Legislature(2023 - 2024)DAVIS 106
03/22/2023 06:00 PM House WAYS & MEANS
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| Audio | Topic |
|---|---|
| Start | |
| Presentation(s): Tax Overview and Foundation | |
| Presentation(s): New Revenue Options | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 109 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| + | TELECONFERENCED |
ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON WAYS AND MEANS
March 22, 2023
6:04 p.m.
MEMBERS PRESENT
Representative Ben Carpenter, Chair
Representative Jamie Allard
Representative Tom McKay
Representative Kevin McCabe
Representative Cathy Tilton
Representative Andrew Gray
Representative Cliff Groh
MEMBERS ABSENT
All members present
OTHER LEGISLATORS PRESENT
Senator Robert Myers
Representative Will Stapp
Representative Jesse Sumner
COMMITTEE CALENDAR
PRESENTATION(S): TAX OVERVIEW AND FOUNDATION
- HEARD
PRESENTATION(S): NEW REVENUE OPTIONS
- HEARD
HOUSE BILL NO. 109
"An Act reducing the corporate net income tax rate; and
providing for an effective date."
- SCHEDULED BUT NOT HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
COLLEEN GLOVER, Director
Tax Division
Department of Revenue
Juneau, Alaska
POSITION STATEMENT: Co-presented the PowerPoint presentation,
titled "Tax Programs and Tax Exemptions;" co-presented the
PowerPoint presentation, titled "New Revenue Options."
BRANDON SPANOS, Deputy Director
Tax Division
Department of Revenue
Juneau, Alaska
POSITION STATEMENT: Co-presented the PowerPoint presentation,
titled "Tax Programs and Tax Exemptions;" co-presented the
PowerPoint presentation, titled "New Revenue Options."
ACTION NARRATIVE
6:04:49 PM
CHAIR BEN CARPENTER called the House Special Committee on Ways
and Means meeting to order at 6:04 p.m. Representatives Allard,
McKay, McCabe, Tilton, Gray, Groh, and Carpenter were present at
the call to order.
^Presentation(s): Tax Overview and Foundation
Presentation(s): Tax Overview and Foundation
6:05:55 PM
CHAIR CARPENTER announced that the first order of business would
be a tax overview and foundation presentation.
6:06:33 PM
The committee took an at-ease from 6:06 p.m. to 6:07 p.m.
6:07:34 PM
COLLEEN GLOVER, Director, Tax Division, Department of Revenue
(DOR), began a PowerPoint presentation [hard copy included in
the committee packet], titled "Tax Overview and Foundation."
She directed attention to slide 1, an introduction to the
presentation, which will be a high-level overview of the
division's tax programs. She said this will also include
information about examples of tax exemptions, tax credits, motor
vehicle exemptions, and fisheries exemptions.
6:08:09 PM
MS. GLOVER moved to slide 2 to review the contents of the
presentation, which include the following: fiscal year 2022 (FY
22) tax revenue collections; summary of tax programs and how
resources are shared; and tax exemptions. She moved to slide 3
to address FY 22 Tax Division collection revenues. She
explained that the collections include: all amounts before any
sharing with local governments; all amounts before any sharing
with other state agencies; and all amounts before any
distributions to designated and dedicated funds, like alcohol
and drug abuse treatment and prevention funds and the marijuana
education treatment fund. She said that the state administers
property tax revenues which are the net of the credits for local
government property taxes paid to local municipalities. She
noted that, due to the COVID-19 pandemic, the collections do not
include any replacement of tax revenues with the American Rescue
Plan Act of 2021 (ARPA) funds for fish and vessel taxes.
6:09:34 PM
MS. GLOVER showed a chart that provides a summary of all the tax
collections in FY 22, which was a significant year for the
division in tax collections, and she reported that $2.7 billion
was collected. She noted the order on the chart is by size of
the tax program's collection amount, and the state's largest
collections program is on oil and gas production tax and
surcharges. She said that another large collection program is
the corporate income tax.
6:10:25 PM
MS. GLOVER moved to slide 5 to present a graph of FY 22 tax
programs ranked by total number of taxpayers. She pointed out
that the corporate income tax program contains the largest
number of taxpayers, which totals 20,152 and represents 85.8
percent of the division's total taxpayers. She said that the
revenues collected come from a broad range of programs. She
directed attention to charitable gaming, which, while having the
second highest number of taxpayers, is one of the smallest in
tax revenue.
6:11:34 PM
REPRESENTATIVE GRAY asked why the number of taxpayers for
tobacco taxes is listed as 50.
