Legislature(2003 - 2004)

04/14/2004 09:05 AM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
                              MINUTES                                                                                         
                     SENATE FINANCE COMMITTEE                                                                                 
                          April 14, 2004                                                                                      
                              9:05 AM                                                                                         
                                                                                                                                
                                                                                                                                
TAPES                                                                                                                       
                                                                                                                                
SFC-04 # 79,  Side A                                                                                                            
SFC 04 # 79,  Side B                                                                                                            
SFC 04 # 80,  Side A                                                                                                            
                                                                                                                              
CALL TO ORDER                                                                                                               
                                                                                                                                
Co-Chair Lyda Green convened the meeting at approximately 9:05 AM.                                                              
                                                                                                                                
PRESENT                                                                                                                     
                                                                                                                                
Senator Lyda Green, Co-Chair                                                                                                    
Senator Gary Wilken, Co-Chair                                                                                                   
Senator Con Bunde, Vice Chair                                                                                                   
Senator Fred Dyson                                                                                                              
Senator Lyman Hoffman                                                                                                           
Senator Ben Stevens                                                                                                             
Senator Donny Olson                                                                                                             
                                                                                                                                
Also Attending: Public testimony was presented in Juneau as                                                                   
reflected in the minutes.                                                                                                       
                                                                                                                                
Attending via Teleconference: Offnet sites' public testimony was                                                              
presented in the order reflected in the minutes.                                                                                
                                                                                                                                
SUMMARY INFORMATION                                                                                                         
                                                                                                                                
HB 375-APPROP: OPERATING BUDGET/LOANS/FUNDS                                                                                     
HB 377-APPROP: MENTAL HEALTH BUDGET                                                                                             
                                                                                                                                
The Committee took public testimony and held the bills in                                                                       
Committee.                                                                                                                      
                                                                                                                                
SB 366-STATE SALES TAX                                                                                                          
                                                                                                                                
The Committee heard from the sponsor and took public testimony. A                                                               
committee substitute was adopted and the bill was held in                                                                       
Committee.                                                                                                                      
                                                                                                                                
                                                                                                                                
     CS FOR HOUSE BILL NO. 375(FIN) am                                                                                          
     "An  Act  making appropriations   for the  operating  and  loan                                                            
     program  expenses of  state government,  for certain  programs,                                                            
     and to capitalize  funds; and providing for an effective date."                                                            
                                                                                                                                
                                                                                                                                
     CS FOR HOUSE BILL NO. 377(FIN)                                                                                             
     "An Act making appropriations for the operating and capital                                                                
     expenses of the state's integrated comprehensive mental health                                                             
     program; and providing for an effective date."                                                                             
                                                                                                                                
                                                                                                                                
This was  the third hearing  for these bills  in the Senate  Finance                                                            
Committee.                                                                                                                      
                                                                                                                                
Co-Chair Green announced  that public testimony from offnet sites is                                                            
scheduled for today. Testimony would be limited to two minutes.                                                                 
                                                                                                                                
LOUISE  NASSUK  testified  via teleconference   from Craig  to  urge                                                            
funding support  for Alaska Legal Services as it provides  important                                                            
assistance to families in Rural Alaska.                                                                                         
                                                                                                                                
DIANE MILLER  testified via  teleconference  from an offnet  site in                                                            
Teller to encourage funding  to support Alaska Legal Services (ALS),                                                            
particularly  funding to maintain  the Nome  office of ALS.  ALS has                                                            
provided important assistance to people in the Bush.                                                                            
                                                                                                                                
JOHN  BIOFF, Staff  Attorney, Kawerak  Incorporated,  testified  via                                                            
teleconference  from an offnet site. He stated that  in his position                                                            
with Kawerak  Incorporated, he provides  legal assistance  to twenty                                                            
tribal  councils in the  Bering Strait  area. In  the course  of his                                                            
work, he is  repeatedly asked by individuals  to provide  assistance                                                            
with legal  issues.  These inquiries  are referred  to Alaska  Legal                                                            
Services  as most  of these  people  are low  income  and unable  to                                                            
afford  an attorney.  Therefore,  he  supported funding  for  Alaska                                                            
Legal Services  and of the continued  funding of the Nome  office in                                                            
particular,  as it provides a very  valuable service to the  region.                                                            
Without it,  people would  not have access  to legal assistance  for                                                            
such things as divorces, custody, and domestic violence issues.                                                                 
                                                                                                                                
[NOTE: Testimony  from Deborah Mach,  City Clerk, City of  Unalaska,                                                            
was  heard  at this  point.  Her  remarks  are included  in  SB  336                                                            
testimony as they  pertained to that bill rather than  to HB 375 and                                                            
HB 377.]                                                                                                                        
                                                                                                                                
SUSIE MACLAY  testified via  teleconference  from an offnet  site in                                                            
Pilot  Station to  urge continued  funding  for the  Tundra  Women's                                                            
Coalition.  It provides  "badly needed"  assistance  to families  in                                                            
Bethel and the Yukon Kuskokwim delta region.                                                                                    
                                                                                                                                
ANTONE ANVIL  testified via  teleconference  from an offnet  site in                                                            
Bethel and voiced  concern that insufficient funding  is included in                                                            
the FY  05 Operating Budget  to support Alaska  Legal Services.  The                                                            
service ALS provides is important to the people in the area.                                                                    
                                                                                                                                
There being no further  testifiers, Co-Chair Green ordered the bills                                                            
HELD in Committee.                                                                                                              
                                                                                                                                
AT EASE: 9:18 AM / 9:20 AM                                                                                                      
                                                                                                                                
[NOTE: Co-Chair Wilken assumed chair of the meeting.]                                                                           
                                                                                                                                
                                                                                                                                
     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 fourth  hearing for  this bill in  the Senate  Finance                                                            
Committee.                                                                                                                      
                                                                                                                                
Co-Chair Wilken explained  that this bill, which is sponsored by the                                                            
Senate Finance  Committee, would implement a four-percent  Statewide                                                            
sales tax on  the sale, lease, rental  and use of tangible  personal                                                            
property  and  services.  He  noted  that  the Version  23-LS1051\W                                                             
committee substitute is before the Committee.                                                                                   
                                                                                                                                
Co-Chair  Wilken noted  that the purpose  of today's  meeting  is to                                                            
hear public testimony regarding the bill.                                                                                       
                                                                                                                                
Senator  B.  Stevens  moved  to  adopt  the  Version   23-LS  1051\X                                                            
committee substitute and objected for explanation.                                                                              
                                                                                                                                
Senator  B.  Stevens  explained  that  the  Version   "X"  committee                                                            
substitute would  exempt motor fuel taxes as well  as the tax on the                                                            
sale and rental of real  property, as identified in Section 17, Sec.                                                            
43.44.020 Exemptions  subsection (14) and (15) on  page seven, lines                                                            
seven through nine. This language reads as follows.                                                                             
                                                                                                                                
     (14) the sale, transfer, or use of motor fuel taxed under AS                                                               
     43.40.010;                                                                                                                 
     (15) the sale, lease, and rental of real property and the                                                                  
     construction of improvements on real property.                                                                             
                                                                                                                                
Senator B.  Stevens also pointed out  that the committee  substitute                                                            
would add  a new  subsection through  which, at  the request  of the                                                            
Department  of Revenue,  internet  commerce could  be addressed,  as                                                            
specified  on  page 16,  lines  three  through  five that  reads  as                                                            
follows.                                                                                                                        
                                                                                                                                
     (b) The Department  of Revenue shall adopt regulations relating                                                            
     to sourcing, or the  determination of where a sale occurred for                                                            
     sales and  use tax purposed, that are, to the  extent possible,                                                            
     consistent  with the Streamlined  Sales and Use Tax  Agreement.                                                            
                                                                                                                                
