Legislature(2003 - 2004)
05/05/2003 09:02 AM Senate FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
MINUTES
SENATE FINANCE COMMITTEE
May 05, 2003
9:02 AM
TAPES
SFC-03 # 75, Side A
SFC 03 # 75, Side B
SFC 03 # 76, Side A
CALL TO ORDER
Co-Chair Gary Wilken convened the meeting at approximately 9:02 AM.
PRESENT
Senator Gary Wilken, Co-Chair
Senator Lyda Green, Co-Chair
Senator Con Bunde, Vice Chair
Senator Ben Stevens
Senator Donny Olson
Senator Donny Hoffman
Senator Robin Taylor
Also Attending: REPRESENTATIVE NORM ROKEBERG; SENATOR GARY STEVENS;
JEFF OTTESEN, Acting Director, Division of Statewide Planning,
Department of Transportation and Public Facilities; JOHN MACKINNON,
Deputy Commissioner of Highways & Public Facilities, Department of
Transportation and Public Facilities; JOHANNA BALES, Auditor,
Department of Revenue; RICK URION, Director, Division of
Occupational Licensing, Department of Community and Economic
Development; CHUCK HARLAMERT, Juneau Section Chief, Tax Division,
Department of Revenue
Attending via Teleconference: From Anchorage: JENNIFER APP, Alaska
Advocacy Director, American Heart Association; From Ketchikan: MIKE
ELERDING, Owner, Northern Sales Company
SUMMARY INFORMATION
SB 100-APPROP: CAPITAL PROJECTS
The Committee continued discussion on a Department of
Transportation and Public Facilities amendment, and the bill was
held in Committee.
HB 9-HOME INSPECTORS/CONTRACTORS
The bill heard from the sponsor and reported the bill from
Committee.
SB 168-CIGARETTE SALE/DISTRIBUTION
The Committee heard from the sponsor, the Department of Revenue,
the industry, and took public testimony. One amendment was adopted,
and the committee substitute was reported from Committee.
SB 114-INCREASE BUSINESS LICENSE FEE
The Committee heard from the sponsor, the Department of Community
and Economic Development, and the bill was held in Committee.
HB 90-TAX CREDIT: SALMON DEVELOPMENT/UTILIZATION
The Committee heard from the sponsor and the Department of Revenue.
A committee substitute was adopted, and the bill was held in
Committee.
SB 177-PERS/TRS COLA FOR ACTIVE DUTY MILITARY
The Committee heard from the sponsor and the bill was held in
Committee.
SENATE BILL NO. 100
"An Act making capital appropriations and reappropriations;
capitalizing a fund; making appropriations under art. IX, sec.
17(c), Constitution of the State of Alaska, from the
constitutional budget reserve fund; and providing for an
effective date."
This was the twelfth hearing for this bill in the Senate Finance
Committee.
Amendment #8: This amendment is outlined in a memorandum from Mike
Barton, Commissioner, Department of Transportation and Public
Facilities to Cheryl Frasca, Director, Office of Management and
Budget dated May 2, 2003, which reads as follows.
The Department of Transportation and Public Facilities is
requesting amendments to the capital budget bills (HB 150 and
SB 100) before the Legislature.
Rural Airport Projects
The Department is requesting the following changes to rural
airport capital projects:
Amend
Chevak: Snow Removal Equipment Building
Increase from $50,000 to $200,000 federal receipt
authority. The cost to build this structure has increased over
previous estimates. This amount is needed in addition to an FY
03 appropriation to bring the total estimated cost to
$750,000.
Add
Scammon Bay: Airport Snow Removal Equipment Building
$100,000 federal receipts. Reflects revised Airport
Improvement Program request. This project will upgrade the
Scammon Bay Snow Removal Equipment Building.
Statewide: Various Airport Snow Removal Equipment
$4,300,000 federal receipts. This was inadvertently
omitted from the Department's original request. The project
provides federal authority to purchase new or replacement snow
removal equipment at several rural airports.
Surface Transportation Projects
The Department's current AMATS [Anchorage Metropolitan Area
Transportation Study] and Surface Transportation requests are
$68,734,000 and $416,092,600.
The following reductions are being requested to various
highway projects:
($39,906,000) - Over the past year there has been a
decrease in the amount of federal fuel tax revenues collected,
which have caused a corresponding reduction in the highway
construction program. A reduction in specific projects is
being requested to reflect delays due to the decreased federal
funding.
($48,125,000) - This amendment requests project
reductions where the Department has determined that adequate
project authority already exists to continue work through FY
04.
($1,205,000) - Also being requested is a reduction in
TRAAK [Trails and Recreation Access for Alaska] projects to
reflect a program allocation decrease.
The following additions are being requested:
$55,416,000 - New or increased federal project authority
is being requested where scope changes, funding breakdown,
updated estimates or priorities have changed.
$21,700,000 - Project authority is needed for earmarks
contained within the recently approved congressional
appropriation bill.
Finally, the amendment contains the elimination of individual
pavement and bridge projects and combines them into regionwide
allocations. This will provide the regions flexibility in
determining their greater need, pavement or bridge repair.
Similar adjustments are taking place for AMATS and FMATS
[Fairbanks Metropolitan Area Transportation Study] projects.
The net effect of these amendments is a reduction of
$12,220,000 to the AMATS and Surface Transportation
appropriation requests. A spreadsheet with the changes is
attached [copy on file].
This amendment was initially discussed at the May 2, 2003 hearing
on this bill.
Co-Chair Wilken informed that the projects identified in Amendment
#8 are included in the updated Department of Transportation and
Public Facilities spreadsheet [copy on file], dated May 2, 2003.
Senator B. Stevens stated that lines 78 through 80 of the new
spreadsheet specify that the total pavement and bridge
refurbishment expense would be $46 million. He noted that the
components comprising this amount are: lines ten through twelve
that total $14 million; lines 36 and 37 that total approximately
$10.5 million; and lines 48 and 49 that total $6.1 million.