MS. GLOVER answered that tobacco tax is a wholesale tax, and not
a retail tax. She said that some local jurisdictions may have
similar taxes but are at the retail level.
6:12:19 PM
BRANDON SPANOS, Deputy Director, Tax Division, Department of
Revenue, explained that whoever filed the tax return would be
considered the taxpayer.
6:12:35 PM
MS. GLOVER moved to slide 6 and slide 7 to provide a summary of
the DOR's tax programs. She said that collections from natural
resources were the largest group by amount, with about $2.3
billion in total collections. She continued that this was
followed by taxes in the following categories: business,
utilities, tobacco, alcohol, and gambling (sin taxes),
fisheries, and tourism and transportation.
6:13:39 PM
MS. GLOVER moved to slide 8 to expand on the natural resources
tax program, specifically the oil and gas production tax. She
said the production tax, which does not apply to royalty
barrels, is taxed at the segment level. For example, the North
Slope is one segment for tax purposes, while Cook Inlet is taxed
by fields, and this creates multiple tax segments. She
explained that the program contains a 35 percent net profits tax
with a 4 percent gross minimum tax floor. She said the last
major statutory change was made under Senate Bill 21 [passed
during the Twenty-Eighth Alaska State Legislature], with other
changes made under Senate Bill 138 [passed during the Twenty-
Eighth Alaska State Legislature], House Bill 247 [passed during
the Twenty-Ninth Alaska State Legislature], and House Bill 111
[passed during the Thirtieth Alaska State Legislature]. She
noted that Senate Bill 38 [passed during the Twenty-Eighth
Alaska State Legislature] had delayed the provision to separate
gas into a 13 percent gross tax, and this went into effect
January 1, 2022.
MS. GLOVER explained that oil and gas property taxes are paid by
oil and gas property owners and operators at a rate of 20 mils,
or 2 percent of assessed value. She said that municipalities
can levy property taxes at the same rate as all non-oil and gas
property, with credit towards state tax. She said the tax
program was enacted and has gone unchanged since 1973.
6:16:24 PM
MS. GLOVER moved to slide 9 to further discuss the natural
resource tax programs. She pointed to a chart on the right of
the slide that shows the income tax brackets and the respective
rates. She said the brackets are the same regardless of whether
the company is a petroleum company. The mining license tax
program is a net income tax on net income and royalties above
$40,000, and she said that the tax had been enacted in 1913 and
has remained unchanged since 1955. She noted that the tax also
exempts the first three years of when mining activity starts.
6:17:40 PM
MS. GLOVER moved to slide 10 to present a historical graph of
the division's tax program revenues. She pointed to the blue
line, which represents oil and gas production and surcharges,
showing the variation of the revenue from year to year. The
gray line is the oil and gas income tax, which she said is also
volatile. She said that the orange line, representing oil and
gas property taxes, is stable in revenues, as is the mining
license tax.
6:18:48 PM
MR. SPANOS moved to slide 11 to talk about non-oil and gas
corporate income tax and other regulatory cost charges. On the
non-oil corporate tax, he said that the tax is paid on Alaska
net taxable income. He pointed out the multistate tax compact
and Alaska's adjustments to the multistate tax compact. He said
the compact strives to tax the income of a corporation in only
one way, instead of multiple times. He said that states have
created the Uniform Division of Income for Tax Purposes Act
(UDITPA), which outlines that every state can receive "a piece
of one pie," and no state can have "a pie and a half." He said
this was created because states were taxing more than 100
percent of the income of a multi-state corporation. He stated
that receiving a portion is based on three factors: property,
payroll, and sales. He explained that this means the property,
payroll, and sales in a single state versus the property,
payroll, and sales everywhere. He explained that oil and gas
companies have a different apportionment factor: property,
sales, and extraction. He said the non-oil and gas corporate
income tax was first enacted in 1949, and the tax brackets were
last changed in 2013. He addressed regulatory cost charges, and
said the division does not administer tax, rather the revenue is
collected and shared. He said the division collects the
revenue, and it is shared with the Regulatory Commission of
Alaska (RCA).
6:22:12 PM
MR. SPANOS explained the electric cooperative tax on slide 12,
which has 17 taxpayers. The tax is based on the per kilowatt
hour furnished by qualified electric cooperatives, and the tax
rate is based on the years of operation, with 100 percent of the
revenues being shared with municipalities. On the telephone
cooperative tax, there are seven taxpayers. The tax is based on
gross revenue, and the rate is based on the number of years in
service. He said that 100 percent of the revenue is shared with
the municipality. He pointed out that slide 13 shows the total
revenue from these programs.
