalities have had to track the online sales tax, in
addition to their own local taxes. She pointed out that because
there is software "that helps delineate all of that," so it
could be that state management is not necessary. She talked
about splitting the collection of taxes between municipalities
and the state so that municipalities can maintain their sales
tax and not lose revenue. She related another conversation has
been held regarding 501(c) organizations and the idea of
allowing exemptions for volunteer fire departments,
organizations for veterans, and chambers of commerce, for
example. In conclusion, Representative Tarr acknowledged that
HB 3006 may require numerous hearings to hone.
1:27:34 PM
REPRESENTATIVE TARR, in response to Representative Prax, stated
that the Department of Revenue has figured that a fully
implemented sales tax would garner the state approximately $300
million per year.
REPRESENTATIVE PRAX asked if the bill sponsor had considered
that people might buy more expensive items from states without
sales tax.
REPRESENTATIVE TARR talked about the proximity of states with no
sales tax to Alaska. Oregon has income tax, but no sales tax;
the other states [with no sales tax] are Delaware, Montana, and
New Hampshire. She suggested it may end up being more costly
for someone to buy a vehicle, for example, in one of those
states and then have to pay to ship it to Alaska. She
acknowledged that Alaskans used to buy items in Washington;
however, the policy that allowed non-residents to forgo paying
the State of Washington's sales tax was eliminated. She
suggested the proposed sales tax for Alaska could include a cap.
1:31:44 PM
REPRESENTATIVE PRAX opined that those factors need to be
considered when addressing HB 3006.
1:32:11 PM
CHAIR SPOHNHOLZ asked David Song to give the sectional analysis
for HB 3006.
1:32:16 PM
DAVID SONG, Staff, Representative Geran Tarr, on behalf of
Representative Tarr, prime sponsor of HB 3006, read the six-page
sectional analysis for the record [hard copy available in the
committee packet].
1:54:50 PM
CHAIR SPOHNHOLZ announced that HB 3006 was held over.
^OVERVIEW: Revenue Options
OVERVIEW: Revenue Options
1:55:26 PM
CHAIR SPOHNHOLZ announced that the final order of business would
be an overview of Revenue Options.
1:56:14 PM
BRIAN FECHTER, Deputy Commissioner, Department of Revenue, co-
provided a PowerPoint presentation, titled "Revenue Options
Discussion," dated 9/3/21. As shown on slide 2, he said he
would define the problem, mention revenue options proposed
through legislation, and discuss other revenue options. As
shown on slide 3, he said that with a 50/50 permanent fund
dividend (PFD), there will be a deficit of $1 billion. He said
he has heard that any sort of robust PFD will result in a $1
billion deficit "forever into the future," which he said is "not
quite true." He pointed to an additional $3 million dollars in
fiscal year 2023 (FY 23). He said, "The real target is really
in the order of $5 million revenues or reductions."
1:57:23 PM
NICOLE REYNOLDS, Deputy Director, Tax Division, Department of
Revenue, continued with the PowerPoint, bringing focus to slide
4, entitled "Revenue Options In Brief: Legislature
Consideration," which shows a breakdown of each piece of
legislation discussed in more detail in upcoming slides.
1:57:46 PM
CHAIR SPOHNHOLZ noted that the department had not included an
analysis of any of the income taxes that were introduced this
year, and she asked that the presenters address that point.
1:58:01 PM
MR. FECHTER said the governor had set "borders" related to
fiscal solutions: no income tax; no less than a 50 percent PFD;
and contemplation of a spending cap. In response to a follow-up
question, he said the department could return at a later date
[to address questions about income tax proposals].
1:58:55 PM
REPRESENTATIVE JOSEPHSON asked for confirmation of his
understanding that the governor would support a sales tax, with
a vote of the people, but he would veto an income tax.
MR. FECHTER spoke of constitutional amendments and the
requirement of any future broad-based taxes to get voter
approval. He indicated a sales tax would pass the legislature
prior to getting to the ballot. He said, "As long as it's part
of a full fiscal solution that includes the three borders that I
mentioned earlier, ... it is likely that he would let that go
through."
