Legislature(2003 - 2004)

03/24/2004 09:04 AM Senate FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                     SENATE FINANCE COMMITTEE                                                                                 
                          March 24, 2004                                                                                      
                              9:04 AM                                                                                         
SFC-04 # 55,  Side A                                                                                                            
SFC 04 # 55,  Side B                                                                                                            
SFC 04 # 56,  Side A                                                                                                            
CALL TO ORDER                                                                                                               
Co-Chair Gary Wilken convened  the meeting at approximately 9:04 AM.                                                            
Senator Gary Wilken, Co-Chair                                                                                                   
Senator Lyda Green, Co-Chair                                                                                                    
Senator Con Bunde, Vice Chair                                                                                                   
Senator Fred Dyson                                                                                                              
Senator Ben Stevens                                                                                                             
Senator Lyman Hoffman                                                                                                           
Also Attending:  SENATOR BERT  STEDMAN; IAN  FISK, Staff to  Senator                                                          
Bert Stedman;  KATHY HANSEN,  Executive  Director, Southeast  Alaska                                                            
Fishermen's Alliance; DICK COOSE, Staff to Senator Bert Stedman;                                                                
LUCKY  SCHULTZ,   Staff  to  Senator  Fred  Dyson;  CHERYL   FRASCA,                                                            
Director, Office  of Management and Budget, Office  of the Governor;                                                            
PHELAN  STRAUBE,  Staff  to  Senator  Ben  Stevens;  KEVIN  RITCHIE,                                                            
Executive Director, Alaska Municipal League                                                                                     
Attending  via Teleconference:  From an Offnet  site: ROBIN  WILSON,                                                          
Tax Division, Department of Revenue                                                                                             
SUMMARY INFORMATION                                                                                                         
SB 286-DIRECT MARKETING FISHERIES BUSINESS                                                                                      
The Committee  heard from the sponsor and the industry.  A committee                                                            
substitute was adopted and the bill reported from Committee.                                                                    
SB 328-NATIONAL FOREST INCOME PROGRAM/DCED REGS                                                                                 
The Committee  heard  from the  sponsor, adopted  one amendment  and                                                            
held the bill in Committee.                                                                                                     
SJR 3-CONST AM: APPROPRIATION/SPENDING LIMIT                                                                                    
The Committee  heard from the sponsor, the Office  of Management and                                                            
Budget,  adopted  one  amendment,  one  amendment  was  offered  but                                                            
withdrawn from  consideration, and  the bill was held in  Committee.                                                            
SB 366-STATE SALES TAX                                                                                                          
The Committee  heard from the sponsor, the Office  of Management and                                                            
Budget, the Department  of Revenue, and the Alaska Municipal League.                                                            
A  committee  substitute  was  adopted  and  the bill  was  held  in                                                            
     CS FOR SENATE BILL NO. 286(L&C)                                                                                            
     "An Act relating  to direct marketing fisheries  businesses, to                                                            
     the  fisheries business  tax, and to  liability for payment  of                                                            
     taxes  and  assessments  on the  sale  or transfer  of  fishery                                                            
     resources; and providing for an effective date."                                                                           
This  was the first  hearing  for this  bill in  the Senate  Finance                                                            
Co-Chair Wilken  explained that this  legislation would reduce  "the                                                            
fisheries business tax  rate for direct marketers from five to three                                                            
percent." A  direct marketer is defined  "as a fisherman  who owns a                                                            
vessel  of at  least 65-feet  or less  and catches,  processes,  and                                                            
sells both processed and  unprocessed fish product" in or outside of                                                            
the State.                                                                                                                      
Senator  Bunde moved  to  adopt the  Finance  committee substitute,                                                             
Version 23-LS0738\Z as the working document.                                                                                    
Co-Chair Wilken objected for explanation.                                                                                       
SENATOR  BERT  STEDMAN,  the bill's  sponsor,  explained  that  this                                                            
legislation  would affect  the direct marketing  business sector  of                                                            
the fishing industry. The  fisheries business, which was implemented                                                            
in 1913,  is the oldest  tax in Alaska.  Currently, a three-percent                                                             
tax is assessed on the  "the grounds price," which is the price paid                                                            
upon delivery of raw fish  to the dock. The tax rate on fish sold to                                                            
a floating processor, "which  is a large mobile processing facility"                                                            
is  currently  five-percent.  This  bill  focuses  on the  group  of                                                            
fishermen  who no  longer  fit these  "old" fisheries  business  tax                                                            
definitions, for, as the  industry has developed, circumstances have                                                            
changed and  more independent, small  boat fishermen are  conducting                                                            
their own processing and  marketing. Unlike the large scale floating                                                            
processors,   these  business  "are   primarily  Alaskans   resident                                                            
fishermen who operate out  of our ports, buy our fuel, and supplies"                                                            
and own property in the State.                                                                                                  
Senator  Stedman stated  that this  bill would  correct current  tax                                                            
inequities  by  charging  these small  direct  marketing  vessels  a                                                            
three-percent  rather than five-percent  fisheries business  tax. It                                                            
would also alter  the value upon which the direct  marketers' tax is                                                            
based. Rather than the  value being determined by the grounds price,                                                            
which is the  floating processors'  first point of sale,  the direct                                                            
marketers'  "first point of sale is  the second wholesale  or retail                                                            
price  because   these  businesses   are   selling  their   fish  to                                                            
supermarkets, restaurants,"  or directly to the customer. Therefore,                                                            
this bill  would clarify  "that direct marketers  would be  taxed on                                                            
the 'prevailing' ground price."                                                                                                 
Senator Stedman  stated that, while  some fisheries are required  to                                                            
pay taxes on  a monthly basis, this  legislation would specify  that                                                            
all taxes  due  by direct  market vessels  would be  due each  April                                                            
first  in order  to allow  them to take  care  "of their  accounting                                                            
comprehensively at the end of the season."                                                                                      
Senator Stedman  summarized that this legislation  would "remove the                                                            
current  disincentive in  our tax  system" by  recognizing that  the                                                            
direct marketing  industry  is providing quality  fish products,  is                                                            
responding to  marketing demands, and is taking more  responsibility                                                            
to ensure the success of  their operation. He stated that passage of                                                            
this  legislation would  provide  a level  playing  field to  direct                                                            
marketers by providing  tax fairness. He reiterated that the vessels                                                            
addressed in this legislation are less than 65 feet in length.                                                                  
IAN FISK,  Staff to  Senator Bert  Stedman,  informed the  Committee                                                            
that the Version "Z" differs  from the previous bill version in that                                                            
it adds the word "unprocessed"  into the definition of value in Sec.                                                            
5, page four, line five as follows.                                                                                             
     (A) the market  value of the fishery resource  as determined by                                                          
     the  prevailing price  paid to  fishermen  for the unprocessed                                                           
     fishery  resource  of the same  kind and  quality by  fisheries                                                          
     business  in the same region or market areas  where the fishery                                                          
     resource was taken if                                                                                                    
     New Text Underlined [DELETED TEXT BRACKETED]                                                                             
Co-Chair Wilken removed his objection.                                                                                          
There  being  no  further  objection,  the  Version   "Z"  committee                                                            
substitute was ADOPTED as the working draft.                                                                                    
Co-Chair  Wilken  noted  that  the sponsor  has  provided  a  "Short                                                            
Definitions  of Terms" handout [copy  on file] that defines  fishing                                                            
Senator Olson  inquired to the reason that April first  is specified                                                            
as the date the  tax would be due. That date might  place a hardship                                                            
on the fishing industry.                                                                                                        
Mr. Fisk responded  that, historically,  the Fisheries Business  Tax                                                            
has  been due  on  April first,  due  to the  fact  that  oftentimes                                                            
"fishermen  receive  retroactive  payments over  the  course of  the                                                            
winter."  In  an  effort  to  make  taxation   filing  easier,  this                                                            
legislation  would consolidate  a  variety of  taxes, including  the                                                            