However, he pointed out that the $6.1 million total of lines 48 and
49 is included in each of the two aforementioned totals. Therefore,
he argued that the total of these three items should be $30.6
million rather than the $46 million reflected on the spreadsheet.
He puzzled as to how the total was calculated.
JEFF OTTESEN, Acting Director, Division of Statewide Planning,
Department of Transportation and Public Facilities shared that one
of the major difficulties the Department has experienced in
preparing its capital budget request is that the Department has had
"to guess what the new formula will be in the reauthorization of
the [federal] transportation bill," as he explained, the federal
formula might not be finalized until the spring of 2004. He
expressed that this lack of finality has resulted in "much
uncertainty" in the budget. He reminded that numerous FY 03
preventative maintenance activities were eliminated because of a
decrease in federal funds "late in the year." Continuing, he voiced
the Department's desire to provide the various regions of the State
with the flexibility to use any excess federal aid the Department
might receive, to "catch up" on preventive maintenance activities
and other necessary projects.
Senator B. Stevens noted that the budget for the Central region has
increased from $14 million to $20 million and that the Northern
region's budget has increased from $10 million to $20 million. In
addition, he reiterated that the newly created Southeast region's
$6 million proposed budget, as specified on lines 48 and 49, is
incorporated into the total budget three times. He continued to
voice confusion regarding how the budget was calculated.
Co-Chair Wilken asked the Department to provide the Committee with
a summary sheet to further define the total expense.
Mr. Ottesen clarified that rather than attempting "to be the exact
sum of the old lines," the revised lines in the spreadsheet are
intended to include the old lines "plus the extra authority" that
might be forthcoming from the federal government.
Co-Chair Wilken understood that the federal funding in question is
specific to the Anchorage Metropolitan Area Transportation Study
(AMATS) and the Fairbanks Metropolitan Area Transportation Study
(FMATS).
Mr. Ottesen clarified that the federal funding would have a region-
wide effect.
Co-chair Wilken asked the Department to provide a revised
spreadsheet to clarify the funding.
Senator B. Stevens noted that, were Amendment #8 adopted, FMATS
projects would be reduced approximately $545,000 and AMATS projects
would be reduced $12.3 million for an AMATS total of $54.2 million
as compared to its original budget proposal of $66.5 million.
Senator B. Stevens additionally asked for an explanation of the new
Metropolitan Planning Organization (MPO) item on line 74 as well as
a clarification as to whether Anchorage's University and Illinois
Avenues, as identified on line 21 in the new spreadsheet, are
considered part of the MPO road system or are classified as State-
owned roads.
Mr. Ottesen explained that University and Illinois Avenues are
considered State-owned roads.
Senator B. Stevens opined, therefore, that they are included in the
National Highway System (NHS).
Mr. Ottesen replied no. He explained that although these are State
roads, their location within a MPO mandates that their funding be
included in the MPO budget. He noted that roads designated as
National Highway System routes would be the exception to this
determination.
Senator B. Stevens declared that his AMATS and FMATS budget
reduction calculations and percentages differ from the
Department's, and he remarked that his primary concern is the $12.3
million reduction in AMATS funding. He communicated that the
proposed FMATS and AMATS $12.7 million total budget reduction
equates to 16.1 percent of the total budget reduction. He asked the
Department to identify similar levels of reductions in other areas
in the State, as he asserted that rather than AMATS carrying the
brunt of total budget reduction, the entirety of the components
should reflect a 16-percent Community Transportation Program (CTP)
reduction
Co-Chair Wilken asked the Department to provide a reconciliation of
the numbers.
Mr. Ottesen affirmed that further information would be provided.
Mr. Ottesen reviewed the Department's funding approach by
explaining that in November 2002, the Department projected a total
funding level of $205 million for CTP and Trail and Recreation
Access in Alaska (TRAAK). He communicated that these two categories
fund MPO allocations. Continuing, he noted that current non-MPO
funding is estimated to total "only" $94 million. Therefore, he
explained that the revised FY 04 spreadsheet "is an attempt to
restart" funding allocations to produce "equality across the
board," between the MPOs and the non-MPOs in the State.
Mr. Ottesen reminded the Committee that previous "transitional
funding" levels authorized for Illinois Avenue and University Drive
upgrades were at the 100 percent level; however, due to a downturn
in available funding, the transitional funding specified for them
in FY 04 is at the 50-percent level. He explained that these
transitional funds are in addition to the regular funding mechanism
for these avenues, and he noted that this type of extra funding has
occurred frequently over time. He expressed that other projects
have received additional funding in this manner, and he assured
that the extra funding has been provided "judiciously and for good
reason."
Co-Chair Wilken announced that the Department would continue to
work with Senator B. Stevens to address his concerns.
Senator Hoffman noted that the revised FY 04 budget totals $350
million as opposed to the original budget of approximately $450
million. He asked the Department to identify which Statewide
Transportation Improvement Program (STIP) projects have been
eliminated due to the funding reduction.
Mr. Ottesen explained that the red line denoted on the budget chart
accompanying the revised spreadsheet indicates the original federal
funding level that was estimated for FY 03 through FY 06 while the
yellow line on the chart reflects the current anticipated federal
funding level reduction of approximately $75 million per year. He
noted that the federal and State match funding levels are also
depicted.
Senator Hoffman asked which projects would be affected.
Mr. Ottesen stated that the reduction would be all encompassing.
Senator Hoffman surmised therefore that the project reductions in
their entirety would equate to approximately $75 to $80 million per
year.
Mr. Ottesen clarified that the net affect would be approximately
$160 million, as the downturn in federal funds would affect the
current year's funding in addition to the FY 04 funding. He
affirmed that the issue is complex because the total includes the
new SHAKWAK funding category that is limited in its scope of usage
and is excluded from the regular federal funding formula.