CHAIR SPOHNHOLZ reminded committee members that they had heard
from Alexei Painter, Director of the Division of Legislative
Finance, regarding the PFD and the governor's proposal for a
50/50 formula, and she related it to the $500 million number
referenced by Mr. Fechter.
2:01:28 PM
MS. REYNOLDS returned to the presentation and noted that slide 5
shows other revenue options. Slide 6, "Revenue Options for
Consideration," shows the current legislative proposals for
revenue sources, which are: SB 106, HB 130, HB 104, HB 110, HB
3006, HB 3007, and SB 13. [The ensuing slides detail each
proposal.] She covered Slides 7 and 8, options "A" and "B,"
regarding SB 106 and HB 130, respectively, which read as follows
[original punctuation provided, with some formatting changes]:
A: Pass-Through Oil and Gas Tax Revisions (SB 106
Sen Wielechowski)
Description: This bill extends Alaska's existing
corporate income tax for oil and gas corporations to
apply to pass-through entities with qualified taxable
income over $4 million that are engaged in oil and gas
exploration or production in Alaska. For purposes of
this bill, a passthrough entity is a sole
proprietorship, partnership, and S-Corporation, but
the definition does not include LLCs with a single
owner that are treated for federal income tax purposes
as disregarded entities. The bill defines "qualified
taxable income" to mean income from the production of
oil or gas from a lease or property in the state or
from the transportation of oil or gas by pipeline in
the state.
First Full Year Impact: $46.0 million in FY 2023 This
estimate does not account for changes in behavior as a
result of a tax rate change.
Costs: There are one-time programming costs of $0.8
million.
B: Corporate Income Tax Revisions (HB 130 Rep Wool)
Description: This bill makes several revisions to the
State's current corporate income tax (CIT):
1. It expands the existing corporate income tax to all
oil and gas producers doing business here. Currently,
only "C" corporations pay this tax on their Alaska net
income.
2. As part of the CARES Act, corporations were
permitted to carryback any 2018-2020 tax year losses
to a prior tax year via an amended tax return. This
bill decouples the state CIT from that federal
provision.
3. The bill also includes several other modifications
to the CIT provisions: modifies federal tax credits,
eliminates the 80% deduction, and repeals stranded gas
development provisions.
First Full Year Impact: $141.7 million in FY 2022
The first-year impact is primarily from the CARES Act
change. The FY 2023 revenue impact is $32.6 million.
This estimate does not account for changes in behavior
as a result of a tax rate change.
Costs: There are one-time programming costs of $0.9
million.
2:06:11 PM
MS. REYNOLDS, in response to Representative Josephson, offered
her understanding of the distinction between "worldwide"
reporting and "water's edge combined reporting."
2:07:05 PM
MS. REYNOLDS next covered slides 9 and 10, options "C" and "D,"
regarding HB 104 and HB 110, respectively, which read as follows
[original punctuation provided, with some formatting changes]:
C: Motor Fuel Tax (HB 104 Rep Josephson)
Description: A tax is levied on purchases of highway
and marine diesel and gasoline, aviation gas, and jet
fuel. Tax rates are as follows: Highway = $0.08/gal,
Marine = $0.05/gal, Aviation = $0.047/gal, Jet Fuel =
$0.032/gal. Certain refined fuel sales are also
subject to a $0.0095/gal Surcharge.
This bill doubles the tax rates for highway and marine
fuel only. It does not increase the rates for aviation
or jet fuel. This option also increases the fuel
surcharge to $0.015/gal.
First Full Year Impact: $35.8 million in FY 2023 This
estimate does not account for changes in behavior as a
result of a tax rate change.
Costs: There are no incremental costs to implement
this change.
D: E-Cigarette Tax (HB 110 Rep Hannan)
Description: This is a parity tax bill making any
vapor product, component, or solution used in
electronic cigarettes subject to the excise tax on
tobacco products. This change would only apply to
solutions containing nicotine. Currently, these
products do not fall under the definition of tobacco
products and are not subject to tax at the state
level.
First Full Year Impact: $2.4 million in FY 2023 This
estimate does not account for changes in behavior as a
result of a tax rate change.
Costs: There are no incremental costs to implement
this change.