hatchery  assessment  tax  and the  marketing  tax, by  making  them                                                            
uniformly due at the same time.                                                                                                 
Senator Olson  asked what impact would occur were  the price of fish                                                            
to lower and negate the retroactive payments.                                                                                   
Mr. Fisk  could not  recall any  situation wherein  a fisherman  was                                                            
required to pay back a company due to a reduction in price.                                                                     
Senator   Olson  asked  the   burden  were   no  retroactive   funds                                                            
forthcoming during the winter months.                                                                                           
Mr.  Fisk  responded   that  absent  any  retroactive   checks,  the                                                            
fisherman would be required  to pay based upon the price received at                                                            
the time of delivery.                                                                                                           
KATHY  HANSEN,  Executive  Director,  Southeast  Alaska Fishermen's                                                             
Alliance, testified  in support of  the bill as it would  address "a                                                            
tax clarity  and tax  fairness issue."  Noting that  she had  been a                                                            
participant in the development  of this legislation, she shared that                                                            
the bill is "a  tightly woven compromise" resulting  from discussion                                                            
"between  the industry, processors,  and all  the agencies  that are                                                            
involved in direct marketing licensing."                                                                                        
Co-Chair Wilken noted that  Members' packets contain several letters                                                            
in support  of the  legislation,  including one  from the  Alliance,                                                            
[copy on file] dated March 22, 2004.                                                                                            
Senator  Stedman  noted  that  the  legislation  was  initiated  and                                                            
furthered by the Salmon  Task Force, which is comprised of fishermen                                                            
and  processors.  This  issue has  required  attention  for  several                                                            
Co-Chair  Green  asked whether  the  legislation's  new subsections                                                             
contain any further language that should be addressed.                                                                          
Senator Stedman  responded in the negative. He stated  that work has                                                            
been conducted in regards  to this issue for several years. Both the                                                            
fishing and processing industries support it.                                                                                   
Co-Chair  Green asked  whether the  new language  in the bill  would                                                            
disadvantage any agency or group.                                                                                               
Senator Stedman  responded no. The  intent of the legislation  is to                                                            
"conceptually  enhance" the State's value-added fisheries  products,                                                            
assist the industry  in their modernization efforts  and response to                                                            
market conditions,  enhance the product price, and  address some tax                                                            
reporting  issues. The hope  is that these  efforts would result  in                                                            
increased revenue to both the State and the industry.                                                                           
Senator  Dyson  moved  to  report  the  bill   from  Committee  with                                                            
individual recommendations and accompanying fiscal notes.                                                                       
There  being  no  objection,  CS SB  286  (FIN)  was  REPORTED  from                                                            
Committee with  indeterminate fiscal note #1 from  the Department of                                                            
Revenue  and zero fiscal  note #2  from the Department  of Fish  and                                                            
     SPONSOR SUBSTITUTE FOR SENATE BILL NO. 328                                                                                 
     "An Act relating  to the national forest income  program in the                                                            
     Department  of Community  and Economic  Development and  to the                                                            
     authority  of  the  department  to  adopt  regulations;  making                                                            
     conforming  amendments; and providing  for an effective  date."                                                            
This  was the first  hearing  for this  bill in  the Senate  Finance                                                            
Co-Chair  Wilken   explained  that  this  bill  would   provide  the                                                            
Department of Community  and Economic Development with the necessary                                                            
authority  to adopt  regulations required  "to  implement a  federal                                                            
program commonly know as National Forest Receipts."                                                                             
SENATOR  BERT  STEDMAN,   the  bill's  sponsor,  stated   that  this                                                            
legislation would  allow the State to align with federal  changes to                                                            
the National Forest Receipts (NFR) program.                                                                                     
DICK COOSE, Staff  to Senator Stedman, read the SB  328 introduction                                                            
statement as follows.                                                                                                           
     Historically,  the  distribution  of funds  under the  National                                                            
     Forest  Receipts Program  was authorized  under a 1908  federal                                                            
     law  (16 USC 500) where  25% of the  annual income earned  from                                                            
     activities  within a national forest was shared  with the State                                                            
     for distribution  to boroughs,  cities, and regional  education                                                            
     attendance  areas located within the national  forest. With the                                                            
     passage  of the "Secure  Rural Schools  and Self-Determination                                                             
     Act of 2000" (P.L.  106-393), National Forest Receipts payments                                                            
     to the  State for fiscal years  2002 - 2007 will be  based upon                                                            
     the average  of the three highest  annual payments made  to the                                                            
     State  during the "eligibility  period" of fiscal years  1987 -                                                            
     Payments  to  the State  under  the  Secure Rural  Schools  and                                                            
     Community  Self-Determination  Act  stabilized  for the  period                                                            
     2002-2007 rather than  fluctuate and significantly dropping due                                                            
     mainly  to the  drastic  reduction  in national  forest  timber                                                            
     harvest the  past several years. Distribution  to the boroughs,                                                            
     cities,  and rural education  attendance areas changed  only in                                                            
     that  the federal act  required that at  least 15% but  no more                                                            
     than 20 %  of each local entities payment be  spent on "special                                                            
     projects"  with  the balance  to be  spent on  the traditional                                                             
     schools and roads  categories. The special projects are defined                                                            
     in the Federal act.                                                                                                        
     SB  328  allows  the  Department  of  Community   and  Economic                                                            
     Development to prepare  regulations to reflect the distribution                                                            
     and accounting  for the 15-20%  special projects distributions                                                             
     required by the Federal act.                                                                                               
Senator Stedman reminded that it would be beneficial to align the                                                               
State with federal forestry statutes, particularly were the NFR                                                                 
receipt program to continue into the future.                                                                                    
Co-Chair Wilken asked when the current NFR program would expire.                                                                
Mr. Coose responded that the current authorization is in effect                                                                 
through the year 2007.                                                                                                          
Co-Chair Wilken asked whether extending the NFR program beyond that                                                             
date would require federal re-authorization.                                                                                    
Mr. Coose affirmed that it would.                                                                                               
Co-Chair Green understood therefore that the primary purpose of                                                                 
this legislation is to conform to federal changes.                                                                              
Co-Chair Wilken  understood that some of the statutory  issues being                                                            
addressed occurred when the State combined two departments.                                                                     
Senator Stedman  clarified that the  legislation is required  due to                                                            
federal changes.                                                                                                                
Mr.  Coose  explained  that  one of  the  federal  regulations  that                                                            
changed was the mandate  that 20-percent of the receipts be spent in                                                            
support   of  special   projects.   The  Department   must   receive                                                            
authorization  to rewrite regulations in that regard.  He also noted                                                            
that  the Department  could  further  respond to  Co-Chair  Wilken's                                                            
comment regarding the departments' consolidation issue.                                                                         
Co-Chair  Green asked  for an  example  of what  would constitute  a                                                            
special project.                                                                                                                
Mr. Coose explained  that there are  two kinds of special  projects:                                                            
one  being a  local  government or  community  project  such as  the                                                            
construction of  a community shelter at Ward Lake  in Ketchikan or a                                                            
project to  enhance search  and rescue endeavors  in Juneau,  Sitka,                                                            
and Ketchikan  as well as some forestry service education  projects.                                                            
He expressed that  the projects are clearly defined  in federal law.                                                            
Amendment  #1: This  amendment inserts  new language  in Section  1,                                                            
page two, following line two, as follows.                                                                                       
     (m)  In this  section,  "number of  children  in average  daily                                                            
     membership"  means  that  the number  of  full-time  equivalent                                                            