In response to a question from Senator Hoffman, Mr. Ottesen replied
that the Department was unaware of some of the federal FY 03
funding reductions until approximately four weeks prior. He assured
that the Department is currently revising both the FY 03 and FY 04
budgets in an attempt to re-schedule and/or delay projects. He
communicated that this is the first time in fifteen years that the
Department has faced a downturn in federal funding.
Senator Taylor questioned the methodology used to determine which
projects were selected for funding reductions; specifically whether
such things as the elimination of $1.4 million in federal receipts
designated for the Saxman ferry terminal occurred because of the
Department's knowledge that the delivery of the ferry was being
delayed.
JOHN MACKINNON, Deputy Commissioner of Highways & Public
Facilities, Department of Transportation and Public Facilities,
stated that the Department's three regional directors and staff
worked to make "cuts proportionately" and to reach agreement on
which projects could be delayed "with minimum impact" or with a
determination that a project's funding authority would not be
included because the project was behind its projected timeline. He
clarified that rather than jeopardizing a project, its delay would
appropriately reflect the project's current situation. He noted
that these projects might be behind schedule due to such things as
right-of-way conflicts, utility delays, or construction schedules.
Senator Taylor voiced concern regarding two big projects in his
district; specifically the $6 million Gravina Island access bridge
to the airport project and the $1.9 million Tongass Avenue
resurfacing project.
Mr. MacKinnon referred the Committee to the spreadsheet as it's
comment section specifies that sufficient money would be available
in the proposed budget to continue those projects through FY 04.
Senator Taylor requested that some assurance be provided to
substantiate that the projects would be adequately addressed in the
FY 05 budget proposal.
Mr. MacKinnon assured that these projects would be furthered,
provided that sufficient federal funding becomes available.
Senator Taylor asked whether this assurance is based on the
historical level or the projected level of federal funding.
Mr. MacKinnon clarified that it is based on the anticipated level
of federal funding, which, he characterized "as a more realistic
level" of what the funding would be.
Senator Taylor asked regarding the deletion of the $6.5 million
Prince of Wales Coffman Cove Road from the FY 04 budget. He asked
for assurance that this project would move forward even though the
accompanying comment section specifies that the its funding would
not be required until FY 05.
Mr. MacKinnon responded that the Coffman Cove project is a federal
forest service project that has been bid and is currently being
awarded. He assured that the project would be included in the FY 05
budget, as its funding would not be required until August 2004.
Senator Taylor declared therefore, that the project would be
addressed in the FY 05 budget.
Mr. MacKinnon concurred.
Senator B. Stevens asked whether the ferry system projects on lines
65 and 67 of the revised budget were included in a recently adopted
amendment pertaining to SHAKWAK designated funds of $68 million.
Senator Taylor interjected that the funding for these projects is
separate from the $68 million SHAKWAK amendment.
Mr. MacKinnon concurred.
Co-Chair Wilken reiterated that the Department would provide
information to the Committee regarding questions that arose during
this meeting.
Co-Chair Wilken ordered the bill HELD in Committee.
SENATE CS FOR CS FOR HOUSE BILL NO. 9(L&C)
"An Act relating to the registration of individuals who
perform home inspections; relating to regulation of
contractors; relating to registration fees for specialty
contractors, home inspectors, and associate home inspectors;
relating to home inspection requirements for residential loans
purchased or approved by the Alaska Housing Finance
Corporation; relating to civil actions by and against home
inspectors and to civil actions arising from residential unit
inspections; repealing a law that limits liability for damages
based on a duty to inspect a residential unit to damages
caused by gross negligence or intentional misconduct; and
providing for an effective date."
This was the third hearing for this bill in the Senate Finance
Committee.
REPRESENTATIVE NORM ROKEBERG, the bill's sponsor, voiced
appreciation to the Committee for the thorough discussions that the
Committee has conducted on this legislation.
Co-Chair Wilken clarified that SCS CS HB9 (FIN) Version 23-LS0029\U
with three adopted amendments is before the Committee.
Co-Chair Green moved to report the committee substitute for HB 9
from Committee with individual recommendations and accompanying
fiscal notes.
Senator Taylor objected.
AT EASE 9:31 AM / 9:32 AM
Co-Chair Wilken clarified that Amendment 23-LS0029\U.1, Amendment
23-LS0029\U.2, and Amendment 23-LS0029\U.4, were previously adopted
and would be incorporated into the Version "U" committee
substitute.
Senator Taylor voiced concern that "the shifting of the statute of
limitations to one year" would modify the "normal civic system to
provide a different standard for one group of people." He puzzled
as to the reason that a one-year statute of limitations would be
specifically identified for the home inspector profession as
opposed to the standard three-year statute of limitations for other
construction related entities such as plumbers and electricians.
Representative Rokeberg responded that the intent of this language
is to prevent "the shift of liability from one element of a real
estate transaction to a home inspector without due cause." He
continued that the one-year statute of limitations timeframe has
been identified for home inspectors for several reasons including
the fact that while liability insurance is available for Existing
Home Inspectors, it is unavailable for New Home inspections.
Furthermore, he noted that the liability is limited to $350.
Representative Rokeberg explained that in a new home construction,
the responsibility for a defect would be, as first recourse, the
contractor or other construction entities. However, he attested, in
an existing home inspection, were a defect to surface after one
year from the date of the home inspection report, other factors
such as owner neglect, natural disasters, the weather, or other
unforeseen events could be responsible for the defect. In this
situation, he noted that the seller or the real estate agent might
not have disclosed pertinent information.
Senator Taylor asked for further clarification regarding available
insurance coverage.