2:10:09 PM
DAN STICKEL, Chief Economist, Tax Division, Department of
Revenue, showed slide 11, option "E," regarding HB 3006, which
read as follows [original punctuation provided, with some
formatting changes]:
E: Sales Tax (HB 3006 Rep Tarr)
Description: This bill implements a 2% statewide sales
tax. Notable exemptions include: Groceries, financial
services, goods for resale, real property, aviation
fuel, healthcare services, pharmaceuticals, and
childcare. The bill envisions the Department
collecting both the state sales tax and the sales tax
for the 140+ sales taxes levied locally and remitting
the funds back to those municipalities. The tax base
in this bill is considered to be a "mid base" tax
base.
First Full Year Impact: $300 million in FY 2023 This
estimate does not account for changes in behavior as a
result of a tax rate change.
Costs: There are one-time programming costs of $6
million. The Department would need 74 new positions at
a cost about $8.5 million per year.
MR. STICKEL, referring to the prior question about people buying
expensive items outside of Alaska [to avoid paying sales tax],
pointed out that HB 3006 proposes a sales and use tax. A person
buying a car out of state and bringing it to Alaska would pay a
use tax.
2:12:08 PM
COLLEEN GLOVER, Director, Tax Division, Department of Revenue,
addressed slide 12, option "F," regarding HB 3007, which read as
follows [original punctuation provided, with some formatting
changes]:
F: Reduce Sliding Scale per Barrel Credit from $8.00
to $4.00 (HB 3007 Ways and Means)
Description: This bill changes the maximum the sliding
scale per barrel credit in AS 43.55.024(j) depending
on Alaska North Slope (ANS) oil prices. This tax
credit is available for "legacy" oil produced on the
North Slope. This bill reduces the amount of the tax
credit for each taxable barrel of oil from $8 to $4
when the average gross value at the point of
production for the month is less than $80 a barrel.
The bill scales down the tax credit amount when the
average gross value at the point of production for a
month is $80 or more. Under the bill, the amount of
the tax credit for a taxable barrel of oil would be
zero if the average gross value at the point of
production for the month is $110 or more.
First Full Year Impact: $174.0 million in FY 2023
Costs: There are no incremental costs to implement
this change.
MS. GLOVER noted that HB 3007 would not change the flat per
barrel credit.
MS. GLOVER next addressed Slide 13, option "G," regarding SB 13,
which read as follows [original punctuation provided, with some
formatting changes]:
G: Petroleum Property Tax (SB 13 BEGICH)
Description: The state levies a tax at a rate of 20
mills (2%) of the assessed value. The tax paid to a
municipality on oil and gas property acts as a credit
toward the payment to the state, reducing state
revenue by the tax levied in those municipalities.
This bill increases the tax by 10 mills (1%) but does
not allow the additional tax to be used as a credit
for municipalities. This tax would reduce Corporate
Income tax as well as Oil and Gas Production Tax
because property tax payments are a deductible
expenditure for those tax types.
First Full Year Impact: $272.1 million in FY 2022
(Designated to specific purposes) Using the Spring ANS
price forecast, the estimate is that this could
increase production [sic] tax revenue by $228 to $272
million per year from FY 2022 to FY 2027. The range is
due to forecasted changes in production, oil prices,
and anticipated company spending during this period.
Costs: There are no incremental costs to implement
this change.
2:15:15 PM
REPRESENTATIVE JOSEPHSON suggested that in the second paragraph,
the word "production" was a typographical error and should read
"property."
MS. GLOVER confirmed the word should be "property." She added
that property tax is "a deduction against oil and gas production
tax," a lease expenditure, and a deductible against corporate
income tax, and it can impact the royalty revenue.
2:16:18 PM
MS. GLOVER, in response to Representative Prax, confirmed that
the $272 million is the incremental increase to the state. She
added that "it shows it's designated," so under SB 13, the
revenues are set between a higher education fund, the Alaska
capital fund, and shared with local governments to offset
personal property tax exemptions required by the state.
2:17:41 PM
CHAIR SPOHNHOLZ sought to confirm that Ms. Glover was saying
that the petroleum property tax is deductible from corporate
income taxes and petroleum production taxes, and that the
revenue estimate of $22.1 million "is net of those impacts."
MS. GLOVER answered that's correct. She added that they are
designated funds, not undesignated general funds (UGF).