     students  enrolled and residing in the city school  district or                                                            
     regional  education attendance  area that  receives a  share of                                                            
     the  income from  the  public schools  allocation  of the  fund                                                            
     created in (b) of this section.                                                                                            
Co-Chair  Wilken  moved  to  adopt Amendment  #1  and  objected  for                                                            
Senator  Stedman  explained that  the  forest service  receipts  are                                                            
shared based  upon acreage. In addition  to the major boroughs  such                                                            
as the City &  Borough of Sitka and the City and Borough  of Juneau,                                                            
some of the  unorganized communities  are grouped together  and then                                                            
the receipts  are shared. Currently,  however, some communities  are                                                            
including  correspondence  study  students  in  their calculations,                                                             
which  adversely   weighs  their   school  district  over   another.                                                            
Amendment  #1 "would level  the playing field"  by eliminating  this                                                            
Senator  Dyson  asked   for  further  explanation  regarding   these                                                            
correspondence school enrollment calculations.                                                                                  
Senator  Stedman  responded   that  one  school  in  particular  has                                                            
expanded  its distance correspondence  school  enrollment. This  has                                                            
served  to  increase   their  average  daily  student   count.  This                                                            
amendment would allow only  those students residing in and attending                                                            
the community  school to be factored  into the equation.  This would                                                            
correct this current inequity.                                                                                                  
Co-Chair  Wilken stated  that the intent  of the  NFR was to  assist                                                            
individual  school districts  in the operation  of their schools  by                                                            
utilizing  a  funding  formula  based  upon  "students  actually  in                                                            
seats."  As  depicted  in the  Department  of  Education  and  Early                                                            
Development  chart dated March 11,  2004 and titled "Correspondence                                                             
History FY99-FY05  Projected" [copy on file] the community  of Craig                                                            
had eight  students  enrolled in  its correspondence  program  in FY                                                            
2000. 574 were  enrolled in FY 2004.  The NFR is being used  to fund                                                            
those 574 correspondence  students who do not physically participate                                                            
in the school  district. The amendment  would serve to allocate  the                                                            
NFR,  as intended,  based  upon those  students who  are  physically                                                            
present in the schools.                                                                                                         
Senator Stedman  stated that  the communities  that are embedded  in                                                            
the  Tongass  National  Forest  are unable  to  tax  federal  forest                                                            
service  lands, are  unable  "to expand  into other  resource  based                                                            
areas or do economic expansions  to keep their population employed."                                                            
He voiced  appreciation for  the efforts  being exerted by  Alaska's                                                            
Congressional  delegation in Washington  to extend the NFR  program.                                                            
Senator Dyson  asked for confirmation  that the City of Craig  has a                                                            
correspondence school program.                                                                                                  
Senator Stedman  affirmed that the  school has a substantial  amount                                                            
of correspondence students.                                                                                                     
Co-Chair Wilken  referred Members  to the aforementioned  Department                                                            
of Education and Early Development correspondence program chart.                                                                
Senator  Dyson  asked  whether  the  students  enrolled  in  Craig's                                                            
correspondence program  are from Craig, are from elsewhere, or are a                                                            
combination of both.                                                                                                            
Senator Stedman  understood  that the students  are from around  the                                                            
Senator  Dyson  asked  for  confirmation  that  the  correspondence                                                             
program being  referenced could include students who  live in Craig.                                                            
Senator  Stedman responded  that  the program  is  a combination  of                                                            
students both within and outside of Craig.                                                                                      
Senator Dyson asked, therefore,  whether the amendment would exclude                                                            
students who reside in  Craig but are enrolled in the correspondence                                                            
program from being  counted as part of the Craig school  enrollment.                                                            
Co-Chair Wilken  expressed that further  information in this  regard                                                            
must be acquired.                                                                                                               
Senator Stedman acknowledged.                                                                                                   
Senator Dyson  declared that students who live in  Craig but who are                                                            
enrolled in  the correspondence program  should be counted  as Craig                                                            
school students.                                                                                                                
Co-Chair Green interjected  that the amendment would not exclude in-                                                            
district  correspondence  students as  it specifies  that those  who                                                            
enroll and reside in Craig would qualify.                                                                                       
Co-Chair Wilken  agreed that the amendment's  language does  address                                                            
Senator Dyson's concern.                                                                                                        
Co-Chair  Wilken  requested  that  a  breakout  of  the in-district                                                             
students be specified in the chart.                                                                                             
Senator Olson asked how  the adoption of this amendment would affect                                                            
the Craig School  District. He opined  that the amendment  should be                                                            
held until that information is available.                                                                                       
Co-Chair Wilken stated  that the amendment could be adopted prior to                                                            
receipt of that information.                                                                                                    
Senator  Olson asked  whether this  amendment  would affect  charter                                                            
Senator Stedman stated that the answer would be forthcoming.                                                                    
Co-Chair  Green  commented  that charter  school  students  who  are                                                            
enrolled and reside in  the school district would not be affected by                                                            
the adoption of this amendment.                                                                                                 
Senator Olson acknowledged.                                                                                                     
Co-Chair  Green  stated  that  the  purpose  of NFR  is  to  provide                                                            
assistance  to local communities  within the  national forest  based                                                            
upon residency.                                                                                                                 
Senator  Hoffman  asked whether  any  of the  574 students  who  are                                                            
enrolled  in the Craig  correspondence program  were counted  in the                                                            
receipt of NFR dollars in any other district.                                                                                   
Senator Stedman  understood  the question to  be whether any  of the                                                            
students are  being "double counted"  in that they might  be counted                                                            
as  being enrolled  in  both a  correspondence  program  and in  the                                                            
community in which they  reside. He assured that further information                                                            
in this regard would be forthcoming.                                                                                            
Co-Chair Wilken declared,  "that if they are, they shouldn't be." He                                                            
suspected that this is not the case.                                                                                            
Senator  Hoffman  therefore  asked  how  the students  who  are  not                                                            
residents  of  Craig  would  be accounted  for  were  the  amendment                                                            
Co-Chair  Wilken  understood  that  they  would  get  State  support                                                            
through the  State Student  Foundation Formula  which is a  separate                                                            
accounting.  The NFR is additional  funding to the State  Foundation                                                            
Co-Chair Wilken removed his objection to the Amendment.                                                                         
There being no further objection, Amendment #1 was adopted.                                                                     
Co-Chair Wilken ordered the bill to be HELD in Committee.                                                                       
     CS FOR SENATE JOINT RESOLUTION NO. 3(JUD)                                                                                  
     Proposing an amendment to the Constitution of the State of                                                                 
     Alaska relating to an appropriation limit and a spending                                                                   
This was  the fourth  hearing for  this bill in  the Senate  Finance                                                            
Co-Chair  Wilken   stated  that  this  legislation   would  allow  a                                                            
Constitutional  spending limit proposal to be placed  on a Statewide                                                            
election ballot.                                                                                                                
Amendment  #1: This amendment  deletes language  in Section  1, page                                                            
two,  subsection  (c)(3)  and  replaces  it  with  new  language  as                                                            
     (3) of money received by the State from a source other than                                                                
     the State or federal government that is restricted to a                                                                    
     specific use by the terms of a gift, grant, bequest, or                                                                    
In addition, following  ";" in Section 1, subsection  (c)(8) on page                                                            
two,  line 21  the word  "and" is  deleted  and a  new paragraph  is                                                            
inserted to read as follows.                                                                                                    