Representative Rokeberg reaffirmed that insurance is not available
to home inspectors for new construction; however, he stated that
insurance is available to the building contractor. He noted that
the cost of that insurance has increased dramatically in recent
years.
Senator Taylor stated that the home inspector's report is a
"critical element" in the new home construction process and without
that report, financial and construction requirements could not be
finalized. He argued that the effect of this legislation would be
that, after one year, were it determined that the home inspector
was the negligent party, the home owners would not have any
recourse as the home inspector would be exempt from a lawsuit. He
declared that the unavailability of insurance coverage for new home
construction for home inspectors should not dictate a change in
State policy.
Senator Taylor asked how a real estate transaction occurring six
months after a home inspection was completed would fare under this
legislation, specifically whether the liability would be limited to
the remaining six months.
Representative Rokeberg responded that provisions in the bill limit
the validity of a home inspection report to 180 days. He noted that
the one-year timeframe would allow the dwelling to be exposed to
the various seasonal weather-related elements to test "the
integrity" of the structure. He asserted that the one-year
timeframe is sufficient as that "it would be unfair to have
liability attached" to a home inspector who "only charges"
approximately $350 for a visual report, after that timeframe
because any defeats should become apparent in that year.
Senator Olson asked whether the sponsor would be opposed to an
amendment that would change the statute of limitations.
Representative Rokeberg reminded that Amendment #4 changed the two-
year statute of limitations for new home construction liability to
one-year.
Senator Taylor asked the location of the language regarding the
validity dates of the home inspection report in the bill.
Representative Rokeberg stated that this language is included in
Section 7(d) on page six, line 16. He opined that permitting a home
inspection report to be valid for 180 days is too long.
A roll call was taken on the motion.
IN FAVOR: Senator Olson, Senator Bunde, Co-chair Green, and Co-
chair Wilken
OPPOSED: Senator Taylor and Senator Hoffman
ABSENT: Senator B. Stevens
The motion PASSED (4-2-1)
SCS HB 9 (FIN) was REPORTED from Committee with zero fiscal note #1
from the Department of Revenue; zero fiscal note #2 from the
Department of Law; zero fiscal note #3 from the Department of Labor
and Workforce Development; and fiscal note #4 in the amount of
$66,100 from the Division of Occupational Licensing, Department of
Community and Economic Development.
CS FOR SENATE BILL NO. 168(L&C)
"An Act relating to issuance and revocation of licenses for
the importation, sale, distribution, or manufacture of
cigarettes and tobacco products; relating to a tax refund or
credit for unsaleable, returned, or destroyed tobacco
products; relating to restrictions on and penalties for
shipping or transporting cigarettes; relating to records
concerning the sale of cigarettes; amending and adding
definitions relating to cigarette taxes; relating to the
payment of cigarette taxes; relating to penalties applicable
to cigarette taxes; relating to the definition of the
wholesale price of tobacco products; relating to payment of
cigarette taxes through the use of cigarette tax stamps;
relating to provisions making certain cigarettes contraband
and subject to seizure and forfeiture; relating to certain
crimes, penalties, and interest concerning tobacco taxes and
stamps; relating to cigarette sales; and providing for an
effective date."
This was the first hearing for this bill in the Senate Finance
Committee.
Co-chair Wilken explained that this legislation addresses cigarette
sales and distribution by mandating that a tax stamp be applied to
each pack of cigarettes sold in the State thereby signifying that
the tobacco tax has been paid.
Senator Bunde, the bill's sponsor, expressed that "this is a
tobacco distributor-friendly bill" as it would impede "the gray or
black" marketing of cigarettes in the State that is negatively
impacting legitimate businesses that pay the one dollar a pack
State tax. He noted that requiring the State stamp to be affixed to
each pack of cigarettes would assure that the State tax would be
paid. He informed that this legislation was prompted by a radio
advertisement he heard for an out-of-state tobacco distributor who
claimed that, by purchasing cigarettes from him, the purchaser
would avoid paying the State tax. Upon hearing that advertisement,
Senator Bunde checked with the Department of Revenue and learned
that numerous out-of-state purchases are being made and are
circumventing the current dollar-a-pack tax.
Senator Bunde informed that the State must establish a State stamp
program in order to qualify for a federal law that specifies that
it would be illegal for an entity to sell cigarettes without the
affixed stamp were a State stamp required. He stated that this
would address the out-of-State distributor issue. He communicated
that Alaskan distributors support this legislation as it is
intended to address those entities that receive an unfair tax
advantage by not paying the State tax.
Furthermore, Senator Bunde explained that this legislation provides
a minimum price provision for wholesalers and retailers based on
the wholesale list price provided by the tobacco manufacturers.
This minimum price, he attested, would create a level playing field
for competition in the State. He noted that higher cigarette prices
might also deter young people from smoking.
SFC 03 # 75, Side B 09:50 AM
Senator Bunde stated that while the Department of Revenue estimates
that the stamp tax could increase State revenue by approximately
$500,000, the exact amount of money that this legislation might
raise is speculative. He pointed out that Hawaii vigorously
enforces its tax stamp program and has increased its cigarette tax
revenue by fifty percent. In contract, he noted that Michigan has
not vigorously enforced its program and has increased its revenue
approximately ten percent.
Senator Olson asked whether the industry has indicated that
compliance with this legislation would present a hardship.
Senator Bunde stated that industry representatives would be
presenting testimony.
Co-Chair Wilken stated that the tobacco tax currently generates
approximately $40 million annually. He calculated that were the
State to collect an additional ten percent of that amount, it would
generate four million dollars for the general fund and the tobacco
tax school fund.
Senator Bunde explained that the tobacco tax revenue could be
dedicated toward the school fund because these appropriations were
"grandfathered in" as existing policy.
Co-chair Wilken expressed that 70 percent of the revenue would be
dedicated to the school fund with 24 percent dedicated to the
general fund. He stated that this would be significant money.