Senator Hoffman  asked whether Version "X" defines  what constitutes                                                            
real property.                                                                                                                  
                                                                                                                                
Senator B.  Stevens communicated that  while this definition  is not                                                            
specifically  included   in the  bill,  pertinent   definitions  are                                                            
located  in Section  17,  subsection  Sec.  43.44.199. Definitions.                                                             
beginning on page twelve.                                                                                                       
                                                                                                                                
Senator Hoffman acknowledged.                                                                                                   
                                                                                                                                
Senator B. Stevens  removed his objection to adopting  the committee                                                            
substitute.                                                                                                                     
                                                                                                                                
There  being  no  further  objection,  the  Version   "X"  committee                                                            
substitute was adopted as the working document.                                                                                 
                                                                                                                                
[NOTE: The following  testimony from Deborah Mach,  City Clerk, City                                                            
of Unalaska,  which was  inadvertently presented  during the  public                                                            
testimony  on HB  375 and  HB 377, has  been incorporated  into  the                                                            
testimony on SB 366.]                                                                                                           
                                                                                                                                
DEBORAH  MACH,   City  Clerk,  City   of  Unalaska,  testified   via                                                            
teleconference  from an offnet site  in Unalaska to explain  that as                                                            
part  of  her  job  as  City  Clerk,  she  is  responsible  for  the                                                            
enforcement  and collection  of the local  three-percent sales  tax.                                                            
She  is   opposed  to   this  legislation   for  numerous   reasons.                                                            
Approximately  ten to 15 percent of  the 400 licensed businesses  in                                                            
the city are on  the city's sales tax delinquency  list. Monthly, if                                                            
not weekly,  communication  is required  with each  of the 40  to 50                                                            
delinquent  businesses.  Some ultimately  are sent  to a  collection                                                            
agency. The  implementation of a Statewide  tax would only  serve to                                                            
increase the  number of delinquencies  that currently occur,  and as                                                            
proposed, the implementation  of a Statewide tax would eliminate the                                                            
City's ability to be involved.  A previous version of the bill would                                                            
have provided an opportunity  for the State to contract with a local                                                            
entity   for   enforcement   efforts.   However,   this   City/State                                                            
coordination  of  efforts  option is  not  included in  the  current                                                            
version of  the bill. This  coordination of  efforts "would  make it                                                            
work."                                                                                                                          
                                                                                                                                
Ms. Mach  opined that  it would  be "impossible"  for the State  "to                                                            
collect  taxes  better,"  than  those  communities  that  have  been                                                            
conducting this process  for years, particularly in regards to those                                                            
businesses  which  are delinquent.  She  voiced concern  that  local                                                            
entities  "would be  forgotten"  in the  process were  the State  to                                                            
assume this responsibility.  Therefore, she questioned how the State                                                            
would collect  on delinquent  sales taxes,  as the State is  so vast                                                            
and does  not have a road  system. She feared  that the majority  of                                                            
the enforcement  effort would be focused  on large communities  such                                                            
as Anchorage,  which has never had  a sales tax. She declared  that,                                                            
"small roadless  communities  would be the  losers." To that  point,                                                            
she stated  that, to many  small communities,  the sales tax  is the                                                            
primary source of local revenue.                                                                                                
                                                                                                                                
Ms. Mach also  voiced concern that  the exemptions specified  in the                                                            
bill are vague, and that  the City of Unalaska is concerned that the                                                            
State  would exempt  the  sale of  marine  fuel from  taxation.  She                                                            
stressed that  Unalaska and many other  coastal communities  receive                                                            
the majority of  their sales tax revenue from this  source. She also                                                            
stressed  that the  proposed $60  tax limitation  specified in  this                                                            
bill regarding  commercial and industrial  rentals would  also limit                                                            
revenue and result  in serious negative consequences  in communities                                                            
that do  not currently limit  taxes on this  operation. She  pointed                                                            
out  that another  area  of concern  is  that sales  tax  collection                                                            
enforcement and  remittance of sales tax is not thoroughly  included                                                            
in the bill.  Communities that currently  collect a sales  tax could                                                            
provide valuable assistance in this regard.                                                                                     
                                                                                                                                
Ms. Mach voiced  that there is also  concern regarding the  proposed                                                            
sales tax collection  process and  the subsequent redistribution  of                                                            
that amount that would be remitted to local communities.                                                                        
                                                                                                                                
[NOTE: In addition  to the testimony  Ms. Mach presented  during the                                                            
public  testimony  for  HB  375 and  377,  she  also  presented  the                                                            
following testimony during the hearing on SB 366.]                                                                              
                                                                                                                                
Ms.  Mach  reiterated   the  concern  that  insufficient   specifics                                                            
regarding  enforcement  and remittance  of the sales  tax have  been                                                            
included  in  the   bill.  While  voicing  the  understanding   that                                                            
regulations  would be developed in  this regard, she urged  that the                                                            
experience  of municipalities   be utilized  in the  development  of                                                            
regulations  that  would  affect  them.  One  area  of  concern  not                                                            
included  in the bill,  is the  frequency regarding  when the  State                                                            
would remit local  tax revenue to a municipality.  She asked whether                                                            
this payment  would be on  a yearly basis  or a monthly basis.  This                                                            
type of  information  is critical  in insuring  that a municipality                                                             
could make payroll.  She foresaw that municipalities  would be lined                                                            
up to  get the Legislature  to change  portions  of this law,  which                                                            
would not work for them.  This legislation, like the versions before                                                            
it, is  lacking in  that dialogue  with people  such as herself  who                                                            
have experience  in sales tax matters has not been  established. She                                                            
concluded that, in her  experience, "a State sales tax together with                                                            
a local  sales  tax is  not in  the best  interest of  the State  of                                                            
Alaska and its  municipalities as a whole." She urged  the Committee                                                            
to not support the bill.                                                                                                        
                                                                                                                                
JOHN  MCNAMARA,   Regional   Tax  Director,   AT&T,  testified   via                                                            
teleconference  from an  offnet site  in Denver  Colorado and  noted                                                            
that rather  than  presenting a  position on  this legislation,  the                                                            
purpose of  his testimony is to alert  the Committee that,  from the                                                            
telecommunications  industry perspective,  there are some  technical                                                            
concerns  that might  compromise the  industry's  ability to  comply                                                            
with  certain  aspects  of  this bill  as  written.  The  resale  of                                                            
telecommunication  services is  one of the  issues not addressed  in                                                            
the  bill. The  telecommunications  systems  used today  are  multi-                                                            
faceted  and involve  a variety  of  provider and  carrier  "carrier                                                            
access"  agreements  that  equate   to wholesale   and  resale  type                                                            
situations.    The    resale    carrier    access    component    of                                                            
telecommunications should  be exempt from the proposed tax as taxing                                                            
it would  create an unnecessary  layering of  the tax that  would be                                                            
difficult to  comply with. It must  also be noted that the  industry                                                            
is authorized  by  the Federal  Communications  Commission (FCC)  to                                                            
"surcharge  any … discriminatory  taxes against  our carrier  access                                                            
expenses." Therefore,  were the carrier access component  taxed, the                                                            
industry  would pass  that expense  on to Alaskan  consumers  via an                                                            
additional surcharge on their phone bills.                                                                                      
                                                                                                                                