     (9) of money for expenditure by a State agency to provide                                                                  
     services to another State agency that has also received an                                                                 
     appropriation of the same money; and                                                                                       
LUCKY SHULTZ, Staff to  Senator Dyson, explained that in response to                                                            
Members'  concerns  regarding  the appropriateness  of  language  in                                                            
Version  23-LS0296\B  pertaining to  the appropriation  calculation                                                             
exemption "of donations,  gift, and grants to the State for specific                                                            
purposes,"  Amendment  #1 would  replace  that language  "with  more                                                            
appropriate language" pertaining  to the exemption of such statutory                                                            
designated  program   receipts  as  gifts,  grants,   bequests,  and                                                            
specifically, contracts.                                                                                                        
Senator Dyson moved to adopt Amendment #1.                                                                                      
Co-Chair Wilken objected for explanation.                                                                                       
CHERYL FRASCA, Director,  Office of Management and Budget, Office of                                                            
the Governor,  clarified that this amendment would  align the bill's                                                            
language  with  current  State  Statutes  pertaining   to  statutory                                                            
designated program receipts.                                                                                                    
Mr. Schultz  continued that the amendment  would also incorporate  a                                                            
new exemption  into the bill  in order to  allow for an exchange  of                                                            
interagency receipts in  that one State agency could expend money in                                                            
order  to provide  services to  another  State agency.  This is  not                                                            
additional income  and should therefore be appropriately  reflected.                                                            
The amendment would also address reimbursable agreements.                                                                       
AT EASE 9:39 AM / 9:39 AM                                                                                                       
Senator  Hoffman inquired  as  to the  necessity  of addressing  the                                                            
interagency  receipt language, as,  were the funds already  included                                                            
in one  department's  budget, they  would be  incorporated into  the                                                            
allocation base.                                                                                                                
Ms. Frasca responded  that the amendment would address  the issue of                                                            
duplicated  expenditures.  She  explained  that  when  developing  a                                                            
fiscal summary  that compares one  year's budget to the next,  there                                                            
is a line  item element  through which to  identify components  that                                                            
should be backed  out or would reduce  duplicated expenditures  that                                                            
had been appropriated  twice. The proposed language  would serve "to                                                            
exclude the  duplication so they count  only once under the  limit."                                                            
Examples would include  "highway working capital fund appropriations                                                            
to the  Internal Services  Fund for telecommunications"  as  well as                                                            
interagency receipts.                                                                                                           
Co-Chair  Green asked  regarding a  component of  the Department  of                                                            
Health  and Social Services  budget  that would  be affected  by the                                                            
proposed statutory designated program receipts language.                                                                        
Ms.  Frasca responded  that  the amendment  would  address the  pro-                                                            
share/fair  share component  in the  Department as  these funds  are                                                            
categorized as a contractual  relationship between a health facility                                                            
through which federal Medicaid  funds are received and then returned                                                            
to the State.  The amendment would  address this contractual  issue.                                                            
Co-Chair  Green asked whether  "this implies  that it is a  contract                                                            
with the State."                                                                                                                
Ms. Frasca  clarified that it is a  contractual agreement  between a                                                            
hospital and the State.                                                                                                         
Co-Chair  Green understood  therefore that  it is not a contractual                                                             
agreement between the hospital and the federal government.                                                                      
Ms. Frasca  affirmed  that, when  pertaining to  the fair  share/pro                                                            
share arrangement, it is not.                                                                                                   
Co-Chair Wilken removed his objection.                                                                                          
There being no further objection, Amendment #1 was ADOPTED.                                                                     
Amendment #2:  This amendment inserts  new language into  Section 2,                                                            
subsection (d)  on page three, line three following  the word "fund"                                                            
as follows.                                                                                                                     
     if the  balance in the  fund is less  than $2,000,000,000.  The                                                            
     amount  deposited  into  the  budget reserve  fund  under  this                                                            
     subsection shall not  exceed the amount that, when added to the                                                            
     balance in the fund  before the deposit, equals $2,000,000,000.                                                            
     After  deposit  is  made  under  this  subsection,  any  excess                                                            
     general  fund money shall  be deposited  into a budget  reserve                                                            
     fund established by statute                                                                                                
Senator Dyson moved to adopt Amendment #2.                                                                                      
Co-Chair Wilken objected for explanation.                                                                                       
Senator  Dyson  explained  that this  amendment  would  address  the                                                            
question of how  to deal with excess funds were the  money available                                                            
for appropriation  to exceed the limit. The original  version of the                                                            
bill  decried that  the  excess funds  must  be deposited  into  the                                                            
Constitutional Budget Reserve  (CBR). However, utilizing these funds                                                            
to rebuild  the CBR to  approximately a seven  billion dollar  level                                                            
has  not been  viewed  as the  "wisest  public  policy."  Therefore,                                                            
rebuilding the  CBR to some acceptable or prudent  level would serve                                                            
to strengthen  the State's bond rating and provide  flexibility with                                                            
which  to  respond  "to  foreseen  and  unforeseen  fluctuations  in                                                            
revenue." This  Amendment would specify  a CBR limit of two  billion                                                            
dollars.  This would be  one billion dollars  beyond Governor  Frank                                                            
Murkowski's  recommendation   that  a  one  billion  dollar  minimum                                                            
balance be  established. Additional  revenue beyond the two  billion                                                            
dollars  would  be deposited  into  the  existing  Statutory  Budget                                                            
Reserve (SBR) fund. He voiced support for the amendment.                                                                        
Co-Chair  Wilken  recalled that  prior  to the  State's withdrawing                                                             
funds  from the  CBR  beginning  in 1994,  money  from  the SBR  was                                                            
utilized between 1990 and  1994. The balance currently is the SBR is                                                            
Senator Dyson read Section  2, subsection (d), as it would read were                                                            
the amendment adopted.                                                                                                          
     (d)  The amount  of money  in the  general  fund available  for                                                            
     appropriation   at  the  end  of  each  fiscal  year  shall  be                                                            
     deposited  in the  budget reserve  fund if  the balance  in the                                                            
     fund  is less than  $2,000,000,000. The  amount deposited  into                                                            
     the budget reserve  fund under this subsection shall not exceed                                                            
     the amount  that, when added to the balance in  the fund before                                                            
     the  deposit,  equals  $2,000,000,000.  After deposit  is  made                                                            
     under this  subsection, any excess general fund  money shall be                                                            
     deposited  into a budget reserve  fund established by  statute.                                                            
Co-Chair  Wilken understood  that  adoption of  the amendment  would                                                            
limit the  CBR balance to  two billion dollars  and anything  beyond                                                            
that amount  would be deposited into  the SBR. He asked whether  the                                                            
language  stating that,  "any  excess general  fund  money shall  be                                                            
deposited into a budget  reserve fund established by statute" should                                                            
be amended to clarify that this fund is the SBR.                                                                                
Ms. Frasca suggested that  amendment language specifying the general                                                            
fund  also be  deleted,  as such  things  as excess  Permanent  Fund                                                            
earnings should also be deposited into the budget reserve fund.                                                                 
Senator B.  Stevens noted  that, in response  to his question  as to                                                            
whether  the   Permanent  Fund  Earnings   Reserve  Account   was  a                                                            
subaccount of  the general fund or the Permanent Fund,  the position                                                            
of  the Department  of  Revenue's  Commissioner  was that  it was  a                                                            
subaccount of the Permanent  Fund. As a result of the Commissioner's                                                            
remarks, he understood  that those earnings would  not available for                                                            
appropriation   as  a  general  fund   subaccount.  Therefore,   the                                                            
Permanent   Fund   earnings  reserve   account   would   not  be   a                                                            