JENNIFER APP, Alaska Advocacy Director, American Heart Association,
testified via teleconference from Anchorage in support of the bill
on behalf of Alaska's tobacco-free kids. She stated that this
legislation would decrease "the ability of people and businesses to
illegally avoid the tax," and it would assist in keeping tobacco
"out of the hands of youth." She attested that non-face-to-face
sales such as websites and mail orders account for approximately
14-percent of all sales to youth. Furthermore, she asserted that
these sales are detrimental to efforts to reduce youth smoking as
no proof of age is required in these transactions and the ability
to avoid paying the State tobacco tax allows purchase to be less
expensive. She attested that this legislation would prohibit
Internet and mail order distributors from avoiding the State tax.
She stated that the proof of age issue is also addressed in this
bill, as it requires that all shipments must be delivered to a
person licensed under Sec. 43.50.105 or to other identified
entities specified in Section 9 of the bill.
Co-chair Wilken asked whether the American Heart Association
supports this legislation.
Ms. App responded in the affirmative.
Senator Bunde acknowledged the work conducted by the Department of
Revenue in this endeavor.
JOHANNA BALES, Revenue Auditor and Program Manager, Cigarette &
Tobacco Products Excise Tax, Department of Revenue informed the
Committee that the Department is in favor of this tax stamp as she
expressed that tax enforcement efforts are currently hampered by
the absence of a stamp. Moreover, she attested that "it is
virtually impossible" to determine whether the tax has been paid on
any given pack of cigarettes as tracking via retailer invoice is
impossible as no pack is distinguishable from another. She
explained to the Committee that prior to the one-dollar-a-pack tax
legislation, approximately 53 million packs of cigarettes were sold
annually; however, she noted that the annual amount has decreased
to approximately 42 million packs. She stated that the Department,
in its attempts to enforce the tax, uncovered approximately 1,000
individuals who are purchasing cigarettes via the Internet. She
stated that these individuals attest that were a stamp program in
place, they would have known whether the tax was or was not paid by
the vendor. She stated that the Department calculates that
approximately $600,000 was not collected due to Internet,
distributor, or mail order activities over a 13-month period.
Ms. Bales stated that once the State enacts a State stamp tax
program, the federal Contraband Cigarette Trafficking Act would
assist in the enforcement of tax. She affirmed that 46 states have
tax stamp programs, including the program recently enacted in
Hawaii, which has a "very aggressive" eleven-member enforcement
team.
Co-Chair Green asked whether language in the bill addresses a
situation wherein a person, while traveling out of state, purchases
tobacco for his or her own personal consumption and transports it
back to the State.
Ms. Bales clarified that this legislation proposes to change
existing tobacco law by implementing a stamp tax. Furthermore, she
stated that because no exemption for the transport of tobacco for
personal consumption currently exists, the individual should
currently be paying the State tax. However, she stated that while
this scenario "is impossible to enforce," the Department does not
consider it to be a "huge problem."
Co-Chair Wilken stated therefore that "the trip wire" would be when
an individual distributes the cigarettes for profit or for some
manner other than personal use.
Ms. Bales responded that current statute specifies that persons
transporting cigarettes into the State should be licensed to
transport the cigarette, should pay the cigarette tax, and should
file a monthly report. She stated that the statute does not
differentiate between personal and non-personal consumption. She
stated that individuals who have been detected of transporting
goods into the State for personal use have been treated "very
leniently."
Co-Chair Green asked whether the transport of cigarettes is viewed
with "the same sort of standard" as the transport of liquor.
Ms. Bales responded that "there is a very big difference" as the
tax on alcohol is applicable at the point of purchase. Therefore,
she informed that because the tax is paid at point of purchase, the
alcohol could be legally transported, with the exception being that
federal law prohibits the mailing of alcohol. Therefore she
concluded that the alcohol tax "is not as problematic" as the
cigarette tax.
Co-Chair Wilken asked for further information regarding the sale of
cigarettes bought via the Internet.
Senator Bunde noted that the Internet seller does not require the
purchaser to prove that they are of legal purchasing age.
Co-chair Wilken asked how this legislation would enforce the tax in
this case.
Ms. Bales responded that this legislation would require a purchaser
to apply to the Department of Revenue for a license, and upon
receipt of the license, they could make a purchase. Furthermore,
she explained that shipping cigarettes through the mail to an
unlicensed individual is prohibited. In addition, she relayed that
fines would be levied upon the common carrier shipping the
cigarettes were the receiver of the cigarettes unlicensed. In
conclusion, she stated that the intent of the bill is to curtail
all shipment of cigarettes via interstate commerce unless it would
be shipped to someone who is licensed and who is paying the tax.
Co-Chair Wilken surmised therefore that rather than placing the
onus on the seller, the State would require the individual "sitting
at home" making the purchase to be licensed. However, he attested,
this would be difficult to enforce because the State would be
required to become aware of the action.
Ms. Bales expounded that the federal Jenkins Act requires that
anyone conducting interstate commerce by shipping cigarettes to
someone who is not a licensed distributor must notify the state's
Department of Commerce of that shipment. She stated that a
violation of this Act would result in a misdemeanor charge. She
continued that were this law violated under the federal Contraband
Cigarette Act it would result in a felony charge. However, she
reiterated that the Contraband Cigarette Act would not be
applicable until the State incorporates a stamp tax.
Co-Chair Wilken asked whether the Internet seller would ask a
purchaser for his or her license number.
Ms. Bales responded that this information would be required were
the stamp tax legislation enacted.
Ms. Bales continued that, in addition, private carriers, such as
Federal Express, who might ship cigarettes would be required to
verify that the person receiving the package be of legal age and be
licensed.