2:18:12 PM
MS. REYNOLDS drew attention to slide 14, "Other Revenue
Options," which lists the options as follows [original
punctuation provided]:
Revenue Options
A. Modernize Corporation Income Tax (CIT) statutes to
better reflect business activity of highly digitized
businesses
B. Require Oil & Gas pass-through entities to pay CIT
C. Generate revenues/Reduce Expenses by monetizing our
carbon offsets
D. Implement a 2% broad-based sales tax
E. Modify maximum sliding scale per barrel credit from
$8.00 to $5.00.
F. Establish legalized gambling in our State: Internet
gaming, sports betting, lottery, and casinos
G. Use of Federal Funds for revenue replacement
H. Draw from the ERA as a Bridge/Transition fund
MS. REYNOLDS addressed item "A" on slide 14, by discussing the
details of the "Digital Business Corporate Income Tax" on slide
15, which read as follows [original punctuation provided, with
some formatting changes]:
A: Digital Business Corporate Income Tax
Description: The digital revolution has changed our
economic reality. This option is to modernize the
Corporate Income Tax (CIT) statutes by adding a new
apportionment methodology that is specific to e-
commerce. The new apportionment methodology is
intended to incorporate all types of e-commerce to
include revenues generated from on-line purchases, TV
streaming, online advertising, consumer data sales,
music, video, software as a service, app purchases,
etc. An apportionment methodology that is based on a
single factor: US sales apportioned to Alaska based on
Alaska sales will capture these lost revenues.
New Revenue Estimation: The preliminary estimate is
that this could generate $70 to $90 million of annual
revenues to the State.
Costs: Implementation costs have not been evaluated
yet and are considered TBD. The system will need to be
updated and will likely require one additional auditor
to educate taxpayers.
MS. REYNOLDS noted that this is not a new approach; currently
oil and gas tax payers use a modified apportionment formula, as
do other transportation carriers, such as water carriers and
airlines. The formula reflects a company's business activities
and how it earns income in a state. The approach creates parity
between brick and mortar businesses and "those businesses doing
significant economic activity in Alaska without those brick and
mortar stores in Alaska."
2:20:42 PM
REPRESENTATIVE JOSEPHSON asked whether Alaska was lagging "in
capturing this revenue" compared to other states.
MS. REYNOLDS answered that Alaska is in need of updating its
corporate income tax statutes. There is a multi-state compact
Alaska is a part of, and it has been suggested to Alaska that it
update its statutes. This option would provide the opportunity
for the state to adopt some of the recommendations and update
statute.
2:21:46 PM
REPRESENTATIVE PRAX sought clarification as to whether this
option was in the proposal stage or whether the administration
had some legislation "close to being prepared."
2:22:03 PM
MR. FECHTER answered that research and legislation is in
development, and he offered to meet with Representative Prax to
discuss this further.
CHAIR SPOHNHOLZ spoke about parity between local businesses and
large conglomerates. She asked whether there is legislation
recommended by the multi-state compact that could be referenced.
MR. FECHTER answered that this is a relatively new thing, with
perhaps "a dozen and a half states" that are "somewhere in the
legislative process contemplating things." He said Alaska would
be "at least a little bit on the cutting edge" if it were to
pass such a compact.
2:23:31 PM
MS. REYNOLDS, in response to a follow-up question from Chair
Spohnholz, clarified that Alaska already has a corporate income
tax; this option being discussed would modernize the state's
existing tax rather than creating a new one.
2:24:28 PM
MS. REYNOLDS returned to the PowerPoint, to slide 16, which read
as follows [original punctuation provided, with some formatting
changes]:
B: Expand Corporate Income Tax to Oil and Gas Pass-
through Entities
Description: This option proposes to tax oil and gas
pass-through entities at the same rate as the current
Corporate Income Tax on C-Corporations. This option
defines "entities" to mean partnerships, S-
Corporations, LLCs with a single owner that is treated
as a disregarded entity, and other unincorporated
entities. This option would apply to any business who
files a return, claim for credit or report under AS
43.55 (oil and gas production tax).