consideration in this bill.                                                                                                     
Ms. Frasca  agreed  that this  would be  the case "in  terms of  the                                                            
categorization;"  however,  she  stated  that a  future Legislature                                                             
could  appropriate  the  balance  of  the  Permanent  Fund  earnings                                                            
reserve account into the general fund.                                                                                          
Senator  B. Stevens  acknowledged.  He noted  that this legislation                                                             
differs from separate  earnings reserve account legislation  that he                                                            
has  proposed, in  that, by  specifying  that excess  general  funds                                                            
would  fund the  earnings  reserve  account,  there is  a  different                                                            
funding mechanism.                                                                                                              
Co-Chair Wilken  suggested therefore that the general  fund language                                                            
in the amendment  remain as is with  the option of revisiting  it as                                                            
the bill progresses.                                                                                                            
Senator  Dyson stated  that amending  the language  to specifically                                                             
denote SBR is worthy of consideration.                                                                                          
Senator Dyson asked Ms.  Frasca whether the language specifying that                                                            
general fund  money would be available  for appropriation  should be                                                            
Ms.  Frasca asked  that  additional  time  be provided  before  that                                                            
determination is made.                                                                                                          
Senator  Dyson asked  the Members  and  Ms. Frasca  to reflect  upon                                                            
whether two billion dollars is an appropriate CBR limit.                                                                        
Ms. Frasca  requested  that she be  provided sufficient  time  to be                                                            
able to confer with the Department of Revenue in that regard.                                                                   
SFC 04 # 55, Side B 09:51 AM                                                                                                    
Senator  Bunde asked the  rationale behind  designating two  billion                                                            
dollars  as the  CBR  limit,  particularly  as the  State  typically                                                            
requires, annually,  half a billion to provide for  cash flow issues                                                            
aside from sufficient funding  with which to provide for such things                                                            
as a downturn  in revenue or a catastrophic event.  In addition, the                                                            
fact that the  State borrowed five billion dollars  from the CBR and                                                            
has yet to fully reimburse that amount is an irritant.                                                                          
Senator Dyson  voiced appreciation for that concern.  He also voiced                                                            
appreciation for the efforts  being exerted by Senator B. Stevens to                                                            
present legislation to reimburse the CBR.                                                                                       
Senator Dyson  voiced the understanding that the ability  of the CBR                                                            
to reach  a five  billion balance  was unanticipated,  and that  the                                                            
Governor's  recommendation that  a one billion  dollar CBR  limit be                                                            
specified as the account  "floor" or level that must not be breached                                                            
was the amount required  to maintain such things as the State's bond                                                            
rating. In addition, he  referenced separate testimony pertaining to                                                            
loan rates,  inflation,  the financial  market and  the impact  that                                                            
such things incur on the State's financial situation.                                                                           
Senator B. Stevens  expressed the hope that someday  the Legislature                                                            
could face the  problem of what to do with an excess  balance in the                                                            
CBR. He also stressed that  reimbursing the CBR is "a constitutional                                                            
obligation" and unless  that issue were resolved, either by changing                                                            
the  Constitution   or  by   repaying  the   amount  borrowed,   the                                                            
establishment  of a one billion dollar  floor as recommended  by the                                                            
Governor  or  a  two billion  dollar  floor  as  suggested  in  this                                                            
amendment  would  serve to  prohibit  that reimbursement  as  future                                                            
Legislators could appropriate excess funds elsewhere.                                                                           
Senator Dyson clarified  that rather than establishing a two billion                                                            
dollar  floor, this  amendment would  establish that  amount as  the                                                            
maximum CBR "ceiling" or limit.                                                                                                 
Senator B.  Stevens understood that  this limit would only  apply to                                                            
the amount of general fund contributions to the CBR.                                                                            
Senator  Dyson clarified  that the  two billion  dollar limit  would                                                            
apply  to total  funds  in  the account  regardless  of  where  they                                                            
originated.  He  requested  Members  to contemplate  whether  a  two                                                            
billion  dollar balance  in the  CBR combined  with  the money  that                                                            
might be deposited into  the SBR would qualify as a reimbursement of                                                            
the money the State has borrowed from the budget reserve.                                                                       
Senator  B.  Stevens  responded  that  time  would  be  required  to                                                            
appropriately consider  the situation. However, he voiced discomfort                                                            
that the Legislature might  allocate funds in excess of the proposed                                                            
two  billion dollar  mark  to  other savings  accounts  rather  than                                                            
repaying the entirety  of the money owed to the CBR.  This mechanism                                                            
could displace the State's debt obligation to the CBR.                                                                          
Senator Hoffman  asked whether this  language would serve  to repeal                                                            
the CBR repayment  language. This would be contrary  to the original                                                            
intent  of  Legislators  who, acting  upon  a  vote of  the  people,                                                            
allowed funds  to be borrowed  from the CBR  with the understanding                                                             
that  the money  would be  repaid. He  stated that,  years ago,  the                                                            
Legislature, without success,  inquired of the Administration at the                                                            
time, as  to whether settlement  money the  State received  from oil                                                            
companies could  be utilized to repay the CBR. Therefore,  he agreed                                                            
with Senator  B. Stevens  that the entire  amount of money  that has                                                            
been  borrowed  from  the  CBR  should  be  repaid.  This  bill,  he                                                            
continued, in addition  to establishing a spending limit, would also                                                            
attempt  to amend, by  establishing  a spending cap,  a vote  of the                                                            
people that specified that the CBR should be reimbursed.                                                                        
Senator  Olson asked  whether  a majority  vote of  the Legislature                                                             
would be required  in order to access funds from the  SBR as opposed                                                            
to the three-quarter vote that is required to access the CBR.                                                                   
Co-Chair Wilken affirmed  that a majority vote could access the SBR.                                                            
Senator Dyson,  in response to Senator Hoffman's concern,  asked for                                                            
clarification  regarding  whether  the adoption  of  this  amendment                                                            
would  eliminate  the Constitutional  requirement  that  the CBR  be                                                            
reimbursed  to the level  it was  at the time  the Constitution  was                                                            
amended to allow funds to be borrowed from the CBR.                                                                             
Mr. Schultz  responded  that the  Version "B"  committee  substitute                                                            
contains  language that would  repeal Article  IX, Section  17(d) of                                                            
the  Constitutional   budget  language   that  specifies   that  any                                                            
withdrawal of funds from  the CBR must be repaid. Amendment #2 would                                                            
add new language to Section 17(d).                                                                                              
Senator Dyson  therefore stated that it must be clarified  that were                                                            
the people  of the State  to approve language  as presented  in this                                                            
legislation,  the voters would  be changing  language that  they had                                                            
previously  approved in this regard.  He stated that, provided  that                                                            
it is clearly  communicated to the people of the State,  Legislators                                                            
have the right to determine  an appropriate CBR fund level. The real                                                            
discussion should be what is an appropriate level for the CBR.                                                                  
Senator  Hoffman  stated that  the  single  subject rule  should  be                                                            
applied  in  this  instance,  as  the  language   contained  in  the                                                            
Amendment regarding a specified  CBR level is a completely different                                                            
topic that should require  a separate Constitutional amendment aside                                                            
from  the spending  limit. While  it does  pertain  to managing  the                                                            
State's  funds,  aligning  it  with  a spending  limit  might  be  a                                                            
Senator Bunde  understood that the reason that a two  billion dollar                                                            
limitation  is being  presented  is  to provide  sufficient  funding                                                            
above the Governor's one  billion dollar "floor" recommendation that                                                            
supports  the  State's  credit rating.  Therefore,  in  addition  to                                                            
maintaining a one billion  dollar floor, $500,000,000 is required to                                                            
support   cash  flow  issues   throughout   the  year  and   another                                                            
$500,000,000 would be available  to address claustrophobic events or                                                            
such  things  as  financial   market  fluctuations   and  oil  price                                                            