Senator Bunde pointed out that rather than the State being
responsible for the enforcement, charges at the federal level could
be levied. He stated that cigarette suppliers in the "sovereign
nations, the Indians [indiscernible] are potentially going to
ignore it."
Co-Chair Green asked whether a person, with cigarettes and doing
interstate travel, would be required to follow these same licensing
regulations.
Ms. Bales stated that it depends on the individual state's law;
however, she continued, were that a state's law similar to this
legislation, the person should pay the state's tax. She noted that
some states allow a person to transport a specified number of
cigarettes for personal consumption without penalty.
Co-Chair Wilken exampled a scenario wherein a business might order
cigarettes via the Internet, and upon receipt of the cigarettes,
would sell them at the going market value and "pocket the tax." He
asked whether this type of activity occurs.
Ms. Bales declared that this does happen. She further exampled the
difficulty of enforcing the current State cigarette tax by sharing
that a licensed distributor could present the State examiner with a
legitimate invoice on which the State tax is reflected as being
paid. However, she continued that without a stamp being affixed to
each packet of cigarettes, the examiner has no method by which to
identify the packs of cigarettes on which a tax has been or has not
been paid.
Co-Chair Wilken asked who is authorized to apply the stamp to the
pack.
Ms. Bales clarified that generally the distributor would affix the
stamp to the pack; however, the retailer could purchase the
equipment and the stamp from the Department and affix the stamp.
Senator Taylor asked for the amount of the total current State tax
on cigarettes.
Ms. Bales explained that the State tobacco tax is currently five
cents per cigarette or one dollar per pack of twenty cigarettes.
Senator Taylor asked whether, according to State statute, he would
be required to remit to the State of Alaska 97-cents were he to
purchase a pack of cigarettes, for example in Kentucky which
charges a three-cent per pack cigarette tax.
Ms. Bales clarified that the State of Alaska would not credit a
purchaser for the amount of tax they paid in another state;
therefore, she stated that the State tax of one dollar per pack of
cigarettes should be remitted to the State. However, she stated
that Kentucky would issue a credit to an Alaskan distributor for
the Kentucky tax, were the cigarettes purchased in Kentucky for
resale in Alaska. Additionally she noted that Kentucky would not
require the Kentucky stamp to be affixed to packs being shipped to
Alaska for consumption.
Co-Chair Wilken referred the Committee to the "State Tax Guide"
comparison chart, dated January 1, 2003 [copy on file] that was
supplied by Senator Bunde. He noted that Kentucky, with a cigarette
tax of three cents per pack, has the lowest tax while
Massachusetts, with the highest state tax, charges $1.50 tax per
pack.
MIKE ELERDING, Owner, Northern Sales Company, testified via
teleconference from Ketchikan, and stated that his company and
other Alaska-based wholesale tobacco distributors support this
legislation. He avowed that the stamp tax would enable the State to
collect a ten-dollar per carton cigarette excise tax on every
carton of cigarettes imported into the State. In addition, he
attested that the legislation would provide Alaskan-based
distributors with the ability "to compete on a level playing" with
out-of-state distributors. He urged the Committee to support this
legislation.
Senator Olson asked whether there are concerns regarding stamp
counterfeiting.
Ms. Bales confirmed that counterfeit stamps are a nationwide
problem. She continued that stamp manufacturers are diligently
addressing this issue and are producing stamps that are difficult
to counterfeit. She announced that, as specified in the
Department's fiscal note, the State is proposing "to purchase the
most expensive stamps which have the most up-to-date counterfeit
measures" including special inks.
Co-Chair Wilken commented that the Members' backup material
addresses the counterfeit issue and includes information about
Meyercord, a stamp manufacturer.
Co-chair Wilken asked the distributor to explain the process
whereby the State stamp is affixed to each pack of cigarettes.
Mr. Elerding explained that wholesale distributors, who order
cigarettes directly from manufacturers, would be required to have
stamping equipment in their facility and would affix the stamp on
each pack at that location. He stated that his company would be
required to centralize the stamping operation at a single location
rather than conducting it at each of its five distribution centers.
Co-Chair Wilken asked for clarification that each pack, rather than
each carton, would require a stamp.
Mr. Elerding verified that while the stamp must be affixed to each
pack, the automated stamping equipment would provide an efficient
stamping process. He communicated that the legislation provides for
a State "reimbursement to the distributors that is close to
covering the cost of the stamp operation." Nonetheless, he
communicated that the process would be an expense and that small
distributors could not amortize the expense as well as larger
distributors. He noted however, that the Unfair Cigarette Sales
Measure, defined in Article 6 of Section 17 of the bill, would
assist distributors in offsetting the additional expense associated
with the stamping process.
Co-Chair Wilken asked whether a uniform State stamp or an
individual distributor stamp would be used.
Mr. Elerding clarified that the State stamp would be the only stamp
allowed.
Co-chair Wilken asked the amount the distributor anticipates
spending on this project.
Mr. Elerding stated that, in addition to the cost of the equipment,
the company would be required to locate adequate space in which to
conduct the stamping procedure and must provide the necessary
labor. He estimated the total expense to be approximately $75,000 a
year, with $50,000 of that being reimbursed by the State by means
of a discount on the purchase of the stamps.
Senator Taylor understood that Canada has experienced "huge
problems" with bootlegging, hijacking, and counterfeiting since the
nation increased its cigarette taxes. He asked whether the State of
Alaska has experienced an increase in bootlegging or black-
marketing since the cigarette tax was raised to one dollar a pack.
Ms. Bales responded that the State has experienced an increase in
these activities; particularly, in "gray market" activities where
cigarettes manufactured for other countries are finding their way
to the United States. She noted that while the State might be aware
of this situation, there are no current provisions in Alaska law
that would allow these cigarettes to be seized. She asserted that
enacting a stamp tax would address this situation.
Senator Olson asked the projected costs associated with the
enforcement of this legislation.