6:23:39 PM
MS. GLOVER moved to slide 14 which addresses the taxes on
tobacco, alcohol, and gambling, or sin taxes. On tobacco, she
said, the tax is paid primarily by distributors, wholesalers,
and retailers, with tax rates determined by type. She said the
last major statutory change was in 2004, and it applied an
annual increase to cigarette tax rates in 2005, 2006, and 2007.
Alcoholic beverage tax is paid by distributors and wholesalers
with rates determined by type and per gallon. She explained
that in 2022, Senate Bill 9 [passed during the Thirty-Second
Alaska State Legislature] levied a new direct seller tax
effective January 1, 2024. She said that marijuana taxes are
paid by marijuana cultivators with the rate determined per
ounce. She explained that the ballot measure to legalize and
tax marijuana cultivation passed in late 2014, with the first
sales in FY 17.
6:25:18 PM
CHAIR CARPENTER asked if Ms. Glover has a projection of what
Senate Bill 9 is anticipated to levy.
MS. GLOVER responded that she would follow up with Chair
Carpenter.
6:25:48 PM
MS. GLOVER moved to slide 15 to address large passenger vessel
gambling tax. This tax was enacted in 2006 and paid by vessel
owners at a rate of 33 percent of adjusted gross income of the
gambling activities while the vessels are in the state.
Regarding charitable gaming tax and fees, she said annual permit
fees are $20 to $100 and paid by the permittees. There are over
1,000 permittees, and when gross receipts are greater than
$20,000, 1 percent of the net proceeds fee would be paid by the
permittees. She said that net proceeds to permittees, like
charitable organizations, are around 10 percent of gross
receipts. She said there is a 3 percent pull-tab tax paid by
pull-tab distributors. She said the last major statutory change
was in 1993, and another in 2022, which allowed for online
raffles and added a new game.
6:28:10 PM
MS. GLOVER moved to slide 16 to show a graph illustrating the
historical revenues of the sin tax programs. She pointed out
that the tobacco tax generates the most revenues but dropped off
in FY 22 due to unknown reasons. She said that the revenues
from alcohol taxes have been steady at about $40 million. The
gray line, which represents marijuana tax revenue, saw a large
increase from 2017 to 2021. This peaked in FY 21 with $30
million, and then decreased in FY 22 to $28 million. The
gambling tax program "dropped off completely" in 2021 because of
the closure of the cruise industry; this tax is recovering in FY
22 and is expected to return to its historical average of $8
million. She said the gaming tax program collects $3 million a
year.
6:30:00 PM
MR. SPANOS moved to slide 17 to discuss fisheries-related taxes.
He explained that the fisheries business tax is paid primarily
by fisheries businesses and persons who process fishery
resources in Alaska, or export unprocessed fisheries resources
from Alaska. He said the tax rate is 5 percent for a floating
processor, 4.5 percent for a salmon cannery, and 3 percent for
shore-based processing; if it is a developing fishery, however,
then the rate is 3 percent for processors and 1 percent for
shore-based processors. He reported that the number of
taxpayers in this program was 444 in 2022. He transitioned to
explaining the fisheries resource landing tax, which he said is
a tax program created to capture what could be considered a
loophole in the fisheries business tax, in that the business tax
applies to fish processed in Alaska, or unprocessed fish landed
outside of Alaska, so the loophole is unprocessed fish landed in
Alaska and then exported out of the state. He said the resource
landing tax captures this tax. There are 36 taxpayers in this
program.
6:31:42 PM
MR. SPANOS moved to slide 18 and further elaborated on fisheries
related tax programs. He explained the seafood marketing
assessment and said that a tax is levied on the value of seafood
products produced in Alaska if the value of the product is
$50,000 or more in a calendar year. He said there are 185
taxpayers in this program. The salmon enhancement tax is a
self-imposed tax paid by the fishermen and remitted to DOR by
the buyers; it applies to Southern Southeast and Northern
Southeast Alaska at 3 percent, and to Prince William Sound, Cook
Inlet, Kodiak, Chignik, and Yakutat at 2 percent. He said the
seafood development tax is a self-imposed 1 percent tax paid by
the fishermen and remitted to DOR by the buyers, and $3 million
was collected in FY 22. The tax applies to Bristol Bay salmon
drift gillnets, Prince William Sound salmon drift gillnets, and
Prince William Sound salmon set gillnets.