Senator Bunde stated that  the position of maintaining a one billion                                                            
dollar  floor to  insure the  State's credit  rating  has also  been                                                            
questioned as  the State has other options through  which to support                                                            
its  bond  ratings  such  as  acquiring  a line  of  credit  from  a                                                            
financial institution.  The problem  with doing that, he  professed,                                                            
is that it would  incur additional debt service whereas  maintaining                                                            
one billion  dollar  balance in  the CBR  would not  cost the  State                                                            
anything.  It  would  also  garner  interest  earnings  even  though                                                            
utilizing  the CBR  in this  manner  would tie  up a  lot of  money.                                                            
Knowing which position to advance is a dilemma.                                                                                 
Co-Chair  Wilken  asked that  Senator  Dyson consider  holding  this                                                            
amendment for further discussion.                                                                                               
Senator Dyson  agreed. He also acknowledged Senator  Hoffman's point                                                            
about the single  subject rule and  stated that further research  in                                                            
that regard would be undertaken.                                                                                                
Senator Dyson stated that an amendment that would specify a four-                                                               
year termination  date on this proposal is being considered,  with a                                                            
provision that it could be re-authorized.                                                                                       
Co-Chair  Wilken  asked what  the fee  might  be were  the State  to                                                            
arrange for  a one billion or half  a billion dollar line  of credit                                                            
with a  major financial  institution.  He considered  this a  viable                                                            
option and suggested  that it might be less expensive  than the cost                                                            
associated with investing  the CBR on a short-term rather than long-                                                            
term basis.  With $28  billion in the  bank, the  fee for a  line of                                                            
credit  should  be  "relatively"  reasonable.  Perhaps  an  informal                                                            
inquiry could be made.                                                                                                          
Ms.  Frasca  stated  that  information   in  this  regard  would  be                                                            
Senator   Dyson  voiced   uncertainty   as  to   whether   providing                                                            
$500,000,000   to  address  such  things  as  fluctuations   in  the                                                            
financial markets  or the price of  oil is sufficient. He  asked Ms.                                                            
Frasca or the  Department of Revenue to provide further  information                                                            
to the Committee in this regard.                                                                                                
Senator Dyson  moved to withdraw the  motion to adopt Amendment  #2.                                                            
There  being   no  objection,  Amendment   #2  was  WITHDRAWN   from                                                            
Co-Chair Wilken ordered the bill HELD in Committee.                                                                             
     SENATE BILL NO. 366                                                                                                        
     "An Act  relating to the levy  and collection of sales  and use                                                            
     taxes,  to the levy and collection  of municipal sales  and use                                                            
     taxes,  and  to municipal  sales  and  use taxes  on  alcoholic                                                            
     beverages; and providing for an effective date."                                                                           
This  was the first  hearing  for this  bill in  the Senate  Finance                                                            
Co-Chair  Wilken stated that  this bill, which  is sponsored  by the                                                            
Senate Finance  Committee, would institute a statewide  four-percent                                                            
sales tax on sales, lease,  rental, and use of tangible property and                                                            
services within the State.                                                                                                      
Senator B. Stevens moved  to adopt committee substitute, Version 23-                                                            
LS1051\U as the working  document. He then objected to the motion in                                                            
order to explain the changes in the committee substitute.                                                                       
Co-Chair  Wilken  noted that  Kathryn  Kurtz,  Legislative  Counsel,                                                            
Division of Legislative  Legal and Research Services, has provided a                                                            
Version  "U" Sectional  Analysis  [copy on  file],  dated March  24,                                                            
Senator B. Stevens  stressed that this is a working  document and as                                                            
such would  continue  to evolve over  time. Changes  in Version  "U"                                                            
include:  the  addition  of  three  new  sections  to  the  list  of                                                            
limitations on the powers  of Home Rule municipalities to Section 5,                                                            
on page two, beginning on line seven.                                                                                           
Co-Chair   Wilken  interjected   that  numerous   individuals   have                                                            
indicated the desire to testify regarding this bill.                                                                            
Senator B. Stevens expressed  the understanding that this would be a                                                            
Committee work  session with the goal of developing  a new committee                                                            
substitute  based upon Department  and Member  input. Therefore,  he                                                            
asked that the hearing be limited to Committee discussion.                                                                      
Co-Chair  Wilken apologized  for not  clarifying  that this  hearing                                                            
would be a  work session, as it is  the bill's first hearing  and "a                                                            
foundation  on what we are talking  about" must be established.  The                                                            
Version "U" committee substitute  was distributed to the public with                                                            
the understanding  that public testimony  would be taken  at a later                                                            
Senator B. Stevens  explained that some of the changes  incorporated                                                            
into the committee  substitute would  address concerns presented  by                                                            
State departments, specifically  the Department of Revenue. However,                                                            
not  all  of  the  concerns  have  been  addressed,  as  this  is  a                                                            
continuing  work in progress. In addition  to changes in  Section 5,                                                            
other changes include:  language in Section 12, page three, line 27,                                                            
that would allow municipalities  to adjust their local tax system in                                                            
order to qualify  for the one-percent return the State  would rebate                                                            
to the municipality; language  in Section 16, subsection (7) on page                                                            
five, line  29 would provide  an exemption  for goods for resale  by                                                            
the  mining and  manufacturing  industry was  added  because it  was                                                            
inadvertently  omitted  in the  original committee  substitute;  the                                                            
reference to a local bed  tax, were it separate from the local sales                                                            
tax, as  specified  under AS 29.45.700,  in  Section 16,  subsection                                                            
Sec. 43.44.060. Relationship  to municipal levies. on page six, line                                                            
29 would allow  it to remain in place; language in  Section 16, Sec.                                                            
43.44.060, subsection (c)  on page seven, beginning on line 18 would                                                            
address  the situation  of two  different taxation  rates  resulting                                                            
from a city  within a borough  by combining  the two rates  and then                                                            
splitting the revenue rebated  to that taxing regime proportionately                                                            
between the two entities.                                                                                                       
Senator  Hoffman asked  for further  information  regarding how  the                                                            
State's   one-percent   tax  rebate   would  be   split  between   a                                                            
municipality and a borough.                                                                                                     
Senator B.  Stevens responded that  the one-percent rebate  would be                                                            
divided between  the two entities depending on their  individual tax                                                            
levies. A five-percent  tax on behalf of the local entities would be                                                            
collected  were a municipality  to  levy a two-percent  tax and  the                                                            
borough  to  levy a  three-percent  tax.  One  percent of  the  five                                                            
percent tax  would be rebated and  prorated proportionately  between                                                            
the two.                                                                                                                        
Senator Hoffman understood  therefore that the language specifically                                                            
defines  how  the split  would  occur  as  opposed  to it  being  an                                                            
optional situation.                                                                                                             
Senator B.  Stevens responded that  this would be the guideline  for                                                            
any community  that that a dual city/municipality  taxation  system.                                                            
Senator  B. Stevens  explained  that other  changes  in Version  "U"                                                            
include language  in Section 16, Sec. 43.44.130. Authority  to enter                                                            
streamlined sales and use  tax agreement. on page nine, beginning on                                                            
line nine that  "would permit the State to enter into  a multi-state                                                            
sales  agreements for  catalog sales,"  and, were  any agreement  to                                                            
occur on the federal  Congressional level regarding  Internet sales,                                                            
this would  allow the  State to  participate in  that agreement.  In                                                            
addition, this  language would allow the purchase  of a large ticket                                                            
item that  is taxed  in one of  certain participating  states  to be                                                            
exempt from  taxation in  Alaska. He noted  that this would  prevent                                                            
"dual  taxation,"  and  he noted  that  these  types  of  agreements                                                            
currently exist between some states.                                                                                            
Senator B. Stevens further  explained that some issues not addressed                                                            