Ms. Bales responded that while the Department of Law has a zero
fiscal note attached to this legislation, the Department of
Revenue's $251,700 fiscal note would provide for three positions to
handle the purchase, sale, administration, and enforcement of the
new tax stamp program and cigarette shipping restrictions.
Senator Olson asked whether this tax stamp legislation would
encompass all types of tobacco.
Ms. Bales responded that the tax would be limited to cigarettes as
it would be impossible to automate a stamp process for the various
packaging or variety of product sizes.
Senator Olson asked whether the intent of this legislation is to
penalize transporters of cigarettes.
Ms. Bales responded yes, that private carriers would be penalized
were they to knowingly deliver cigarettes to an underage and
unlicensed individual.
Senator Olson voiced concern that transporters would be responsible
for enforcing this legislation.
Senator Bunde voiced the importance of noting that the key element
regarding the responsibility of transporters is the term
"knowingly."
Senator Olson furthered that "the last thing" on a small rural
transporting company's mind would be to monitor each pack of
cigarettes. He continued to voice concern regarding the
transporting issue.
Amendment #1: This amendment inserts a new subsection into Section
43.50.849 Definitions. of the bill on page 21, line 28 as follows.
(12) "trade discount" means a price reduction that is offered
by a cigarette manufacturer on the date of sale, is reflected
on the invoice as a deduction from the manufacturer's list
price and is fully earned and determininable on the date of
sale.
Senator Bunde moved for the adoption of Amendment #1.
Co-Chair Wilken objected for explanation.
Senator Bunde stated that, at the request of distributors, this
amendment would define the term "trade discount" which is a price
reduction offered by a cigarette manufacturer on the date of sale.
He explained that the discount would be reflected on the invoice
and would be a factor in the "minimum markup" determination of the
retail price of the cigarettes. He stated that the Department of
Revenue does not object to the amendment.
Ms. Bales clarified that the intent of the amendment is to assure
that cigarettes could not be sold below "cost" which is defined as
the price paid less the discount.
Co-chair Wilken surmised that this amendment, rather than address
concerns regarding the tax stamp, addresses industry trade
concerns.
Senator Bunde voiced that it addresses minimum price concerns.
Co-chair Wilken removed his objection.
There being no further objection, Amendment #1 was adopted.
Senator Taylor moved to report the bill from Committee with
individual recommendations and accompanying fiscal notes.
Senator Taylor then objected to his motion. He voiced his
continuing objection to taxation legislation; specifically tax
legislation that would result in expenses and enforcement
difficulties to the State. He reminded Members of testimony
indicating that the cigarette tax has resulted in bootlegging and
other illegal activities, and he worried that this legislation
would further those activities. He voiced that while Alaskan
retailers and wholesalers have legitimate concerns, the expense
associated with this legislation is "far greater" than its
projected benefit.
Senator Taylor removed his objection.
There being no further objection, CS SB 168 (FIN) was REPORTED from
Committee with fiscal note #1 in the amount of $251,700 from the
Department of Revenue and zero fiscal note #2 from the Department
of Law.
CS FOR SENATE BILL NO. 114(L&C)
"An Act relating to the fee for a state business license; and
providing for an effective date."
This was the first hearing for this bill in the Senate Finance
Committee.
Co-chair Wilken informed that the Senate Rules Committee, at the
request of the Governor, is sponsoring this legislation. He stated
that this bill would increase the annual business license fee from
$25 to $100 for sole proprietorship businesses and $300 for other
business categories. He specified that the Labor and Commerce
version of the bill is before the Committee.
RICK URION, Director, Division of Occupational Licensing,
Department of Community and Economic Development, testified that
this legislation would align the business license fees with current
operational expenses as the current fee structure has been in
affect since 1949. He mentioned that, originally, the discussion
allocated a $200 flat fee across the board, but he stated that it
has evolved to a two-tier approach. He noted that there has been no
opposition to the bill from organized business groups. He urged the
Committee to adopt the legislation "as it is a good measure" and
would generate a "substantial" amount of revenue for the State.
Senator Bunde noted that Senator Ralph Seekins, who is a private
businessman, contributed substantially to the development of this
legislation. He continued that while the fee structure proposed in
the Labor and Commerce version of the bill has altered from that of
the original bill, it is a good compromise.
Mr. Urion informed that, under this legislation, business licenses
would be issued annually rather than bi-annually, as is current
practice. However, he noted that the Committee should address
existing statutes concerning the 1,256 businesses that have
business licenses with tobacco endorsements as the endorsement
language specifies that the endorsement is valid "for the term of a
business license." The new language being proposed, he explained,
would inadvertently increase the fee for tobacco endorsements to
$100 annually rather than $100 biennially, as intended.
Senator Taylor asked for further clarification regarding the
tobacco endorsement fee.
SFC 03 # 76, Side A 10:38 AM
Mr. Urion stated that were this legislation adopted as is, the
annual fee for the tobacco endorsement would increase to $100.
Co-Chair Wilken stated that this issue would be addressed in
separate legislation.
Co-Chair Wilken ordered the bill HELD in Committee.
CS FOR HOUSE BILL NO. 90(FIN)
"An Act relating to a salmon product development tax credit
and a salmon utilization tax credit under the Alaska fisheries
business tax; and providing for an effective date."
This was the first hearing for this bill in the Senate Finance
Committee.
Co-chair Wilken stated that this legislation is sponsored by
Senator Gary Stevens, and is endorsed by the Salmon Task Force. He
continued that this bill would provide tax credits for salmon
product development and salmon utilization, with the intent of
"encouraging industry to invest in new value-added salmon products
to improve marketability."
Co-Chair Green moved for the adoption of SCS CS HB 90, Version 23-
LS0525\W as the working document.
There being no objection, Version "W" was adopted as the working
document.
