Legislature(1993 - 1994)

03/24/1994 01:40 PM Senate L&C

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
              SENATE LABOR AND COMMERCE COMMITTEE                              
                         March 24, 1994                                        
                           1:40 p.m.                                           
  MEMBERS PRESENT                                                              
 Senator Tim Kelly, Chairman                                                   
 Senator Steve Rieger, Vice-Chairman                                           
 Senator Bert Sharp                                                            
 Senator Judy Salo                                                             
  MEMBERS ABSENT                                                               
 Senator Georgianna Lincoln                                                    
  COMMITTEE CALENDAR                                                           
 SENATE BILL NO. 344                                                           
 "An Act relating to the establishment, collection, and enforcement            
 of an employment tax; and providing for an effective date."                   
 SENATE BILL NO. 348                                                           
 "An Act relating to partnerships; amending Alaska Rules of Civil              
 Procedure 20 and 24; and providing for an effective date."                    
 SENATE BILL NO. 347                                                           
 "An Act relating to limited liability companies; amending Alaska              
 Rules of Civil Procedure 20 and 24; and providing for an effective            
 SB 193 (DISCRIMINATION UNDER HEALTH INSURANCE) was scheduled but              
 not taken up this date.                                                       
 HB 394 (UNIFORM LIMITED PARTNERSHIP ACT UPDATE) was scheduled but             
 not taken up this date.                                                       
  PREVIOUS SENATE COMMITTEE ACTION                                             
 SB 344 - No previous action to record.                                        
 SB 348 - No previous action to record.                                        
 SB 347 - No previous action to record.                                        
 SB 193 - No previous action to record.                                        
 HB 394 - No previous action to record.                                        
  WITNESS REGISTER                                                             
 Jack Kreinheder                                                               
 Office of Management & Budget                                                 
 Office of the Governor                                                        
 P.O. Box 110020                                                               
 Juneau, AK 99811-0020                                                         
  POSITION STATEMENT:   Offered information in support                         
                      of SB 344                                                
 Resa Jerrel, State Director                                                   
 National Federation of Independent Businesses                                 
 9159 Skywood Lane                                                             
 Juneau, AK 99801                                                              
  POSITION STATEMENT:   Opposes SB 344                                         
 Rod Lind                                                                      
 Alaska Society of Certified Public                                            
 7080 Crooked Creek Drive                                                      
 Anchorage, AK 995126                                                          
  POSITION STATEMENT:   Testified in support of SB 348                         
 Craig Ingham                                                                  
 Alaska Bankers Association                                                    
 548 Ravenview Court                                                           
 Fairbanks, AK 99701                                                           
  POSITION STATEMENT:   Testified in opposition to SB 348                      
                      and SB 347                                               
  ACTION NARRATIVE                                                             
 TAPE 94-20, SIDE A                                                            
 Number 001                                                                    
  CHAIRMAN TIM KELLY  called the Labor and Commerce Committee meeting     g    
 to order at 1:40 p.m.  He introduced  SB 344  (ESTABLISH EMPLOYMENT           
 TAX) as the first order of business.                                          
 JACK KREINHEDER, Office of Management & Budget, explained SB 344 is           
 intended to be a modest step towards helping to solve the state's             
 budget shortfalls both this year and in the years to come.  He                
 expressed the Governor's openness to looking at spending                      
 reductions, use of reserves and other measures to help balance the            
 budget.  But given the size of the shortfalls being faced this year           
 and in the coming years, the Governor feels that it would be                  
 fiscally irresponsible to not look at some at least modest measures           
 to raise revenues.  SB 344 is one of four pieces of legislation               
 that have been introduced to do that.                                         
 The employment tax would raise about $31 million.  It is less in              
 the initial year because it would be in effect only part of the               
 year.  This tax would be levied only on persons age 19 and older.             
 The bill contains a provision that would reduce the burden on                 
 people making less than $1,000 a year.                                        
 Mr. Kreinheder, addressing a state income tax, said it was felt               
 that the climate was not right for an income tax and that an                  
 employment tax was a more modest first step towards helping fill              
 the fiscal gap and to collect something from out-of-state workers             
 who now pay very little towards the services that they get from the           
 state while they are working here.                                            
 Mr. Kreinheder said the collection of the tax would be as                     
 streamlined as possible, and while there would be some cost for               
 administration, the burden for employers would not be very sizable.           