Mr. McNamara  also noted  that the majority  of states that  tax the                                                            
telecommunication  industry itemize which services  would be subject                                                            
to  the  tax,  such  as  intrastate  calls,  interstate   calls,  or                                                            
international  calls. Upon review,  it appears that this  bill would                                                            
tax all of  these services; however,  he suggested that the  bill be                                                            
amended  to clarify  this point,  as the  intent  "is not  perfectly                                                            
clear."                                                                                                                         
                                                                                                                                
Mr.  McNamara  stated  that  the  third  technical   issue  concerns                                                            
"bundling," which  is the sale of "taxable and non-taxable  items at                                                            
one  fixed  price."  Bundling  of  services  has  become  a  popular                                                            
industry  and consumer  tool. Numerous  states  have addressed  this                                                            
situation by allowing the  industry to "disaggregate on our records"                                                            
the taxable  from  the non-taxable  components. The  tax could  then                                                            
only be  applied to those  services that were  taxable. The  bill as                                                            
written  "takes  the exact  opposite  approach  saying  that if  you                                                            
bundle those things, you  have to apply the tax to everything." This                                                            
approach  would  place  the State  is  a position  contrary  to  the                                                            
national  norm. In addition,  were this tax  applicable to  wireless                                                            
carriers, they  would, under the provisions  of federal the  Mobile-                                                            
Sourcing Act,  also be able to pass  the expense onto the  consumer.                                                            
                                                                                                                                
Mr.  McNamara  appreciated  the fact  that  sourcing,  or  Internet,                                                            
taxation language  was incorporated  into the committee substitute.                                                             
He  also  voiced  support  of  the  State's  participation   in  the                                                            
Streamlined Sales Tax project  process, as it would be beneficial to                                                            
businesses   that  have   multi-state   operations,   such  as   the                                                            
telecommunication  industry. AT&T  is currently required  to file in                                                            
excess of 39,000  tax returns pertaining  to its operations  in over                                                            
11,000 taxing jurisdictions  in the United States. This would equate                                                            
to  one return  every  three minutes.  Streamlining  "would  provide                                                            
uniform   definitions,   uniform  tax   basis,   uniform  bad   debt                                                            
deductions, uniform  rounding procedures, … where  to source sales …                                                            
uniform grid  space requirements for  exemption processes,"  uniform                                                            
boundary  change notifications,  and other  issues of importance  to                                                            
businesses  that are  required to  develop tax  returns in  multiple                                                            
taxing jurisdictions.                                                                                                           
                                                                                                                                
Mr. McNamara noted  that local State of Alaska AT&T  personnel could                                                            
work with  the bill's sponsor  to further  its development,  so that                                                            
the telecommunications  industry could comply with its requirements.                                                            
                                                                                                                                
Co-Chair Wilken voiced appreciation for Mr. McNamara's comments.                                                                
                                                                                                                                
Senator  B. Stevens  asked  the number  of  tax returns  AT&T  files                                                            
annually in the State.                                                                                                          
                                                                                                                                
Mr.   McNamara  recalled   that   AT&T  submits   approximately   50                                                            
jurisdictional tax returns in the State.                                                                                        
                                                                                                                                
Senator B. Stevens  understood that the implementation  of this bill                                                            
would allow AT&T to file one tax return.                                                                                        
                                                                                                                                
Mr. McNamara affirmed.  The State's participation in the streamlined                                                            
Sales  Tax  provision program  would  go  "hand-in-hand"  with  this                                                            
process.                                                                                                                        
                                                                                                                                
Co-Chair  Wilken   voiced  that  AT&T's  participation   in  further                                                            
developing  the  bill  would  be welcome.  Gathering  this  type  of                                                            
information is one reason  that public testimony is important to the                                                            
bill process.                                                                                                                   
                                                                                                                                
Co-Chair Wilken noted that  participating via teleconference are the                                                            
communities of Kotzebue, Kenai, Ketchikan, Nome, Cordova and Mat-                                                               
Su.                                                                                                                             
                                                                                                                                
DIANE KELLER,  Mayor, City of Wasilla, testified via  teleconference                                                            
from Mat-Su, and  reminded the Committee that the  City has a broad-                                                            
based  two-point-five   (2.5)   percent  sales   tax  with   limited                                                            
exemptions  and a current  point-five (0.5)  mill property  tax rate                                                            
with a two-mill limitation.  The City Council passed a resolution in                                                            
support  of  the State's  pursuit  of  alternative  revenue  sources                                                            
including  the development  of a State sales  tax. However,  for the                                                            
next  twenty  years,  the  City  is  responsible   for  a  total  of                                                            
$18,635,000 in general  obligation (GO) bond debt repayment for such                                                            
things as  a local road  and sports complex  as approved by  Wasilla                                                            
voters. She  detailed the  annual expenses  the City is responsible                                                             
for  and  shared  that there  is  concern  that,  with  the  current                                                            
property  tax limitation  and the  City's current  obligations,  the                                                            
proposed  State exemption  for such  things as the  motor fuel  tax,                                                            
combined  with the State's  proposal  to collect  the tax "would  be                                                            
catastrophic"  to the City. The City  would be required to  increase                                                            
the local sales  tax level or the  local mill tax. In addition,  the                                                            
City is worried that it might lose business to surrounding non-                                                                 
local-taxing  communities. One full-time  employee currently  staffs                                                            
the  City's  sales  tax  program  and  approximately   $100,000  was                                                            
recently  expended  to  further the  efficiency  of  the  operation.                                                            
Another area of  concern is the timeliness of the  State's sales tax                                                            
remittance  to the  City  as payroll  and bills  are  required on  a                                                            
monthly basis.  No disruption  of this process  could be  tolerated.                                                            
The City currently has  a $500 tax limitation on purchases, as it is                                                            
concerned  that the  community would  lose business  to surrounding                                                             
communities  such as  Anchorage or  Eagle River  that have no  sales                                                            
tax. Therefore,  were the sales tax  "differentials" too  large, the                                                            
effect on Wasilla  businesses could be devastating.  Another area of                                                            
concern is that  the proposed one-year transition  period that would                                                            
be provided  to  cities that  currently  have local  sales taxes  is                                                            
insufficient.  She suggested that  either this transition  period be                                                            
increased to five years  or that the language in Sec. 17, subsection                                                            
Sec. 43.44.060(b),  as detailed on page nine, that  applies to those                                                            
cities  having a  three-percent  or less  sales tax,  be altered  as                                                            
those  cities  "do not  have  the means  to  quickly adjust  to  the                                                            
consequences  of the bill."  Were the State  to adopt a streamlined                                                             
sales tax,  she urged that local community  participation  be sought                                                            
in order  "to better educate  the State" about  the impact  the bill                                                            
would have on local communities.                                                                                                
                                                                                                                                
Senator Bunde,  reiterating  that the State  has a projected  budget                                                            
deficit,  asked  whether  Ms.  Keller  could  suggest  an  alternate                                                            
revenue source.                                                                                                                 
                                                                                                                                
Ms. Keller suggested  that the State sell some of  its massive land-                                                            
holdings.  This  would  benefit  the  State  and  its  residents  by                                                            
infusing land into the  property tax base. In addition, the revenues                                                            
generated from  the sales would remove the State's  need to withdraw                                                            
funds from State  accounts. This avenue would have  less impact than                                                            
a State sales tax.                                                                                                              
                                                                                                                                
Senator  Bunde  commented  that  this  is  an interesting   concept;                                                            
however,  he  noted  that this  would  provide  future  rather  than                                                            
immediate revenue.                                                                                                              
                                                                                                                                
Ms. Keller  responded that  the implementation  of this legislation                                                             
would  also take  a  minimum of  one  to two  years.  She urged  the                                                            
Committee to  consider the impact  that this legislation  would have                                                            
on local communities.                                                                                                           
                                                                                                                                