6:33:30 PM
MR. SPANOS moved to slide 19 and explained the dive fishery
management assessment program. This tax is a self-imposed
assessment on fisheries resources taken with dive gear in
designated areas. There were 21 taxpayers in FY 22, which is a
standard figure, with $550,000 collected in FY 22. He said that
the common property fishery assessment is used only for Hidden
Falls Hatchery and allows for cost recovery of the hatchery. He
moved to slide 20 and presented a historical graph on the total
revenues of all the fishing programs.
6:34:52 PM
MR. SPANOS moved to slide 21 and addressed tourism and
transportation related tax programs. He said the motor fuel tax
and surcharge has 110 taxpayers. This is an excise tax, with
everyone in the state paying. He further explained that, when
the fuel comes to Alaska, the wholesaler or distributor is the
entity which pays the tax. He noted that this tax is the
smallest in the nation. For example, the highway motor fuel tax
is 8 cents per gallon. The rates were changed in 2004, and
again in 2015 by the legislature for cleanup costs associated
with fuel spills. He talked about the commercial passenger
vessel tax, a tax paid on passengers who come on tourist
vessels. The tax is $34.50 per passenger, per voyage, or $5 per
person per seven ports of call. He pointed out when there are
seven ports of call the state shares more than it would receive
in revenue; however, most vessels do not visit seven ports. He
said that Juneau and Ketchikan have local taxes which are
credits against the state tax rates, and the state constitution
requires that the tax collected must be paid towards
infrastructure around the ports which benefit both the vessel
and the passengers. For example, there was a time when a road
going from a port to a museum was thought to be a benefit;
however, it has been decided these roads do not benefit the
vessel directly. He said this program varies from 8 to 17
taxpayers a year.
6:37:51 PM
MR. SPANOS moved to slide 22 to further speak on tourism and
transportation related tax programs. He said the vehicle rental
tax, which has 257 taxpayers, is paid by the owner of the leased
or rented vehicle. The rate is 3 percent of the total fees
collected on a recreational vehicle. He offered his
understanding that the legislative reasoning for this was that
the 3 percent rate netted the same revenue as a 10 percent tax
on a rented car. He spoke on the tire fee tax program, which is
an excise tax paid primarily by tire dealerships, of which there
are 72 taxpayers, and $1.6 million in revenue has been
collected. The tax rate is $2.50 per regular tire, and $5 per
metal studded tire. He said an exception to this tax is for
tires which are sold to federal and local governments and not
intended for use on public roads.
6:40:26 PM
MR. SPANOS moved to slide 23 to show a historical graph of tax
program revenue on transportation and tourism programs. He
pointed out that the commercial passenger vessel tax in 2007 had
a 25 percent higher tax and was originally a $46 tax per head,
but now this take is $34.50 per head. He further explained why
the lower cost occurred. A statutory change had implemented
this tax for only the vessels which were in Alaska for over 72
hours, and this resulted in a drop in revenue in FY 12. He
continued that, at about the same time, in FY 07 to FY 12, the
legislature moved to suspend the motor fuel tax.
6:41:45 PM
CHAIR CARPENTER commented that during this time Alaska had a
large amount of revenue flowing into the state.
MR. SPANOS confirmed that is correct. He said that instead of
giving a payment for fuel, the state moved to suspend the tax
for a period.
6:42:06 PM
MR. SPANOS moved to slide 24 to explain the state's newest tax
programs over the last several years. He pointed out that an
alcohol tax applied to alcohol purchased and shipped to states
where there are no wholesalers was in Senate Bill 9, with [the
final effective date of] 2024. He explained that the motor fuel
tax surcharge was enacted in 2015, the marijuana tax in 2014,
and the large passenger vessel gambling tax in 2006. He pointed
out that many of the tax programs have provisions for sharing or
are designated funds.
6:44:04 PM
MS. GLOVER moved to slide 25 and slide 26 to talk about tax
exemptions. She explained that indirect expenditures are
defined as foregone revenue to the state because of tax credits,
exemptions, discounts, deductions, and other provisions. She
shared that an indirect expenditure report is published by DOR
every two years, and there are indirect expenditure books
published by Legislative Finance Services every other year for
specific departments on a six-year cycle. The most recent
report data spanned from FY 17 to FY 21 and was published last
year. She moved to slide 27 to show a table of indirect
expenditure value reports by individual state departments. The
total is about $1 billion from 263 specific indirect expenditure
items. She said DOR processes 80 percent of the $1 billion that
is collected, as the items are from within the department.