First Full Year Impact: $43 million in FY 2022 (Spring
Forecast) Using our July 2021 ANS price update as the
basis, the estimate is that this could increase
corporate income revenue by $47 to $61 million per
year from FY 2022 to FY 2030. The FY 2022 estimate
includes retroactive application to 1/1/2021. The
range is due to forecasted changes in production, oil
prices, and anticipated company profitability this
period.
Costs: There are one-time programming costs of $0.8
million.
MS. REYNOLDS noted there are different ways to define "entity"
and "oil and gas entity."
2:25:59 PM
MR. STICKEL brought the committee's attention to slide 17, which
read as follows [original punctuation provided, with some
formatting changes]:
C: Carbon Offset Revenue Generation
Description: A newly emerging revenue opportunity is a
Carbon Offset Program. This can be related to cap-and-
trade systems in other jurisdictions, or to company or
individual voluntary carbon reductions. Under this
proposal, Alaska would place select SOA lands, i.e.,
forest land, into a carbon offset program in lieu of
development and receive revenue from companies or
individuals in exchange for associated carbon offset
credits. Tax credit certificate holders will have an
option to exchange the value of certificates for
carbon offsets and can manage monetization of the
offsets anywhere in the world.
New Revenue Estimation: The very preliminary estimate
is that this could generate $1.3 to $25 million of
annual revenues to the State. DOR and DNR are
currently evaluating the details of the program that
include lands, inventory of carbon offset, value of
the carbon and the amount of Alaska carbon offsets the
global market can absorb.
Costs: Implementation and annual administration costs
have not been evaluated yet and are considered TBD.
MR. STICKEL said an alternate plan would be for Alaska to do a
one-time sale for a larger amount.
2:28:13 PM
MR. FECHTER added that another item that the department
contemplated was "to use these carbon offsets to redeem the
outstanding oil and gas tax credit certificates"; the producers
would exchange the right to receive cash for the right to
receive carbon offsets, which they could then use in other
jurisdictions to satisfy their tax.
CHAIR SPOHNHOLZ remarked on the creativeness of being able to
harmonize the state's other policy objectives with a way to
"monetize those assets."
2:29:39 PM
MR. STICKEL turned attention to slide 18, which read as follows
[original punctuation provided, with some formatting changes]:
C: Carbon Offset Revenue Generation
Benefits of Carbon Offset Revenue Program
A. Enables select Alaska lands to be placed into
global registry programs where carbon offsets can be
monetized and generate revenues
B. Establishes a program that enables the SOA to
communicate responsible development and management of
our lands to public, especially banks that prohibit
investment in Alaska Arctic oil and gas projects.
C. Provides a carbon offset valuation of oil/gas tax
certificates that positions holders of the credits to
obtain the offset value instead of payment of SOA
liability. Holders may then monetize in a manner that
meets its ESG policies, offsets carbon taxes that may
be required in other jurisdictions, or offsets to be
carbon neutral.
2:30:34 PM
MR. STICKEL transitioned back to sales tax, on slide 19, which
read as follows [original punctuation provided, with some
formatting changes]:
D: State Sales Tax (styled on South Dakota Sales & Use
Tax)
Description: A tax on purchase price on the sales of
goods and services to consumers and businesses, taxing
a range of activities similar to that of the South
Dakota Sales & Use Tax. This is a very broad-based tax
that extends to a wide range of services and business
inputs. There are few exemptions, which includes
prescriptions and medical equipment.
First Full Year Impact: $320 million per 1% levied in
FY 2023
Costs: There are one-time programming costs of $6
million. The Department would need 74 new positions at
a cost about $8.5 million per year.
MR. STICKEL explained that a benefit of having a broader tax
base is having more revenue with a lower tax rate. He said
South Dakota has one of the broadest tax bases.
MR. STICKEL, in response to Chair Spohnholz, said he thinks
South Dakota does not have a cap on its tax, but he said he
would follow up with an answer.
2:32:49 PM
MR. STICKEL moved on to slide 20, which read as follows
[original punctuation provided, with some formatting changes]:
D: State Sales Tax (styled on Wyoming Sales & Use Tax)
Description: A tax on the purchase price on the sales
of goods and services to consumers and businesses,
taxing a range of activities similar to that of the
Wyoming Sales & Use Tax. This is a broad-based tax
that extends to many, but not all, services and
business purchases. Exemptions include groceries,
prescriptions, and medical equipment
First Full Year Impact: $150 million per 1% Levied in
FY 2023
Costs: There are one-time programming costs of $6
million. The Department would need 74 new positions at
a cost about $8.5 million per year.