Co-Chair  Wilken  asked  Ms.  Keller  to  submit  her  testimony  in                                                            
writing.                                                                                                                        
                                                                                                                                
Ms. Keller  stated  that she  would provide  a written  copy of  her                                                            
testimony  after  revising   it  to  comply  with  language  in  the                                                            
"unexpected" Version "X" committee substitute.                                                                                  
                                                                                                                                
Senator B. Stevens assured  that multiple versions of the bill would                                                            
be forthcoming, as, in  response to citizen, community, and business                                                            
concerns, the legislation is a work in progress.                                                                                
                                                                                                                                
Ms. Keller  acknowledged  the  process and  asked that  the City  of                                                            
Wasilla be provided  further opportunities to comment  regarding how                                                            
the bill would affect the community.                                                                                            
                                                                                                                                
LOUIE COMMACK, JR, testified  via teleconference from an offnet site                                                            
in Ambler in regards to  HB 375 and HB 377 and urged that the Senate                                                            
reinstate the  requested Alaska Legal  Services (ALS) funding  level                                                            
in the  FY  05 Operating  Budget as  it is  important  to Bush  area                                                            
residents.  He noted  that the  closing  of the  Kotzebue ALS  field                                                            
office incurred a hardship on area residents.                                                                                   
                                                                                                                                
JOHN WHEATLEY,  Legislative  Chair, Associated  General Contractors                                                             
(AGC), testified  via teleconference from an offnet  site in support                                                            
of broad  based taxes  to assist  in balancing  the State's  budget.                                                            
While AGC  supports the  use of  a broad based  tax, specifically  a                                                            
sales  tax,   it  continues  to  support   continuing  efficiencies                                                             
including  government  cost  savings,  and  other  revenue  sources,                                                            
including the use of the  Alaska Permanent Fund. He urged Members to                                                            
further this bill.                                                                                                              
                                                                                                                                
GARY   GRAHAM,  Business   Owner,   Commercial   Fisherman,   Former                                                            
Commercial  Pilot,  and  Member  of the  Cordova  City  Council  and                                                            
District  Representative,  Alaska Municipal  League  (AML) Board  of                                                            
Directors,  testified  via teleconference  from  Cordova and  stated                                                            
that, as a  result of its financial  situation, the City  of Cordova                                                            
has eliminated  all travel funds.  He presented an impassioned  plea                                                            
on  behalf  of the  residents  of  Cordova for  the  Legislature  to                                                            
consider alternate  options, including  a State income tax,  in lieu                                                            
of a  State sales tax,  as it  would serve "to  cripple and  perhaps                                                            
bankrupt"  several communities  in  Alaska including  Cordova.  This                                                            
version of  the bill would devastate  the City, especially  in light                                                            
of the fact that the City  is considering implementing a one-percent                                                            
sales tax to fund "the  City's financially strapped medical center."                                                            
The imposition of this  tax would serve to increase the City's sales                                                            
tax  to seven  percent. Were  this  legislation adopted,  the  total                                                            
State/City  sales tax would amount  to eleven percent. He  urged the                                                            
Committee  "to scrap"  this bill as  a Statewide  income tax  rather                                                            
than a sales tax  would be the more appropriate and  accepted manner                                                            
through which to address  the State's fiscal gap. The City currently                                                            
has a  14-mill  property tax  and that  each one-percent  sales  tax                                                            
equates to $400,000 in revenue to the City.                                                                                     
                                                                                                                                
Senator Bunde  expressed that an income  tax would not be  "a silver                                                            
bullet,"  as only 52-percent  of the  people in  the State work.  Of                                                            
that number,  48-percent,  or less  than 25-percent  of the  State's                                                            
total  population,  earn  more  than $30,000  and  would  likely  be                                                            
subject to an  income tax. Twenty percent of that  25-percent "would                                                            
end up  paying 80-percent  of the  tax." He  stated therefore,  that                                                            
there would  also be problems associated  with developing  an income                                                            
tax program to address the State's fiscal gap.                                                                                  
                                                                                                                                
Mr.  Graham   acknowledged  Senator   Bunde's  remarks  and   voiced                                                            
appreciation   for  the  efforts  exerted  by  the  Legislature   in                                                            
attempting to address the State's financial situation.                                                                          
                                                                                                                                
LARRY SEMMENS,  Certified Public Accountant, Finance  Director, City                                                            
of  Kenai,  and  Former  Controller  and  Finance   Director,  Kenai                                                            
Peninsula  Borough  testified  via teleconference  from  Kenai.  One                                                            
component  of his  job  at the  Kenai Peninsula  Borough  was  being                                                            
responsible for  the collection and administration  of the Borough's                                                            
sales tax program.  The City of Kenai is concerned  about the impact                                                            
of a State sales tax on  the City's ability to finance city services                                                            
due to the exemptions proposed  in the bill. He spoke to his concern                                                            
about "the State's  ability to administer a sales  tax statewide" in                                                            
that  the  process,  rather  than  the  ability  of  the  staff,  is                                                            
cumbersome.  He likened  the Borough  to being "a  microcosm  of the                                                            
State"  and shared  the difficulties  it  experienced  such as  that                                                            
oftentimes  "businesses in very remote  areas of the Borough  simply                                                            
ignored the  tax as there was no way  the Borough was going  to send                                                            
an auditor  out to some remote area  across Cook Inlet to  collect a                                                            
couple  of  thousand  dollars  in  sales  tax  as it  was  not  cost                                                            
effective."  He stated that  the State would  experience these  same                                                            
types of  problems. "The  administration of  the Sales tax  would be                                                            
very costly."  The computer  system that would  be required  must be                                                            
tailored  to  the   State's  needs  and  would  therefore   be  very                                                            
expensive.                                                                                                                      
                                                                                                                                
                                                                                                                                
SFC 04 # 79, Side B 09:54 AM                                                                                                    
                                                                                                                                
                                                                                                                                
Mr.  Semmens spoke  of  the difficulty  and  time-consuming  efforts                                                            
exerted  regarding  the  two different  computer  sales  tax  system                                                            
rewrites in which  he had participated. One attraction  of the sales                                                            
tax is that the  level of the tax could be controlled  by taxpayers;                                                            
however,  the tax would  place a  heavier burden  on low and  middle                                                            
income  individuals  and would  become  "increasing  regressive"  on                                                            
these individuals  as higher  taxation limits  were implemented  and                                                            
large purchases  were not  taxed at the same  level as smaller  less                                                            
expensive purchases.                                                                                                            
                                                                                                                                
Mr. Semmens  responded  to Senator  Bunde's comments  regarding  who                                                            
would pay a  State income tax by commenting  that approximately  50-                                                            
percent  of the  State's residents  who do  not work  "would not  be                                                            
paying a whole  lot of sales tax either" as they might  be utilizing                                                            
such things  as assistance programs  that are exempt from  the sales                                                            
tax. Therefore,  a sales  tax would not serve  "to spread that  cost                                                            
either." He  cited an Alaska Municipal  League [unspecified]  report                                                            
that was conducted  by the University  of Alaska and the  Department                                                            
of Revenue that projected  that tourism would generate approximately                                                            
ten-percent  of the  State sales  tax revenue  whereas non-resident                                                             
workers might  pay up to 25-percent  of a State income tax  revenue.                                                            
That comparison,  he stated, should encourage further  consideration                                                            
of  a State  income  tax. A  State income  tax  would  qualify as  a                                                            
deduction on the  federal income tax whereas a sales  tax would not.                                                            
He calculated  that, to generate the same amount of  revenue for the                                                            
State, residents  would pay more were a sales tax  imposed than were                                                            
a deductible  State  income tax  imposed.  While the  idea that  the                                                            
State sales tax  revenue would be shared with the  local communities                                                            
is attractive,  other revenue sharing  programs such as veteran  and                                                            
senior citizen  property tax exemptions,  road maintenance  funding,                                                            
and municipality  assistance programs  that had been implemented  by                                                            
the State are now defunct.  Therefore, the sharing component of this                                                            
bill could be eliminated  in the future were the State to experience                                                            
financial  difficulties. He  spoke against  the implementation  of a                                                            
State sales tax and echoed  the Mayor of Wasilla's concern about the                                                            
impact  on   municipalities'  ability   to  finance  local   service                                                            
projects.  He commended  Legislative  action on  reviewing  revenue-                                                            
generating  options  but  noted that  other  alternatives  would  be                                                            
preferred to a sales tax.                                                                                                       
                                                                                                                                