6:46:25 PM
MS. GLOVER moved to slide 28 to show the first top 10 exemptions
within DOR, based on value. The first three programs listed are
oil and gas production taxes. The first listed is the per-
taxable-barrel credit for non-gross value reduction (GVR)
eligible production, of which 80 percent of the state's
production falls within this program. She explained the credit
ranges and said that the number of beneficiaries is between four
and eight companies, which is a limited number of taxpayers.
Because of confidentiality in reporting, the division combined
the total credit values for the following: alternative credit
for exploration, the qualified capital expenditure credit, the
carried-forward annual loss credit, the well lease expenditure
credit, and the small producer credit. She said that all these
credits in total amount to $48 million. She said that because
of legislative changes over several years, these credits are in
the process of expiring. She spoke on the indirect exposure for
GVR, which reduces the tax bases per barrel. She said the
program is limited to the first seven years of production, and
the benefit would end early if the average Alaska North Slope
price exceeds $70 for 3 years. She said this program is
designed to provide a tax break for new oil fields and
participating areas. She said there are limited beneficiaries
in the program, and there was a revenue impact of $23.2 million
in FY 21.
6:49:20 PM
MS. GLOVER moved to slide 29 and showed the second part of the
table on the top 10 exemptions, which are all motor fuel related
tax exemptions. She said all the programs listed on slide 29
add up to $50 million; however, she indicated that there is no
information on the number of beneficiaries.
6:49:53 PM
MR. SPANOS pointed out that some of the programs listed are
required by federal law. He said a change was attempted when
the surcharge was approved, but there was no interest in
exempting anything under the surcharge. For example, the
foreign commerce clause is applied to fuel used on flights to
foreign countries, which dictates that this fuel cannot be
taxed.
6:50:18 PM
MS. GLOVER moved to slide 30 to point out the various reports
made available by DOR.
6:51:13 PM
CHAIR CARPENTER asked for tax information about the Willow
Project.
MS. GLOVER answered that the project is not an exemption; it
will be under the corporate income tax, as well as production
tax. In terms of spending, she said, the Willow Project will
qualify for gross value reduction, which provides a discount on
the tax base.
6:52:19 PM
REPRESENTATIVE GRAY referred to slide 23 and talked about the
large dip depicted in motor fuel tax revenues. He urged future
legislators to not stop taxing, but rather to save money.
^Presentation(s): New Revenue Options
Presentation(s): New Revenue Options
6:52:53 PM
CHAIR CARPENTER announced that the final order of business would
be a presentation on new revenue options.
6:53:36 PM
COLLEEN GLOVER, Director, Tax Division, Department of Revenue,
began a PowerPoint presentation [hard copy included in the
committee packet], titled "New Revenue Options." She brought
attention to slide 1 and noted that the presentation contains
information the committee has requested and does not reflect the
viewpoint of the administration. She said the items to be
presented today are options that the Department of Revenue (DOR)
and the division have reviewed for years in case it is needed.
6:54:42 PM
MS. GLOVER moved to slide 2 which addresses the state's broad-
based tax options. She said that a sales tax is a broad-based
tax on goods and services, and she relayed that 45 states have a
statewide sales tax. She explained that most states collect the
tax on behalf of local jurisdictions, to which they are
dispersed; however, Alaska is unique because there are some
local sales taxes but no statewide sales tax. She noted that
sometimes the term "use tax" is applied to a sale in another
state for use in the customer's home state. She moved to slide
3 and said an example the division examined was in South Dakota,
which is considered to have a broader tax when compared to other
states, as the tax is not only on goods but also services, as
well as business-to-business transactions. She said that South
Dakota has a 4.5 percent sales tax, but for consistency in
presenting the state's hypothetical new revenue options, the
division created an option where the tax is based on South
Dakota's broad sales and use-tax rate of 4 percent, which she
said could generate $1.83 billion in revenue if initiated in
Alaska. She said that the division has researched sales tax
implementation and its impact on the division. The division
currently has 96 employees and administering a South Dakota-
style sales tax would require 74 additional staff. She said the
division's sales tax model was reviewed by a third-party
consultant, who suggested that the division's models were not as
accurate as the division indicated, so the numbers on slide 3
were adjusted after the consultant's review.
6:58:20 PM
MS. GLOVER, in response to Representative McCabe regarding the
term "first full-year impact," explained that it is when there
would be a full year of collections. She further explained
that, if a broad-based statewide sales tax were to pass, it
would take the division a year to implement and would take place
the year after passage.
6:59:04 PM
BRANDON SPANOS, Deputy Director, Tax Division, Department of
Revenue, added that the effective date on legislation is
typically placed in the middle of the fiscal year; thus, the
division would look at the whole fiscal year.