Co-chair Wilken ordered the bill SET ASIDE until the bill's sponsor
could present it.
[HB 90 was re-addressed later in the meeting.]
SENATE BILL NO. 177
"An Act relating to cost-of-living benefits for retired
members in the public employees' retirement system and the
teachers' retirement system who are called to active military
duty; and providing for an effective date."
This was the first hearing for this bill in the Senate Finance
Committee.
Co-chair Wilken explained that this legislation addresses
situations wherein a retired public employee, residing in Alaska,
might be called to active military duty outside of the State. He
stated that this service could thereby jeopardize the retired
employee's receipt of the Alaska cost-of-living allowance (COLA)
benefits.
Senator B. Stevens, the bill's sponsor, explained that this bill
would address "the unexpected call to active duty" of retired
military and military reserve units. He shared the experience of a
retired Vietnam veteran/retired teacher who, as a member of a
reserve unit, has been called to active military duty and would
serve in this capacity outside of the State. As a result of being
on active duty outside of the State, Senator B. Stevens explained
that this individual would lose his COLA adjustment as it would be
cancelled because current regulations specify that an individual in
a retirement system could not be absent from the State for longer
than 90 days without a medical or family-illness waiver. He stated
that this simple change would not incur a fiscal note and would
impact approximately ten people.
Senator B. Stevens informed the Committee that an amendment might
be forthcoming as the result of the incorporation of separate but
similar legislation, being proposed by Senator Kim Elton that
addresses non-state employees being called to active duty.
Co-Chair Wilken ordered the bill HELD in Committee to provide time
to coordinate the two pieces of legislation.
CS FOR HOUSE BILL NO. 90(FIN)
"An Act relating to a salmon product development tax credit
and a salmon utilization tax credit under the Alaska fisheries
business tax; and providing for an effective date."
[Note: This bill was heard earlier in the meeting.]
SENATOR GARY STEVENS, the sponsor of the bill, stated that this
legislation would allow tax credits to be issued to assist an
industry that is "in crisis." He stated that the Salmon Task Force,
which is chaired by Senator Ben Stevens, has identified this bill
as one of its highest priorities because it would encourage new
investments in the salmon processing industry to further diversify
salmon products.
Senator Bunde asked how these tax credits would generate a return
on the investment.
Senator G. Stevens responded that the intent of the legislation
would be to raise the viability of the entire industry and provide
more jobs and "keep fishermen" and "processors active." He reminded
the Committee that similar tax credits were awarded to the bottom
fish industry a few years prior and "proved to be very effective."
Senator Bunde commented that the goal is "laudable;" however, he
voiced that an investment of State money should be rewarded with a
monetary return to the general fund.
Senator G. Stevens specified that a vibrant industry would generate
"more money going into State treasury" by means of the Salmon
Fisheries Tax.
Senator B. Stevens referred the Committee to a Department of
Revenue Tax Division spreadsheet [copy on file], dated April 24,
2003 that depicts the Fisheries Business Tax revenue generated by
the various fisheries. He pointed out that the Salmon industry
generated $11.2 million in tax during calendar year 2000; however,
he noted that the 2002 calendar year revenue decreased to $5.6
million. Therefore, he stated that the goal of this legislation
would be to attract and encourage additional investment in the
industry; and thereby "increase the taxable contribution to the
general fund."
Co-chair Wilken asked regarding the Department of Revenue's
indeterminable fiscal note.
Senator Stevens stated that the fiscal note is indeterminate at
this time because the number of processors who might take advantage
of the proposed tax credit is unknown. He estimated that this
legislation would cost the State $2.8 million in tax credits were
the total amount of the 2002 Salmon Fisheries Tax revenue of $5.6
million invested by the 84 processors paying that tax.
Co-Chair Wilken surmised therefore that were half of the processors
to invest in projects, it would cost the State $1.4 million.
Senator B. Stevens clarified that the credit would depend on which
processors invested, as large processors account for the majority
of the total Fisheries Business Tax.
Co-Chair Wilken asked the Department of Revenue to further explain
the fiscal note.
CHUCK HARLAMERT, Juneau Section Chief, Tax Division, Department of
Revenue, informed the Committee "that the majority of the tax is
paid by a relatively small group of large processors." He stated
that the overall time frame of the credit program would be six
years as the credit incentive would accumulate based on the total
of three years of paid taxes with the amount being applied as a
credit for up to three years.
Co-Chair Wilken asked whether the State's maximum credit exposure
would be $1.4 million provided that 42 of the total 84 processors
invested.
Mr. Harlamert responded that the credit amount would depend on
which half invested, as he reiterated that a small number of
processors pay the majority of the tax. He explained that full
participation by a dozen of the larger processors would affect up
to 90 percent of the tax.
Senator B. Stevens expressed that the tax incentive would not be
spread equally as it is credited based on a participant's Fisheries
Business Tax volume. He furthered that the larger the volume, the
higher the tax a processor pays. He communicated that eight
processors account for up to 90 percent of the tax.
Co-Chair Wilken asked for clarification as to whether $100,000 is
the maximum credit allowed per processor, regardless of volume.
Senator B. Stevens responded no, that some processors might be
entitled to more, some to less, as the credit is dependent on the
amount of tax each processor paid.
Co-Chair Wilken acknowledged.
Senator Taylor reminded that the Fisheries Business Tax's income
stream is divided with the State receiving half and the qualified
communities receiving half. He voiced support for the tax incentive
concept, but he reminded the Committee that the State has used its
portion of the tax to fund the Division of Commercial Fisheries in
the Department of Fish and Game. Therefore, he asserted, the impact
on the funding of that Division would need to be addressed were
this legislation adopted.
Co-Chair Wilken ordered the bill HELD in Committee.
ADJOURNMENT
Co-Chair Gary Wilken adjourned the meeting at 10:59 AM.
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