Senator Bunde responded  that while a State income tax is deductible                                                            
on  federal  income  tax,  the  argument  "is  illusionary",  as  an                                                            
individual must  prepare an itemized income tax return  in order for                                                            
the State  income tax to  qualify. The majority  of Alaskans  do not                                                            
itemize. In addition, the  belief that non-resident income tax would                                                            
generate  sufficient revenue  for the State  is also illusionary  as                                                            
only approximately  ten-percent  of the wages  earned in Alaska  are                                                            
attributable to  non-Alaska residents. Non-resident  Alaskan workers                                                            
earn approximately  $14,000 to $15,000 a year and  as a result would                                                            
not pay much were an income tax imposed.                                                                                        
                                                                                                                                
Senator   Bunde   asked   Mr.   Semmens   what   revenue-generating                                                             
alternatives he would recommend.                                                                                                
                                                                                                                                
Mr.  Semmens  suggested  that  either  a  limit  be  placed  on  the                                                            
Permanent Fund Dividend  or, as he understood the original intent of                                                            
establishing the  Permanent Fund to be, some mechanism  be developed                                                            
that would allow  the earnings of the Permanent Fund  to be utilized                                                            
when "the oil  revenues ran out." Secondly, he would  also implement                                                            
an income  tax, and  thirdly, were  additional  revenue required  he                                                            
would support a State sales tax.                                                                                                
                                                                                                                                
Senator Bunde clarified  that numerous Legislators support using the                                                            
earnings of the Permanent Fund, as was originally intended.                                                                     
                                                                                                                                
Senator B.  Stevens asked why the  Kenai Peninsula Borough  does not                                                            
implement an income tax if it is so effective.                                                                                  
                                                                                                                                
Mr. Semmens was unsure  as to whether the Borough had the authority.                                                            
                                                                                                                                
Senator  B.  Stevens   suggested  that  the  Borough's  Legislative                                                             
representatives further  the idea that a local income tax be allowed                                                            
to support local  government. He argued that while  it is acceptable                                                            
for a  local entity  to impose a  local sales  tax to support  local                                                            
government, local governments  oppose the State's desire to impose a                                                            
State sales tax to support State services.                                                                                      
                                                                                                                                
Mr.  Semmens responded  that  there  are  better alternatives  to  a                                                            
Statewide sales  tax at this time,  as the implementation  of such a                                                            
tax would have  significant impact  on municipalities. He  commented                                                            
that he  is "not ignorant  of the fact that  there are economies  of                                                            
scale"  in the proposal  and that  the State's  administration  of a                                                            
sales tax program  might provide additional opportunities.  However,                                                            
due to a variety of local  taxing structures and codes, and the fact                                                            
that some municipalities  have local  sales taxes and other  do not,                                                            
"the  ability to  craft sales  tax language  that  would be  revenue                                                            
neutral  for  municipalities"  while  at the  same  time  generating                                                            
required revenue  for the State to make it worthwhile  would be very                                                            
difficult.                                                                                                                      
                                                                                                                                
LINDA FREED, City Manager,  City of Kodiak, testified in Juneau that                                                            
the City  "is philosophically  opposed  to the  implementation  of a                                                            
Statewide sales tax. The  City Council believes that there are other                                                            
better  revenue   options  available  to  the  State   that  do  not                                                            
negatively  affect" municipalities  across  the State "specifically                                                             
the earnings  of the Permanent Fund  and an income tax."  She stated                                                            
that 70-percent  of the  City's operations  have been supported  for                                                            
more than  30 years by  the revenue generated  from its local  sales                                                            
tax, which  is its largest revenue  source. She noted that  as other                                                            
revenue sources,  including State funding, have declined,  the money                                                            
generated  from the local  sales tax becomes  very significant.  The                                                            
City  utilizes   these  funds   to  support   its  harbors,   street                                                            
construction  and maintenance,  parks and  recreation services,  the                                                            
police  department,   fire  and  ambulance  service,   public  works                                                            
operation, and museum and  library. She stated that the local "sales                                                            
tax program has been crafted  to be sensitive to local needs." There                                                            
is concern that a Statewide  sales tax could not be sensitive to the                                                            
multitude of local municipal issues.                                                                                            
                                                                                                                                
Ms. Freed echoed other's  concerns regarding the State's ability and                                                            
commitment  to  collection,   enforcement,  and  auditing   of  each                                                            
community  were a  statewide  tax imposed.  The City  of Kodiak  has                                                            
absorbed the financial  burden induced by reduced  State and federal                                                            
funding  because  of  its  ability  to develop  a  local  sales  tax                                                            
program.  In addition, the  City was able  to completely fund  a new                                                            
ice rink via a  local sales tax. A City of Kodiak  Resolution Number                                                            
04-5 [copy  on file],  dated January  22, 2004,  in opposition  to a                                                            
State sales tax was distributed to the Committee.                                                                               
                                                                                                                                
JACK  SHAY,  Assembly  Member  and Former  Mayor  and  School  Board                                                            
Member,  Ketchikan   Gateway  Borough,  and  Board  Member,   Alaska                                                            
Municipal League  testified in Juneau  and noted "the irony"  in the                                                            
fact that, were  a State sales tax implemented, the  Municipality of                                                            
Anchorage and  other Railbelt communities would be  "volunteering to                                                            
pay most of this  tax burden that would be represented  by the four-                                                            
percent sales  tax." He stated that the Alaska Municipal  League has                                                            
reviewed  the idea  of a  State sales  tax  for many  years and  has                                                            
weighted  in opposition  to the sales  tax proposal  in its  present                                                            
form as  research indicates  that in excess  of 3,000 indirect  jobs                                                            
would be  lost were  this tax  imposed due  to decreased  purchasing                                                            
power  of  State  residents.  Small  business  operations  would  be                                                            
negatively affected, as,  were local municipality taxes factored in,                                                            
the State would have some  of the highest sales taxes in the nation.                                                            
This would result in "retail  leakage" as consumers increase out-of-                                                            
state purchasing, including internet sales.                                                                                     
                                                                                                                                
Mr.  Shay, noting  Senator  B. Stevens  question  regarding a  local                                                            
government  implementing  a  local  income tax,  stated  that  local                                                            
citizens  are already  paying  local  property taxes  combined  with                                                            
other things such as local  sales, tobacco, fuel, and alcohol taxes.                                                            
                                                                                                                                