6:59:12 PM
MS. GLOVER noted that, from the division's perspective, most tax
years are calendar years, so converting to fiscal years is
challenging.
MR. SPANOS said that a sales tax is a monthly tax, and his
comments concerned fiscal years would apply to an income tax but
not a sales tax.
MS. GLOVER moved to slide 4 and showed a scenario similar to
Wyoming's state sales tax and use-tax program, which is also at
4 percent. She said this tax is broad but not as broad as South
Dakota's sales tax, and she pointed out another difference is
the business-to-business transactions. She noted that the
modeling on this slide shows the revenue impact of the sales tax
and does not consider if business-to-business transactions were
taxed. She noted that the cost of implementing the tax would be
the same as implementing the South Dakota tax and, after a full
year of collections, would generate $600 million in revenue.
7:01:24 PM
REPRESENTATIVE GRAY noted that the South Dakota sales tax
carries few exemptions, and the presenters did not mention
groceries. He asked if the tax applies to all food and if there
truly are no exemptions on groceries.
MS. GLOVER expressed the belief that this is the case.
7:01:59 PM
REPRESENTATIVE GROH commented that there is a $1.2 billion
difference in revenue between the two sales tax scenarios, so
far. He asked if the presenters know whether groceries make up
the bulk of the $1.2 billion difference.
MS. GLOVER answered that the South Dakota sales tax is not just
on groceries but on all business-to-business transactions
because of the tax's limited exemptions, whereas Wyoming does
not apply those same taxes.
REPRESENTATIVE GROH expressed interest in receiving a breakdown
of the $1.2 billion difference.
MR. SPANOS added that such information needs business input.
7:03:22 PM
MS. GLOVER moved to slide 5 to discuss a 4 percent sales tax
with a narrower tax base. She said this option excludes all
services and targets online and brick and mortar retail sales.
This tax would generate $358 million in revenue, lower than both
the South Dakota and Wyoming structures.
7:04:21 PM
MR. SPANOS picked up the presentation at slide 6 to talk about
income tax scenarios. He noted the population of the state is
750,000. He said the tax would be on wages, tips, and incomes
earned in Alaska by individuals, levied at 1 percent of the
Federal Adjusted Gross Income (AGI) via employer withholdings.
He noted that this tax would include business income from pass-
through entities. He pointed out Alaska is the only state that
does not have one of the three major tax types of property,
sales, and individual income. He said this tax would bring in
about $337 million in revenue, which would be 11 percent of the
taxes collected in FY 22. The cost to implement the program
would be lower, requiring just 45 additional people and $8
million in annual administration costs; this lower cost is due
to the work being conducted with the public rather than with
retailers. He said the cost also includes a new online tax
filing system for citizens to use. He shared that, thanks to an
appropriation from the legislature, the division is moving to a
new system where taxes can be filed via cell phone.
7:08:31 PM
MR. SPANOS, in response to a question from Representative Groh,
confirmed that most other states have a state income tax and
sales tax, but he expressed uncertainty concerning whether two-
thirds of the states have both. In response to a follow-up
question regarding income tax, he said the state would have the
authority to collect it, and if income is earned in the state,
then the state would have the authority to tax this income.
7:10:31 PM
MS. GLOVER interjected that the division's modeling assumes some
of the revenue from an income tax would come from nonresidents.
REPRESENTATIVE GROH said he has heard higher figures around the
actual income earned by nonresidents. For example, he pointed
out the workers in the North Slope, commercial fisheries
workers, and nonresident medical professionals.
7:11:19 PM
CHAIR CARPENTER stated that getting the numbers right is
important, and if Representative Groh has data suggesting a
larger number, then it should be brought before the committee.
7:11:36 PM
MR. SPANOS, while still on slide 6, clarified that the
division's modeling uses federal data published by the Internal
Revenue Service (IRS) and includes residents of Alaska. He
expressed the understanding that assumptions must be made on
ascertaining the other figures. If Alaska were to have a tax,
employers would file 1099, W-2 forms with the state, which would
enable the division to have a clearer picture of nonresident
income.
7:12:17 PM
MR. SPANOS moved to slide 7 and addressed a different income tax
option, which would be a tax on individual wages, tips, and
incomes earned in Alaska by individuals. This would be levied
at 1 percent of federal individual income tax liability via
employer withholding. He said there has been legislation
proposed in the past to implement this tax; however, the actual
implementation of the tax would be complicated because there are
certain incomes which the state cannot tax. He said that, for
example, a state revenue bond is untaxable but is "wrapped up"
in the tax computation and would have to be backed out from AGI.