in this committee  substitute include whether or not  to establish a                                                            
sales tax  limitation; or  whether or not  to exempt such things  as                                                            
industrial equipment  that is used in development  or exploration or                                                            
transportation  expenses as exampled by taxing items  shipped on the                                                            
Alaska Railroad that would  probably be taxed again when sold at the                                                            
retail  level.  He  voiced  support  for  exempting  both  of  these                                                            
components.  Another  issue  not  addressed  is whether  or  not  to                                                            
incorporate   penalties   for  non-compliance   or  non-enforcement                                                             
Co-Chair Wilken asked whether  Version "U" addresses the entirety of                                                            
the Department  of Revenue concerns as detailed in  the Department's                                                            
March  19,  2004   memorandum  [copy  on  file]  signed   by  Deputy                                                            
Commissioner, Steve Porter, and addressed to Senator B. Stevens.                                                                
Senator B.  Stevens responded  that Version  "U" addresses  most but                                                            
not all  of the concerns.  Efforts on how  to address the  remaining                                                            
concerns are continuing.                                                                                                        
PHELAN  STRAUBE,   Staff  to  Senator  Ben  Stevens,   informed  the                                                            
Committee that  efforts are continuing  in regards to incorporating                                                             
into  the bill,  language,  as suggested  by Senator  Hoffman,  that                                                            
would  allow a  small business  to withhold  from  submitting a  tax                                                            
every  30 days as  required,  until such  a time that  the tax  owed                                                            
amounted to a minimum of $250.                                                                                                  
Senator  B.  Stevens  noted  that  another  area  requiring  further                                                            
discussion  would   pertain  to  a  sixty  dollar  per  transaction                                                             
limitation, specifically  how it would affect existing local revenue                                                            
streams. He  also noted that language  exempting wages and  interest                                                            
from  taxation  was  also  inadvertently  omitted  from  the  bill's                                                            
exemption list.                                                                                                                 
Senator Bunde  asked whether the intent of the bill  is to limit the                                                            
collection  of tax to only those entities  holding a State  business                                                            
license as enforcing collection  of the tax on such things as garage                                                            
sales would be an administrative nightmare.                                                                                     
Senator B. Stevens  responded that Section 16, subsection  (6)(A) on                                                            
page  five,  beginning  on  lines  25 would  exempt  the  resale  of                                                            
property  if a  purchaser  resells  the property,  by  itself or  in                                                            
combination  with  other  property,   "in  the  ordinary  course  of                                                            
Senator Hoffman  stated that such things as garage  sales could also                                                            
be exempted by language  in Section 16, subsection (3) on page five,                                                            
line 17 that would exempt "occasional sales."                                                                                   
Senator B. Stevens concurred.                                                                                                   
Senator Hoffman asked about  his request to provide a senior citizen                                                            
sales tax exemption in the bill.                                                                                                
Senator B.  Stevens responded that  while this issue was  discussed,                                                            
it was  determined  that the  municipalities  that currently  exempt                                                            
senior citizens from taxation  could address this on the local level                                                            
by  utilizing  the  one-percent  rebate  to  assist  seniors  or  by                                                            
providing them a tax credit.                                                                                                    
Senator Hoffman  stated that he would  support a senior citizen  tax                                                            
exemption. For  clarification, he pointed out that  while one of his                                                            
requests  was to exempt diesel  fuel utilized  in the generation  of                                                            
electricity,  the language  in Section  16, subsection  (5) on  page                                                            
five, line 22,  that exempts "the sale of natural  gas, diesel fuel,                                                            
heating  oil,  water, electricity,   steam, or  refuse  and  garbage                                                            
collection  service"  would  serve  to  exempt diesel  fuel  in  its                                                            
entirety.  He voiced  that his  suggestion limited  the diesel  fuel                                                            
exemption whereas  the language as written would serve  to provide a                                                            
disparity between gas users and diesel users.                                                                                   
Senator B.  Stevens acknowledged  the comment  and stated that  this                                                            
exemption would be revisited.                                                                                                   
Senator  Dyson  opined  that  the  endeavor   to exempt   industrial                                                            
machinery would  be difficult as it would be a challenge  to provide                                                            
this exemption  to a specific industry such as the  oil industry and                                                            
large construction  projects but not consider exempting  such things                                                            
as commercial fisherman or fish processors.                                                                                     
Senator B. Stevens  responded that this had been considered  without                                                            
resolution. However, it  should be noted that while the four percent                                                            
tax  might apply  to every  purchase,  there  is a  maximum $60  tax                                                            
limit. This "ceiling,"  which could be described as an invoice sales                                                            
tax rather than  an itemized sales tax, was included  in the bill in                                                            
an attempt to address this concern.                                                                                             
Senator Dyson acknowledged the explanation.                                                                                     
Senator Olson  asked how the tax would  be applied to harvesters  of                                                            
products, be it either  fishermen harvesting from the sea or farmers                                                            
harvesting  potatoes  who  might sell  their  products  either on  a                                                            
wholesale or retail basis.                                                                                                      
Mr. Straube interjected  that were a fisherman to purchase cans that                                                            
would be  utilized in the  process of his  harvest, the purchase  of                                                            
those  cans  would  be exempt  from  the  sales  tax. Manufacturing                                                             
components  would also be exempt from  taxation under provisions  of                                                            
this bill.                                                                                                                      
Senator B.  Stevens continued  that, the concept  "is that  any item                                                            
that is either sold or  purchased in the process for total resale is                                                            
exempt." A borough would  have the ability to implement a landed raw                                                            
fish tax, whereas the State  would have the ability to tax the final                                                            
product where  that product sold in the State. This  sales tax would                                                            
not apply to  a product manufactured  in the State but sold  outside                                                            
of the State.                                                                                                                   
Co-Chair  Wilken suggested  that the  word "sewer"  be added  to the                                                            
list of exemptions in the  aforementioned Section 16, subsection (5)                                                            
on page five, line 22.                                                                                                          
Senator B. Stevens  agreed that some of the activities  specified in                                                            
that section might not be owned by a municipality.                                                                              
Co-Chair  Wilken  affirmed that  this  is the  case in  the City  of                                                            
Co-Chair  Wilken asked  regarding the  status of  the bill's  fiscal                                                            
Senator B.  Stevens responded that  the adoption of the Version  "U"                                                            
committee substitute  would provide  the Department of Revenue  with                                                            
significant  information  with  which  to  develop  a  fiscal  note.                                                            
However,  he  requested  that  development  of the  fiscal  note  be                                                            
delayed until a new committee  substitute that encompasses the items                                                            
that were inadvertently omitted from Version "U" is developed.                                                                  
Co-Chair  Wilken suggested  that a  separate  estimate be  developed                                                            
that  would depict  how much  sales tax  would be  lost were  senior                                                            
citizens exempted.                                                                                                              
Senator Bunde asked the  anticipated annual expense of administering                                                            
the program, as he was  concerned that these expenses might outweigh                                                            
the revenue the tax would generate.                                                                                             
Senator  B. Stevens understood  that the  Department has  calculated                                                            
those figures.                                                                                                                  
ROBIN WILSON,  Tax Division,  Department of  Revenue, testified  via                                                            
teleconference  from  an  offnet  site  and stated  that  while  the                                                            
Department  would work with Senator  B. Stevens to develop  a fiscal                                                            
note, it  could not provide  one at this time  as the Committee  has                                                            
some important  decisions  yet to  make. The  Version "U"  committee                                                            
substitute  has not  been reviewed  by the Department  and  language                                                            
regarding  such things as  the tax limitation  could complicate  the                                                            
development  as it  would affect  costs. She  assured however,  that                                                            
once the exemption  structure is clarified,  a fiscal note  would be                                                            