Mr. Shay shared that, as  an alternative to the State sales tax, the                                                            
Alaska Municipal  League (AML)  supports using  the earnings  of the                                                            
Permanent  Fund under  such  methodology as  the  Percent of  Market                                                            
Value  Plan (POMV)  while protecting  the citizens'  Permanent  Fund                                                            
Dividends.  Other options  could include increasing  the motor  fuel                                                            
tax,  implementing  a visitor  tax,  and  increasing user  fees.  He                                                            
appreciated  Legislator's  efforts  to address  the  State's  fiscal                                                            
challenge.   The    aforementioned   study   indicates    that   the                                                            
establishment  of an income  tax would result  in the loss  of 1,875                                                            
jobs, which  would be less of an impact  than a sales tax,  and that                                                            
use of the Permanent  Fund earnings would incur zero  job losses. He                                                            
informed the Committee  that AML represents approximately 96-percent                                                            
of the State's  municipalities and  about 98-percent of the  people.                                                            
                                                                                                                                
In response to a question  from Co-Chair Wilken, Mr. Shay noted that                                                            
he was  speaking on  behalf of  both the Ketchikan  Gateway  Borough                                                            
Assembly and AML.                                                                                                               
                                                                                                                                
Senator  Bunde  pointed   out  that  regardless  of  what   taxation                                                            
methodology is utilized  to generate revenue, the ultimate source of                                                            
all taxes is the people. There is no magic solution.                                                                            
                                                                                                                                
Co-Chair Wilken  spoke regarding the concept of retail  leakage, and                                                            
voiced that it  should be recognized that were the  decisions to buy                                                            
outside of the State solely  a financial decision, people would only                                                            
make such  out-of-area  purchases were  the cost  of purchasing  and                                                            
shipping the item less  than the cost of buying it locally including                                                            
sales tax.                                                                                                                      
                                                                                                                                
DENISE MICHELS,  Mayor, City of Nome,  testified via teleconference                                                             
from Nome, in opposition  to the bill. The City's local five-percent                                                            
sales tax generates  revenue that is used to pay for  local services                                                            
and improvements.  She voiced  concern that  were a Statewide  Sales                                                            
tax implemented,  local voters might  choose to lower the  local tax                                                            
rate and thereby  undermine the City's  ability to pay off  its debt                                                            
services  and  fund  City  operations.  The  City  has  developed  a                                                            
taxation  system that  works well  for the community,  and the  City                                                            
does not currently  exempt many of the items exempted  from taxation                                                            
in this bill.  She voiced support  of POMV as an alternative  source                                                            
of funding for the State.                                                                                                       
                                                                                                                                
MITCH ERICKSON, Representative,  Nome Chamber of Commerce, testified                                                            
via  teleconference  from  Nome  and  voiced  appreciation  for  the                                                            
efforts being  exerted to develop  methods through which  to address                                                            
the State's  fiscal gap. Nonetheless,  the proposed State  Sales Tax                                                            
"is  not the  avenue to  take." He  noted  that the  City of  Nome's                                                            
current five  percent sales  tax places the  City at a disadvantage                                                             
with the  City of Anchorage  and the Internet  that impose  no sales                                                            
tax. He  stated that while  many people do  not factor in the  added                                                            
cost of shipping, the by-pass  mail status that the City has reduces                                                            
the  true costs  of  shipping  substantially.  He urged  that  other                                                            
revenue sources be considered.                                                                                                  
                                                                                                                                
Co-Chair Wilken asked whether  bypass mail would include UPS, FED EX                                                            
shipping, and priority mail.                                                                                                    
                                                                                                                                
Mr. Erickson understood that it does not.                                                                                       
                                                                                                                                
ROY ECHERT,  Borough Manager, Ketchikan  Gateway Borough,  testified                                                            
via teleconference  from Ketchikan  and informed the Committee  that                                                            
he has 27-years of municipal  management experience, the majority of                                                            
which has occurred in other  states in the country. He is personally                                                            
opposed to a State income  tax and he reminded that it could only be                                                            
deducted from the federal  income tax were a person to itemize their                                                            
tax return. He would support  a State sales tax, "but only if" input                                                            
from those  experienced in its administration  is incorporated  into                                                            
its development.  He voiced  appreciation  for Senator B.  Stevens's                                                            
comments that  this bill is a work  in progress and opined  that the                                                            
process  is   being  professionally   and  thoughtfully   addressed.                                                            
However,   he  stressed   that   cooperative  efforts   with   local                                                            
municipalities must occur in order to make it truly successful.                                                                 
                                                                                                                                
Mr. Echert  identified  two components  of the bill  that should  be                                                            
altered:  the State  collection  of the  taxes and  the Streamlined                                                             
Sales Tax Act  (SSTA). The SSTA was initiated by large  corporations                                                            
that  have "a  vast amount  of  bookkeeping"  such as  AT&T, and  in                                                            
particular,  WalMart  that   has a  uniform   pricing  code  policy.                                                            
Currently, every  business is required to program  its operations to                                                            
meet  the local  government  tax  requirements  whereas  SSTA  would                                                            
provide a uniform  tax basis. The  incorporation of the SSTA  should                                                            
be closely  reviewed,  as its  adoption  would allow  for "the  same                                                            
sales tax"  in every city  in every State  that adopts it.  This tax                                                            
would be remitted  to a central collection  agency in Massachusetts                                                             
and then divvied out to  the Member states and municipalities "after                                                            
a huge administrative  fee" is subtracted. In addition,  neither the                                                            
frequency  of  this  distribution  nor  any  auditing  procedure  is                                                            
specified.  The  loss to  the States  would  amount  to millions  of                                                            
dollars;  the municipality  would  loose  hundreds  of thousands  or                                                            
millions of dollars by joining SSTA.                                                                                            
                                                                                                                                
Mr. Echert  shared that during his  experience as a City  Manager in                                                            
Alabama, which  is a state that administers  a state sales  tax, the                                                            
city lobbied for  the local collection of the local  sales tax, as a                                                            
leakage  in  the  full amount  of  sales  tax  being  collected  was                                                            
identified, as  the amount was lower than it should  have been. When                                                            
the City  began to do its  own collection,  the amount of sales  tax                                                            
revenue collected  by the two-person sales tax department  increased                                                            
by 70-percent. This equated  to approximately "three-quarters of the                                                            
local  sales tax"  being uncollected  by the  State. Numerous  other                                                            
cities followed  suit in the local sales tax collection  process and                                                            
not one  of them  experienced  less than  a 30-percent  increase  in                                                            
their collection.  In order  to devote the  same level of effort  to                                                            
the collection  of the tax as local governments provided,  the State                                                            
would  have  been   required  to  add  an  additional   1,500  State                                                            
employees. This was not fiscally possible.                                                                                      
                                                                                                                                
Mr. Echert  continued  that the  State  of Alabama  currently has  a                                                            
three-tiered  collection   process  wherein  the  State,  the  local                                                            
entity, or a private heavily  regulated contractor could collect the                                                            
tax. The process is working well.                                                                                               
                                                                                                                                
Mr. Echert  stated that Alabama has  voted against participating  in                                                            
the SSTA  for the past four  years, as it  would be "a disaster  for                                                            
the State."  Testimony  supporting  this position  from the  Alabama                                                            
Legislature could be provided.                                                                                                  
                                                                                                                                
Mr. Echert  commended  the Legislature  for addressing  the  State's                                                            
financial concerns and  offered his further assistance in developing                                                            
the bill. He reiterated  his opposition to participation in the SSTA                                                            
as  it ultimately  benefits  large  corporations  and  would have  a                                                            
negative affect on the State.                                                                                                   
                                                                                                                                