He said that in the first full year, $264 million would be
collected under the program, with the cost of implementation
being the same as the program on slide 6.
7:14:06 PM
MS. GLOVER added that the division has sophisticated modeling on
general personal income taxes and reiterated that the data the
division uses is from the IRS. She said that an adjustable
model can be shared with members. In response to a question
from Chair Carpenter, she stated that the models are static, and
modeling on behavior is complicated.
7:15:20 PM
MR. SPONOS said there are economic costs to taxes which would
change behavior. He said that if the state were to tax out-of-
state income, for example, then there might be fewer people who
work for the state. Conversely, if the state were to tax
resident income, then a resident may say, "Well, I don't want to
live here anymore."
CHAIR CARPENTER clarified that these questions would be applied
to any broad-based tax.
7:15:53 PM
MR. SPANOS, in response to a question from Representative McKay
about possible sales tax on goods bought via the internet, said
that the states with a sales tax for many years have dealt with
this issue. He explained that traditional purchases made in
brick-and-mortar buildings would be taxed, but with court cases
against companies like Wayfair Inc and Amazon.com, the U.S.
Supreme Court decided the states can tax transactions from
nonresidents. He said that the past "taxing nexus" involved the
person being physically in the state, but now if a person is
taking advantage of a market, this is considered the taxing
nexus. He said the sales tax models have accounted for online
transactions.
MR. SPANOS, in response to Representative McKay, explained the
reason for the difference between the modeled sales and income
taxes mentioned for South Dakota.
7:18:41 PM
CHAIR CARPENTER asked what the average income tax rate is in
states with income taxes.
MR. SPANOS responded that he would follow up with the
information.
7:18:59 PM
MR. SPANOS, in response to a comment from Representative Allard
regarding the effect of a federal tax on retirement, reiterated
that the model within the presentation does not account for
these sorts of factors, and a non-biased approach has been
taken. He said that any legislation could exempt federal
retirees or social security. He stated that this is why 1
percent of federal tax liability is complicated, not only
because some of it is not taxable, but because states want the
ability to choose rates and exemptions. In response to a
follow-up request, he said modeling showing the impacts of
losing 10 percent of Alaska's resident military population could
be provided.
7:21:21 PM
MR. SPANOS, in response to Representative McKay, confirmed that
the state would have the ability to not tax certain items. He
advised that an exemption should be considered in terms of what
is fair rather than what is constitutional. He said that the
state has the constitutional authority to tax its residents and
all income earned within its borders, and this would include
resident retirees.
7:22:10 PM
REPRESENTATIVE GROH noted that the Tax Foundation has reported
43 states and the District of Columbia have income tax;
therefore, while some states do not have income taxes, most
states do.
7:22:28 PM
REPRESENTATIVE MCCABE shared that, in reference to the military,
case law relates that, as long as a person never becomes a
resident, even if the person is earning money in the state, the
state cannot tax this person's retirement.
7:24:06 PM
MS. GLOVER said that 1 percent is a low rate, and sales tax
cannot be compared to an income tax, and the numbers the
division is presenting aim to give the committee an idea around
the taxes. She suggested that setting federal income tax
liability from 1 percent to 2 percent would be doubling the
income. She noted that South Dakota and Wyoming do not have
personal or corporate income taxes; therefore, these states are
similar to Alaska because sales taxes are these states' biggest
sources of revenue generation. In response to Representative
McCabe, she confirmed that the numbers being presented are
calculations of direct tax income, not the economic impact of
these taxes.
7:25:34 PM
CHAIR CARPENTER referred to Ms. Glover's comments that federal
income tax liability at 2 percent would mean double the
estimated $264 million in revenue. He pointed out this would be
assuming the population in Alaska would live under a 2 percent
income tax.
7:26:27 PM
MR. SPANOS returned to the presentation on slide 8 to show
modeling if the state were to expand corporate income tax to oil
and gas pass-through entities. He explained that most states
with a corporate income tax also have an income tax; therefore,
the state is capturing all income owned in its boarders. For
Alaska, he further explained, the state's C corporation tax
mimics other states, and since the state adopted the multi-state
tax compact, the tax would apply only to C corporations, which
would not pay a tax under an income tax. He advised that if the
legislature pursues pass-through entities, this should not be in
combination with an income tax, because then this would be
considered double taxation. He clarified that the C corporation
model scenario described on slide 8 would apply only to oil and
gas companies, as they fall under AS 43.55. Using the current
rate structure, he said, the first full year would generate $131
million in revenue. He noted that there are no incremental
costs to implement the change.