Senator  B.  Stevens   withdrew  his  objection  to  the   committee                                                            
substitute, with  the understanding that a new committee  substitute                                                            
would be provided in short order.                                                                                               
There  being  no  further  objection,  the  Version   "U"  committee                                                            
substitute was ADOPTED as the working document.                                                                                 
Co-Chair  Wilken asked  that  the handout  titled  "State Sales  Tax                                                            
Issue Primer"  [copy on file], dated March 2004, that  was developed                                                            
by the Alaska Municipal League (AML) be explained.                                                                              
KEVIN RITCHIE,  Executive Director, Alaska Municipal  League, voiced                                                            
appreciation  for the Committee's  endeavors to address the  State's                                                            
fiscal  dilemma  by considering  a  variety  of  revenue  generating                                                            
options including a State sales tax.                                                                                            
SFC 04 # 56, Side A 10:39 AM                                                                                                    
Mr. Ritchie  stated that  the AML would be  available to assist  the                                                            
Committee in this  endeavor. He noted that the intent  of the "State                                                            
Sales  Tax Issue  Primer" is  to examine  some of  the impacts  that                                                            
would  result were  a State  sales  tax implemented  as  well as  to                                                            
acknowledge  that this State is different  from other states.  Since                                                            
Statehood,  even  when  times  were tough,  sales  taxes  have  been                                                            
reserved to be a municipal  tax, as it is recognized that many small                                                            
communities  do not have  any other viable  option through  which to                                                            
generate  revenue aside from  property taxation.  He also noted  the                                                            
wide costs  of living  variations  in the differing  regions  of the                                                            
State is a consideration in this issue.                                                                                         
Mr.  Ritchie noted  that  in  response to  questions  pertaining  to                                                            
revenue sources,  AML would first recommend the use  of the earnings                                                            
of the  Permanent Fund  and the  adoption of the  Percent of  Market                                                            
Value (POMV) Program.                                                                                                           
Mr.   Ritchie  declared   that   a  "direct   partnership"   between                                                            
municipalities   and  the  State   must  be  sought  regarding   the                                                            
development of  the fiscal notes, as the exemption  list provided in                                                            
the bill  is "a huge  issue" that  would affect  both the State  and                                                            
municipalities'   sales  tax  revenues.  He  noted  that  the  Kenai                                                            
Peninsula Borough  and the City and Borough of Juneau  currently are                                                            
the largest sales tax collection organizations.                                                                                 
Mr. Ritchie  concluded  his remarks  by  stating that  AML would  be                                                            
available  to answer questions  regarding the  Sales Tax Primer  and                                                            
would welcome  participation  in the continuing  development  of the                                                            
Co-Chair  Wilken  voiced  appreciation  for  AML's  assistance,  the                                                            
Primer,  and  the  suggestion  to  develop  a  Sales  Tax  Exemption                                                            
Senator Olson  assumed that from "the  negative approach"  presented                                                            
in the Primer  that AML has a negative view of the  State Sales Tax.                                                            
He asked whether  the exemption approach would be  more palatable to                                                            
municipalities  were it to mirror  exemptions currently in  place at                                                            
the local level.                                                                                                                
Mr. Ritchie responded  that each area of the State  is different and                                                            
that difference  is reflected  in each  area's specific exemptions.                                                             
Beginning  on page 16 of  the Primer, there  is a definition  and an                                                            
overview  of various  communities'  tax  exemptions,  and in  short,                                                            
there are  no common or  uniform tax exemptions.  He also  clarified                                                            
that this  non-uniformity  also pertains  to the  tax limitation  as                                                            
some municipalities  have a  limit on a total  invoice while  others                                                            
might apply it to a single purchase.                                                                                            
Senator  B.  Stevens  complimented   Mr.  Ritchie  and  AML  on  the                                                            
information  provided in the  booklet. Continuing,  he spoke  to the                                                            
issue as depicted  on page ten of  the Primer in the section  titled                                                            
"A State Sales  Tax in Not Fair to  Alaskans" which bases  its anti-                                                            
tax  position  on  the  fact  that  the  price  of  goods  in  rural                                                            
communities is substantially  higher than that of urban communities.                                                            
While labeling this as  a major policy call, he declared that he has                                                            
"yet to rationalize within  my mind" a justification as to why it is                                                            
acceptable  on  the  local  level  to tax  products  to  fund  local                                                            
government  but it is labeled  "unfair" for  the State to tax  those                                                            
same products.  On the same subject,  he noted that urban  areas use                                                            
property taxes  as a mechanism through which to fund  government. He                                                            
noted  that  the  State  provides  goods  and  services,   including                                                            
education, "at a equal  level" to all areas of the State be it urban                                                            
or rural.                                                                                                                       
Senator Bunde  opined that  the information  on this page  intimates                                                            
that the  proposed Sales Tax  would be unfair  due to the fact  that                                                            
because the  price of an  object such as milk  is more expensive  in                                                            
one area of the  State, the purchaser would be required  to pay more                                                            
tax. Continuing,  he recalled testimony  to the affect that,  in one                                                            
areas  of the  State, a  Permanent Fund  Dividend  check equates  to                                                            
approximately  30-percent of the household  income. Therefore,  were                                                            
an income tax  implemented, that area  of the State would  be paying                                                            
little or  no income tax  while another area  of the State  would be                                                            
paying substantially  more. He opined, however, that  the income tax                                                            
scenario is fairer than the sales tax scenario.                                                                                 
Senator Hoffman,  furthering Senator  Bunde's comments, stated  that                                                            
what is relevant  in an income tax scenario is that  everyone in the                                                            
State  is  treated  equally  whether they  are  in  an economically                                                             
depressed area  or not. The problem  with a State sales tax  is that                                                            
the State  would be receiving  additional  dollars from communities                                                             
where the price of things  such as milk is higher. This differs from                                                            
the local tax  scenario in that everyone in the community  would pay                                                            
the local government  the same tax  amount. He stated that  there is                                                            
fairness  in a  local sales  tax as  the individuals  living  within                                                            
those boundaries are treated  equally. In conclusion, he agreed that                                                            
Rural areas  would be treated  unfairly were  a Statewide sales  tax                                                            
Senator  B.   Stevens  proclaimed   that  these  discussions   would                                                            
continue; however, he argued  that the State sales tax would be fair                                                            
because  it would  be applied  equally  in all  parts  of the  State                                                            
regardless  of  the  different  pay  scales,   expenses,  and  other                                                            
amenities. A State sales  tax would be the most equitable thing that                                                            
could be applied  across the State  and furthermore, the  areas that                                                            
are more affluent,  spend more money and therefore  would contribute                                                            
more money.                                                                                                                     
Senator  Hoffman declared  that it  would be  fair to  tax on  a per                                                            
gallon  basis  rather than  a  price per  gallon  basis.  Therefore,                                                            
whatever one consumes,  one pays for whether it be marine, aviation,                                                            
or motor fuel.  He recognized this  as being a fair taxation  method                                                            
as opposed  to the inequities presented  by a State sales  tax based                                                            
on price.                                                                                                                       
Senator Olson  noted that  contrary to State  programs that  provide                                                            
cost of living  allowance considerations  for the price of  services                                                            
or employment,  private business  employees  are not provided  these                                                            
Senator B. Stevens  countered that private industry  employees would                                                            
also not have  the option to not pay  local sales or property  taxes                                                            
on such things as rent.                                                                                                         
Senator B. Stevens  stated that a new committee substitute  would be                                                            
Co-Chair Wilken  stated that an opportunity for public  testimony on                                                            
this bill would be forthcoming.                                                                                                 
Co-Chair Wilken ordered the bill HELD in Committee.                                                                             
Co-Chair Gary Wilken adjourned the meeting at 10:54 AM.                                                                         

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