CATHLYNN GREENE,  Sales Tax Clerk,  City of Kotzebue, testified  via                                                            
teleconference  from Kotzebue  and, on behalf  of the City  Council,                                                            
stated that the City opposes  the adoption of a Statewide Sales Tax.                                                            
She  noted   that  local   concerns  include   the  collection   and                                                            
enforcement  of the  tax as  well as  the standard  exemptions  that                                                            
conflict with  existing local sales tax exemptions  and would result                                                            
in huge local revenue losses.  The local sales tax has been elevated                                                            
as high  as tolerable, and  were a State  tax implemented,  the only                                                            
solution  would  be to  lower  the local  sales  tax level.  At  the                                                            
present time,  the local tax raises  approximately fifty  percent of                                                            
the City's general fund  revenue. The local tax supports such things                                                            
as police, fire and emergency services.                                                                                         
                                                                                                                                
DOCTOR DOUG STARK,  Member, Homer City Council, testified  in Juneau                                                            
and reviewed his extensive  local government work history, including                                                            
his Doctorate  in Public Administration.  He stated that,  while the                                                            
Council has not enacted  a Resolution specific to the proposed sales                                                            
tax, there is no support  for a Statewide sales tax as there are too                                                            
many variables  from community  to community  to develop a  one bill                                                            
fits all position. From  an administrative, political, and financial                                                            
standpoint, this proposal  could not be a viable alternative through                                                            
which  the State could  raise the  revenue required.  Another  major                                                            
revenue generator  would be a State  income tax; however  the belief                                                            
that this  could be a federal  tax deduction  is unfounded,  as most                                                            
residents  in the  State do  not prepare  itemized  tax returns  and                                                            
would not qualify.  He stated that there is "great  inequality" in a                                                            
State income  tax as most would not  pay any and others would  pay a                                                            
substantial amount.                                                                                                             
                                                                                                                                
Doctor  Stark  stated that  a  variety  of smaller  taxes  would  be                                                            
preferred  as this would  be the best manner  to capture the  widest                                                            
scope of State  individuals without a significant  impact on anyone.                                                            
While he supports  the POMV, there is concern about  the probability                                                            
of its  being  enacted, as  the State's  citizens  generally do  not                                                            
support using  the earnings of the  Permanent Fund to support  State                                                            
government,  even though the original  intent of the Permanent  Fund                                                            
was to provide  a revenue source to  the State during "rainy  days."                                                            
He  stressed  that  after  dividends  and  inflation  proofing  were                                                            
provided, only  the earnings and not  the corpus, would be  utilized                                                            
to  support  the State  and  possibly  provide  "municipal  dividend                                                            
funding to  substitute for  the elimination  of revenue sharing  and                                                            
municipality  assistance  in the last  couple of  years." He  avowed                                                            
that "the earnings  of the Fund would  be increasing substantially"                                                             
over  the  next  few  years  and that  this  would  be  a  good  and                                                            
politically  viable solution  to the State's  needs, as it  does not                                                            
require a State Constitutional  Amendment. He urged the Committee to                                                            
consider this action.                                                                                                           
                                                                                                                                
TIM  BORSEY, Small  Business  Owner,  Mayor,  City of  Skagway,  and                                                            
Member, Board  of Directors, Alaska  Municipal League, testified  in                                                            
Juneau  as a small  business  owner, in  opposition  to a  Statewide                                                            
sales  tax. He  stressed that  retail  leakage, especially  when  an                                                            
expensive  item is  being purchased  is  a serious  and real  issue.                                                            
While  businesses  often  follow  manufacturer's   suggested  retail                                                            
prices  in order to  remain competitive,  wages  and other  business                                                            
overhead  expenses are high  in the State.  This equates to  a lower                                                            
profit margin.  It is hard  to compete with  large corporations  and                                                            
the purchasing  of goods in Canada. People do make  buying decisions                                                            
based  on price  and the  addition of  a State  four-percent tax  in                                                            
addition to the  four-percent City of Skagway local  sales tax would                                                            
result in  consumers purchasing  products  elsewhere. He noted  that                                                            
"savvy" Internet  companies reach out to Alaskans  and often provide                                                            
reasonable shipping  rates. He concluded that the  implementation of                                                            
a  State sales  tax  would not  be in  the  best interest  of  small                                                            
business.                                                                                                                       
                                                                                                                                
CRAIG  DUNCAN, Finance  Director,  City &  Borough  of Juneau  (CBJ)                                                            
noted  that  he  supports   many  of  the  comments  opposing   this                                                            
legislation. The  CBJ has developed a budget that  is an approximate                                                            
50/50  split balanced  by property  taxes and  a five-percent  local                                                            
sales tax component  that includes  a permanent one-percent  tax and                                                            
two separate and temporary  one-percent taxes. The implementation of                                                            
a  four-percent  State  Sales  Tax  would  "suddenly   change"  this                                                            
balance.  The  resulting  nine-percent   tax  would  jeopardize  the                                                            
ability of  the CBJ to  get voter approval  to extend the  temporary                                                            
sales taxes  to fund local projects.  It has been determined  that a                                                            
tax amount  exceeding five  percent is  unpalatable. A nine-percent                                                             
tax "would  be regressive,"  would  harm local  business, and  would                                                            
"drive  sales to  the  internet" and  to  Seattle. Sales  taxes  are                                                            
regressive, people do not  like taxation, and would attempt to avoid                                                            
taxation  even  where  it to  cost  more  to avoid  it.  To  further                                                            
complicate the issue, the  nine-percent sales tax could result in an                                                            
approximate  20-percent budget  deficit as  this sales tax  revenues                                                            
lost could not be recouped  by an increase in property taxes, as the                                                            
City is limited to a maximum  mill rate of 12-percent. The City does                                                            
not support  this  sales tax  proposal  as it would  be financially                                                             
regressive for the City  and would "have a devastating affect on our                                                            
economy  and would  drive  business  south…" rather  than  promoting                                                            
buying locally.                                                                                                                 
                                                                                                                                
Co-Chair Wilken  calculated that were this legislation  implemented,                                                            
the City's current five-percent  tax would increase to nine-percent.                                                            
One percent  of the  State's four-percent  would  be rebated  to the                                                            
City  and the  City  would not  be required  to  staff  a sales  tax                                                            
department. He asked whether  the City has determined how this would                                                            
affect the City's financial situation.                                                                                          
                                                                                                                                
Mr. Duncan  responded that the City  conducted an analysis  based on                                                            
an earlier  version of the bill; it  has been difficult to  quantify                                                            
as numerous and  on-going changes are occurring. He  noted that over                                                            
the years  a tax  structure has  been developed,  through trial  and                                                            
error, that  specifies 40  local sales tax  exemptions. The  current                                                            
structure  has been crafted  based on twenty  years of analysis  and                                                            
what would be acceptable to residents.                                                                                          
                                                                                                                                
Mr. Duncan  stated therefore that  the differing components  of this                                                            
bill  include  such things  as  the  sales tax  limitation  and  the                                                            
exemptions,  specifically the motor  and heating fuel tax  exemption                                                            
and the variance between  the proposed senior citizen exemptions and                                                            
what is currently in place  at the City level. In summary, while the                                                            
one  percent  rebate  is  an  incentive,   an  exact  projection  is                                                            
difficult  to accomplish. The  big concern  for the City is  whether                                                            
local voters  would extend  the local temporary  sales taxes,  as he                                                            
reiterated,   a   sales  tax   exceeding   five-percent   would   be                                                            
unacceptable to citizens.                                                                                                       
                                                                                                                                
Co-Chair  Wilken asked whether  the savings  generated by not  being                                                            
required  to staff  a  sales tax  division  combined  with the  one-                                                            
percent rebate  would allow the 12-percent mill rate  to be lowered.                                                            
                                                                                                                                