7:28:25 PM
MS. GLOVER moved to slide 9 which showed modeling of the amount
of the maximum tax credit for each taxable barrel of oil when
reduced from $8 to $5. This would occur when the average gross
value at the point of production for the month is less than $110
a barrel. The credit would scale down to zero if the average
gross value at the point of production for the month is $150 or
more. Based on spring forecast information, if such a change
were to be made, the revenue generated for FY 24 would be $383
million, but would be reduced over time. She said that in lieu
of oil forecasts going down in the future, this change would
have a lower revenue impact in the out years.
7:30:30 PM
MS. GLOVER moved to slide 10 to share that the division's fiscal
plan models are available online. She explained that the fiscal
plan model provides policymakers and the public users with a
tool to model revenue and spending options; provides flexibility
for users to design solutions with their assumptions; provides
outputs which include spreadsheets and graphs of critical
financial data; and presents current updates after each official
forecast is released in the fall and spring.
7:32:13 PM
MS. GLOVER, in response to a question from Representative Groh
regarding a shift in mil rate, said the total amount the state
receives in oil and gas property taxes is about $550 million, so
a 50 percent increase would be in the $200 million to $270
million range.
7:33:50 PM
REPRESENTATIVE GRAY commented that he had looked up California's
tax rates and found the state has a 7.25 percent state sales
tax, as well as a 12.3 percent state income tax. He relayed his
appreciation to the presenters for using South Dakota and
Wyoming as conservative models to show the impacts of imposing
any of the different taxes.
7:34:50 PM
REPRESENTATIVE MCCABE, referring to slide 6 of the presentation,
questioned the 1 percent gross income base and the 1 percent
federal tax liability base, which Mr. Spanos called a "flat
tax."
MR. SPANOS answered that adjusted gross income would be
considered a flat tax because, as shown on slide 7, the federal
tax brackets have already been applied to the federal tax
liability.
REPRESENTATIVE MCCABE sought clarification that the federal tax
liability base would already encompass the progressive tax. He
expressed surprise that the flat tax seems to earn more.
MR. SPANOS responded, "It is apples and oranges that we're
comparing." He explained that AGI is a much larger number than
federal tax liability, which is tax paid on the AGI, so it is a
smaller number.
REPRESENTATIVE MCCABE, referring to the charts on slide 6 and
slide 7, said that a flat tax would be a broad tax, and he
offered his understanding that the slides show the state
receives more income in tax if the tax is spread across the
entire cross section of the population, instead of depending on
the top 5 percent to handle the tax increase.
MR. SPANOS replied that AGI at 1 percent could be modeled, "with
AGI but with brackets." He said that was not done for this
presentation and would give a different number.
7:37:58 PM
MR. SPANOS, responding to remarks by Representative McKay
regarding C corporations and S corporations, noted that the
latter is not public information and could not speak to it.
7:39:09 PM
MS. GLOVER, in response to Representative McKay reviewed the
topic of legacy fields. In response to a follow-up question,
she said the division could provide some historical information
regarding these fields.
7:40:27 PM
MR. SPANOS added that, should the legislature choose to
implement an income tax, the division will implement the tax.
He reiterated that he does not speak for the administration.
7:41:18 PM
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Ways and Means meeting was adjourned at
7:41 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB0109A.PDF |
HW&M 3/22/2023 6:00:00 PM HW&M 4/15/2024 6:00:00 PM |
HB 109 |
| HB 109 Bill Sponsor Statement.pdf |
HW&M 3/22/2023 6:00:00 PM HW&M 4/3/2024 6:00:00 PM HW&M 4/15/2024 6:00:00 PM |
HB 109 |
| HB 109 Sectional analysis.pdf |
HW&M 3/22/2023 6:00:00 PM HW&M 4/3/2024 6:00:00 PM HW&M 4/15/2024 6:00:00 PM |
HB 109 |
| HB 109 DOR Tax 3.17.23 Fiscal Note.pdf |
HW&M 3/22/2023 6:00:00 PM |
HB 109 |
| HB 109 Presentation.pdf |
HW&M 3/22/2023 6:00:00 PM HW&M 4/3/2024 6:00:00 PM HW&M 4/15/2024 6:00:00 PM |
HB 109 |
| H.W&M Tax Programs Presentation 03.22.23.pdf |
HW&M 3/22/2023 6:00:00 PM |
|
| H.W&M Revenue Options 03.22.23.pdf |
HW&M 3/22/2023 6:00:00 PM |