MR. STICKEL brought attention to Slide 21, which compares
exemptions between South Dakota and Wyoming. Both states have
broad-based taxes for individual purchases, with exemptions for
prescription drugs, medical equipment, and big business
purchases for resale. He noted that the main difference is that
Wyoming exempts groceries, business to business services, and
some oil field services, such as drilling costs and exploration
services completed prior to setting up production.
2:35:26 PM
REPRESENTATIVE STORY expressed concern about taxing groceries
due to increased prices and sought clarification on the
difference between taxable and non-taxed food purchases at
grocery stores.
2:37:18 PM
REPRESENTATIVE SCHRAGE talked about accountability built into
income tax and the higher likelihood of tax evasion with sales
tax reporting, and he asked for comments on the subject.
2:38:22 PM
MR. FECHTER said income tax is on anyone who makes money
working, while sales tax is only on businesses that are
collecting the tax on a sale. He said he does not have a lot of
information on how sales tax structures impact [tax evasion],
but admitted that sales tax is frequently evaded to some extent,
for example, when someone buys an appliance in another state and
does not fill out a report to that effect. In response to a
follow-up response, he said he would have to research to find
out which form of taxing has a higher evasion rate.
2:39:56 PM
CHAIR SPOHNHOLZ talked about the many Alaskans that could be
paying sales tax while that money gets funneled through the
business owners, who have expressed not wanting the burden of
becoming tax collectors.
2:41:40 PM
MS. GLOVER directed attention to slide 22, which read as follows
[original punctuation provided, with some formatting changes]:
E: Reduce Sliding Scale per Barrel Tax Credit from
$8.00 to $5.00
Description: This option enables an adjustment to the
production tax value for the sliding scale per barrel
credit in AS 43.55.024(j). This credit ranges from $0
to $8 per barrel depending on Alaska North Slope (ANS)
oil prices. This tax credit is available for "legacy"
oil produced on the North Slope. The option reduces
the amount of the tax credit for each taxable barrel
of oil from $8 to $5 when the average gross value at
the point of production for the month is less than $80
a barrel. The bill scales down the tax credit amount
when the average gross value at the point of
production for a month is $80 or more. Under the bill,
the amount of the tax credit for a taxable barrel of
oil would be zero if the average gross value at the
point of production for the month is $120 or more.
First Full Year Impact: $94 million in FY 2023 (Spring
Forecast) Using our July 2021 ANS price update as the
basis, the estimate is that this could increase
production tax revenue by $110 to $440 million per
year from FY 2022 to FY 2030. The range is due to
forecasted changes in production, oil prices, and
anticipated company spending during this period.
Costs: There are no incremental costs to implement
this change.
CHAIR SPOHNHOLZ commented on the range in this option.
MS. GLOVER pointed out that the estimates on HB 3007 were
preliminary.
2:43:27 PM
REPRESENTATIVE WOOL returned to slides 21 and 22. He asked
whether the department has an estimate on the services that
would be taxed and whether there would be a cap. He then asked
what the estimate on slide 22 would be on $40 oil.
MR. STICKEL said he does not think there is a sales tax cap in
either of the states shown on the slide. He said the department
could break out the revenue from services and provide that in a
follow-up.
2:45:25 PM
MS. GLOVER, to Representative Wool's question on slide 22, said
the department has looked at the impact of different oil prices,
and at $40 per barrel "it basically is no impact at that price."
She noted that when the fiscal note is completed, it will show
multiple price points and their impacts. In response to a
follow-up question, she explained that the $80 showing on slide
22 is "the maximum per credit." She said the barrel credit
changes. In response to another follow-up question, she
confirmed that slide 22 is based on a spring forecast which is
$61 per barrel.
CO-CHAIR SPOHNHOLZ remarked on the volatility of oil prices.
2:48:18 PM
REPRESENTATIVE PRAX asked whether the revenue projections were
based on current production or trends into the future.