Mr. Duncan  clarified that  the City currently  charges a 10.5  mill                                                            
rate.   The  two   temporary  one-percent   local   taxes   generate                                                            
approximately   $12  to  $15  million  dollars,  which   equates  to                                                            
approximately   five  mills   above  the   cap,  and  accounts   for                                                            
approximately 15-percent  of the City's annual budget. Were this tax                                                            
not  re-approved,  it  would  negatively  impact   education,  which                                                            
equates  to one-third  of the  City's budget,  and  police and  fire                                                            
services,  which  equate  to  15-percent  and  five-percent  of  the                                                            
budget, respectfully.                                                                                                           
                                                                                                                                
                                                                                                                                
SFC 04 # 80, Side A 10:41 AM                                                                                                    
                                                                                                                                
                                                                                                                                
Co-Chair Wilken asked whether  the CBJ provides a senior citizen tax                                                            
exemption, and if so, how does one qualify for that exemption.                                                                  
                                                                                                                                
Mr. Duncan expressed  that in order to qualify for  the City's sales                                                            
tax  exemption,   the  senior   citizen  is   required  to   provide                                                            
documentation that they  are age 65 or older. Once the documentation                                                            
is provided, a  card is issued that must be displayed  when making a                                                            
purchase in order to avoid paying the local tax.                                                                                
                                                                                                                                
Senator Bunde,  understanding that  Fairbanks does not have  a local                                                            
sales tax, asked the property  mill rate in the Fairbanks North Star                                                            
Borough.                                                                                                                        
                                                                                                                                
Co-Chair  Wilken responded  that the 14-mill  rate level includes  a                                                            
City of Fairbanks mill rate.                                                                                                    
                                                                                                                                
Senator Bunde recalled  that a compilation of local mill rate levels                                                            
and sales taxes  had been developed in previous years.  Such a chart                                                            
would allow for a comparison of local tax burdens.                                                                              
                                                                                                                                
Co-Chair  Wilken agreed.  He noted that  the CBJ  is one of  several                                                            
communities in the State that is "really taxed."                                                                                
                                                                                                                                
Mr.  Duncan stated  that  the City's  temporary  taxes  are used  to                                                            
support such  things as roads, streets,  sidewalks, and recently,  a                                                            
hospital  expansion. Where  these capital  project elements  removed                                                            
and the  operating component  "provided to  our mill levy"  then the                                                            
CBJ per capita  tax burden level would  compare to the Municipality                                                             
of Anchorage  property tax  mill rate level.  He reminded;  however,                                                            
that  the CBJ property  tax  mill rate  level is  limited to  twelve                                                            
mills.                                                                                                                          
                                                                                                                                
Senator  Bunde, referencing  the fact  that education  is the  CBJ's                                                            
largest  expense, commented  that  education is  the State's  second                                                            
largest expense.                                                                                                                
                                                                                                                                
DORIS BAILEY,  Deputy Mayor, City  & Borough of Sitka, testified  in                                                            
Juneau  and  declared  that  when  she  voted  on  establishing  the                                                            
Permanent  Fund in 1976,  it was understood  that the Fund  would be                                                            
used  to support  both Permanent  Fund  Dividends  (PFDs) and  State                                                            
government when  oil revenues declined. She "strongly  supports" the                                                            
POMV concept that  would guarantee PFDs to citizens  and would allow                                                            
the  Legislature  to use  some  of  the earnings  to  support  State                                                            
operations.  She  attested   that  multiple  rather  than  a  single                                                            
solution would be required to address the State fiscal crisis.                                                                  
                                                                                                                                
Ms. Bailey  stated that,  like Juneau,  Sitka has  a very  carefully                                                            
crafted list  of sales  tax exemptions, including  one that  exempts                                                            
senior citizens  from the  tax. Some of the  incentives provided  by                                                            
the State and local communities  are necessary to offset the State's                                                            
high  cost of  living that  might otherwise  force  seniors to  move                                                            
elsewhere.  She is  concerned  that  were this  legislation  enacted                                                            
without some senior  citizen consideration, seniors  living in Sitka                                                            
would be  exposed to  a ten percent  sales tax  comprised of  a six-                                                            
percent local tax combined  with the four-percent State tax. Many of                                                            
Sitka's  senior citizens  are low  income and would  be burdened  by                                                            
this tax.  Multiple options  including the  sales tax, the  POMV, an                                                            
income tax, and  other increased fees should be explored  to address                                                            
the State's  fiscal  gap; the  State sales  tax should  be the  last                                                            
recourse. She  urged that the affect of this bill  on low income and                                                            
elderly people be a consideration.                                                                                              
                                                                                                                                
There  being no other  testifiers,  Co-Chair  Wilken announced  that                                                            
public testimony has concluded.                                                                                                 
                                                                                                                                
Senator  B. Stevens  communicated  that of  the 16  testifiers,  one                                                            
special  interest  testifier  was  neutral,   one  private  industry                                                            
representative    was   supportive,   one   Chamber    of   Commerce                                                            
representative  spoke  against  the bill,  and  thirteen  testifiers                                                            
representing local governments  spoke against the bill. He stated on                                                            
the record,  that  rather than  being a  tax on  local governments,                                                             
"this is a bill that affects  the consumers of the State." He stated                                                            
that  "a  government   verses  government  debate"  occurred   today                                                            
regarding who has access  to the State's citizens' money. Additional                                                            
public testimony opportunities  would occur as the bill continues to                                                            
be developed.                                                                                                                   
                                                                                                                                
Senator  Hoffman declared  that the  local government  concerns  are                                                            
valid, as  local taxation  has traditionally  and historically  been                                                            
utilized as a revenue source  to support local government. He stated                                                            
that the proposal  to implement a streamlined State  sales tax could                                                            
be viewed as eliminating  a local community's ability  to fairly and                                                            
equitably collect revenue  to support local governmental operations.                                                            
In addition, some of the  exemptions might not properly align with a                                                            
local  situation  or produce  the  level  of  funding that  a  local                                                            
community might require,  especially in light of the fact that there                                                            
is concern  that the State might not  be able to pursue collections                                                             
as well as the local government could.                                                                                          
                                                                                                                                
Senator  B. Stevens  voiced appreciation  for the  concerns and  the                                                            
debate; however,  he pointed out that this is not  a new concept and                                                            
that of  the 45  states that  have a  statewide sales  tax, 34  have                                                            
multiple  taxing jurisdictions  such  as county,  city, and  borough                                                            
taxes in addition to the  State tax. He declared that an appropriate                                                            
plan  could  be developed  as  exampled  by the  testifier  who  had                                                            
experienced  this endeavor in Alabama.  The State has a long  way to                                                            
go to address  its projected  fiscal gap,  and entities such  as AML                                                            
have "adamantly"  requested that the  fiscal gap be addressed.  This                                                            
is a  mechanism that  could generate  revenue "to  meet the  demands                                                            
that are put  on us as a government  to provide the public  services                                                            
that people demand."                                                                                                            
                                                                                                                                
Senator Bunde  pointed out that "there was a small  but well thought                                                            
out support" for  utilizing the earnings from the  Permanent Fund to                                                            
address the  State's fiscal crisis.  He declared, "that it  would be                                                            
so logical  that those funds"  be utilized  prior "to reaching  into                                                            
citizens  pockets  for any  type of  taxes."  Further consideration                                                             
should  be  provided  to  balance  the  needs   of  citizens,  local                                                            
governments, and the State.                                                                                                     
                                                                                                                                
Co-Chair  Wilken reminded  that there  is currently  a $1.6  billion                                                            
balance in the Constitutional Budget Reserve.                                                                                   
                                                                                                                                
Co-Chair Wilken ordered the bill HELD in Committee.                                                                             
                                                                                                                                
ADJOURNMENT                                                                                                                 
                                                                                                                                
Co-Chair Gary Wilken adjourned the meeting at 10:56 AM.                                                                         

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