MS. GLOVER answered that the forecast for the revenue is based
on all spring forecast components, which are: price, production
forecast, and anticipated spending by oil companies. In
response to a follow-up question, she said the department did
look at the possible impact of the proposed legislation on
government take, which at a $67 price range is currently about
50 percent and with the proposed change would be 54-55 percent.
She said the fiscal note, when completed, will show the revenue
impacts at varying oil price scenarios for eight years.
2:51:39 PM
REPRESENTATIVE JOSEPHSON questioned whether the administration
doesn't think an increase to 54-55 percent would damage
investment decisions. He asked whether the administration
"supports this."
MR. FECHTER answered that these are items that the
administration "would be agnostic about" and would accept if
part of a full fiscal plan that includes the aforementioned
borders.
2:53:33 PM
MS. GLOVER returned to the PowerPoint, to slide 23, which read
as follows [original punctuation provided, with some formatting
changes]:
F: Gaming: Casinos, Lotteries, Internet gaming
Description: Establish the Alaska Gaming Corporation
which would have broad authority to determine the
structure, management, and games of the corporation.
Games could potentially include single- and multi-
jurisdiction draw games, instant tickets, sports
betting, keno, video lottery terminals, and casinos.
First Full Year Impact in FY 2023: State Lottery and
Internet Gambling: $68.8 million
First Full Year Impact in FY 2025: Casinos and Video
Gaming Terminals: $75.3 million All Gaming Options:
$144.1 million
Costs: There are one-time programming costs of $0.3
million. The Department would need four additional
positions at a cost about $0.5 million per year. These
are for Departmental costs only. Additionally, the
Alaska Gaming Corporation would require approximately
$4.0 million annually with $2 million in start-up
costs.
MS. GLOVER said there would be a 10 percent casino tax on gross
revenues and a 40 percent on gross revenues on Internet gambling
and video gaming terminals. The tax portion would be managed by
"the tax department." The report is in final review. There
would be consideration on possible impacts to charitable gaming,
as well as contemplation of provisions regarding "problem
gambling."
2:55:55 PM
MS. GLOVER, in response to Chair Spohnholz, clarified that the
amounts shown do not cover the considerations of the social
aspects of gaming.
2:56:21 PM
REPRESENTATIVE JOSEPHSON said it strikes him that there would be
an impact on children, as well as on "other investment
opportunity," and he asked whether the report would consider any
of that.
MR. FECHTER answered that it depends on how gaming is
implemented. He indicated that the types of people who take
part in charitable gaming are not necessarily the same as those
who sit at a poker table; therefore, it is possible to gauge the
impact depending on what aspects of gaming are implemented. He
spoke about reaching out to stakeholders and the varying
opinions on gambling.
2:58:44 PM
REPRESENTATIVE SCHRAGE inquired about fantasy leagues and the
near-impossible nature of regulating gaming when cryptocurrency
is involved.
2:59:13 PM
MR. FECHTER said he knows people fool the system, but said
Internet technology (IT) can be used to perform an audit to find
"where the traffic is going."
3:00:21 PM
REPRESENTATIVE PRAX asked how the negative impacts of gambling
are assessed.
MR. FECHTER mentioned a gaming initiative and said there is a
gaming contractor, Innovation Group, which supplied data
regarding problem gaming, such as illegal gaming. This
information was just supplied to his office, Mr. Fechter
imparted, so he will look at it and share it with the committee.
That said, he remarked that it is a common misperception that
casinos increase crime rates, when a large mall complex, for
example, can produce the same crime rates and 911 calls as a
large casino.
3:02:37 PM
MR. FECHTER brought attention to slide 24, which read as follows
[original punctuation provided, with some formatting changes]:
G: Use of Federal Offsets for Revenue Replacement
The American Rescue Plan Act's (ARPA) Coronavirus
State and Local Fiscal Recovery Fund (CSLFRF) provided
$350 billion for eligible state, local, territorial,
and Tribal governments to respond to the COVID-19
emergency and bring back jobs. The State of Alaska was
allocated $1.011 billion from this source. The
following is a list of allowable uses
? Support urgent COVID-19 response efforts to
continue to decrease spread of the virus and
bring the pandemic under control
? Replace lost revenue for eligible state
governments
? Support immediate economic stabilization for
households and businesses
? Address systemic public health and economic
challenges that have contributed to the inequal
impact of the pandemic
Currently, the legislature has allocated approximately
half (~$500M) of their allotment, electing to use
$250.0M for revenue replacement in FY2022.
A portion of the remaining ~$500M in funds could be
used to offset general fund spending and provide one-
time fiscal relief
CHAIR SPOHNHOLZ indicated there is universal agreement related
to this plan in restructuring the budget.
3:03:27 PM
MR. FECHTER continued to slide 25, which read as follows
[original punctuation provided, with some formatting changes]:
H: Bridge Fund Usage
? A one time draw from the Permanent fund to ensure
the Fund is permanently protected in the Constitution.
? Permanent Fund Earnings ~$18.6 billion
? Buys valuable time for measures to be implemented
? Malan Rietveld - Director of the Investment
Institute:
? Ensuring the long-term sustainability of an
endowment is far more important than an over-draw
in any one particular year
? Other endowments are considering one-time increases
in draws to capitalize on exceptional market
performance:
? Harvard's $42 billion endowment increased from
5% to 7.5% on one-time basis
? https://www.thecrimson.com/article/2021/5/3/draw-further-endowment-fy22/
? https://www.nytimes.com/2020/06/02/arts/endowments-coronavirus.html
3:04:06 PM
REPRESENTATIVE SCHRAGE noted that at one point the state had a
robust capital budget reserve (CBR) and [the state's budget]
"could be in a very different place today" had the discussion
focused on revenue rather than primarily on budget cuts. He
explained that whenever he sees bridge funding suggested as a
means for "buying us some time," it concerns him because the
state had some time and "it didn't seem to get us where we
needed to get to."
MR. FECHTER responded that while that is true, the difference in
the proposed contract is that it would "lock up" the percent of
market value (POMV) percentage so that it can never be used
(indisc.) is sustainable.
REPRESENTATIVE SCHRAGE expressed concern regarding the timing of
implementing revenue measures and a constitutional amendment,
which he surmised would require bridge funding prior to that
taking place, which could create risk.
3:05:31 PM
REPRESENTATIVE JOSEPHSON expressed his strong opposition to the
bridge funding proposal.
3:06:04 PM
REPRESENTATIVE WOOL remarked that it seemed slightly
disingenuous to have a conversation about different types of
revenue if certain areas were off limits.
3:06:58 PM
MR. FECHTER noted that the governor had moved towards a 50/50
solution for the POMV.
CHAIR SPOHNHOLZ acknowledged and expressed appreciation for the
governor's progress in recognizing the unaffordability of a
statutory dividend; however, she said a 50/50 split of the POMV
still leaves the state with a fiscal gap of well over $1 billion
that would diminish over time "based on fairly robust revenue
productions." She said the state has spent $16 billion out of
savings trying to avoid adopting new taxes, which can only be
done so often. She mentioned the bridge solution and said it
does not seem consistent with a fiscally conservative position.
At some point in time there will need to be compromise, she
said, and she wishes "we were a little further along in the
process."
3:09:45 PM
MR. FECHTER, in conclusion of the presentation, noted that the
state was involved in a complicated math problem with a question
lingering as to where the funds can come from that can fill the
deficit gap.
CHAIR SPOHNHOLZ thanked the presenters.
3:11:44 PM
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Ways and Means meeting was adjourned at
3:11 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB3006A.PDF |
HW&M 9/3/2021 1:00:00 PM |
HB3006 |
| HB 3006 Sponsor Statement.pdf |
HW&M 9/3/2021 1:00:00 PM |
HB3006 |
| HB 3006 Sectional Analysis.pdf |
HW&M 9/3/2021 1:00:00 PM |
HB3006 |
| HB 3006 Supporting Documents.pdf |
HW&M 9/3/2021 1:00:00 PM |
HB3006 |
| Revenue bills comaprison table.pdf |
HW&M 9/3/2021 1:00:00 PM |
|
| DOR Presentation 9.3.21.pdf |
HW&M 9/3/2021 1:00:00 PM |
|
| HB 3006 Statewide Sales and Use Tax UPDATED.pdf |
HW&M 9/3/2021 1:00:00 PM |
HB3006 |