 The Department of Revenue would be the lead agency in the                     
 collection of the tax, and they would work with the Department of             
 Labor in piggybacking the taxes on the other payroll taxes.  The              
 Department of Commerce and Department of Fish and Game would also             
 be involved for self-employed individuals under business license              
 provisions, as well as for fishermen who gets permits, to make sure           
 that the tax is collected.                                                    
 Number 107                                                                    
 SENATOR KELLY asked if this tax was modeled on the old school tax             
 that Alaska used to have.  JACK KREINHEDER answered that it is                
 similar to the school tax, but the school tax had some other                  
 exemptions not contained in SB 344.                                           
 Number 132                                                                    
 SENATOR RIEGER asked if the bill provides a power for the                     
 Department of Revenue to refund overpayments.  JACK KREINHEDER                
 responded that the provision was not in the bill, but he thought it           
 was intended that such a provision would be provided through                  
 SENATOR RIEGER inquired what the criminal penalty would be for                
 failure to pay the employment tax.  JACK KREINHEDER answered that             
 he thought it was misdemeanor with a $1,000 fine and up to six                
 months in jail.                                                               
 Number 163                                                                    
 SENATOR SALO asked what the cost of administering this tax would              
 be.  JACK KREINHEDER answered that the total cost of administration           
 to the Department of Revenue and the Department of Labor would be             
 approximately $900,000 per year.                                              
 Number 202                                                                    
 RESA JERREL, State Director, National Federation of Independent               
 Businesses, stated their strong opposition to SB 344.  They believe           
 that there are ways for the state to save money without disrupting            
 services.  Ms. Jerrel provided a list to the committee of services            
 that the government does that the private sector can very easily              
 Number 230                                                                    
 SENATOR KELLY voiced his concern with the name of the bill and                
 suggested it should be changed to a school employment tax instead             
 of just an employment tax.                                                    
 Number 250                                                                    
 SENATOR SALO stated she has a problem with regressive taxes like              
 this one, and is concerned that teenagers and others who are                  
 getting very small checks will have to pay that $100 tax.                     
 Number 276                                                                    
 SENATOR RIEGER commented that the state should be trying to get               
 some tax out of the itinerant work force that comes to the state              
 every year to work for a short time.                                          
 Number 282                                                                    
 SENATOR SHARP spoke to the high cost of the education budget, and             
 he thinks it is obvious that it is necessary to create more funds             
 for education.                                                                
 Number 300                                                                    
 SENATOR RIEGER moved that the title and references in the bill that           
 refer to "employment tax" be changed to "school employment tax."              
 SENATOR SALO objected.  The roll was taken with the following                 
 result:  Senators Rieger, Sharp and Kelly voted "Yea" and Senator             
 Salo voted "Nay."  The Chairman stated the motion carried and the             
 amendment would be incorporated into a Labor & Commerce committee             
 Number 315                                                                    
 SENATOR RIEGER moved that CSSB 344(L&C) be passed out of committee            
 with individual recommendations.  Hearing no objection, it was so             
 Number 320                                                                    
 the next order of business.                                                   
 ROD LIND, an Alaskan CPA representing the Alaska Society of                   
 Certified Public Accountants, stated their support for SB 348.  He            
 said selecting the form in which to operate is one of the most                
 significant decisions a client starting a business or continuing an           
 existing one can make.  The choice of this entity will have broad             
 implications and will affect how the businesses conduct the                   
 personal affairs of its owners and even the employee.                         
 Mr. Lind pointed out that six states have enacted a limited                   
 liability partnership law (LLP), six states have it on their                  
 governor's desk and 15 are considering it in their legislative                
 He said the limited liability partnership law has many positive               
 attributes:  it is simple to form; it is simple to operate; and it            
 taxed like a general partnership, meaning that the tax liability              
 flows directly through to the LLP partners.                                   
 Mr. Lind said the adoption of a LLP law will provide a favorable              
 business climate and it will enable Alaska to keep pace with the              
 rest of the businesses that are resident here to better compete               
 with out-of-state firms.                                                      
 Number 366                                                                    
 SENATOR RIEGER asked if LLP was just like a limited partnership               
 except that the other partners are insulated from acts of                     
 negligence of one partner.  ROD LIND answered that it is a general            
 partnership and it only provides limited liability for the partners           
 who did not commit the negligent act.  All the partners will be               
 able to act fully as general partners and it is only their personal           
 assets that will be protected.  Their investment in the                       
 partnership, all of the partnership assets and all of the                     
 partnership insurance are available for all of these judgements.              
 Number 380                                                                    
 SENATOR SHARP commented that he thought by establishing this it is            
 going to really cause confusion, especially when an individual goes           
 to get financing.  He asked who is going to be liable for the                 
 debts.  ROD LIND answered that the limitation on liability only is            
 with respect to the negligence of a partner.  All bank debt,                  
 leases, wages, etc., are the responsibility of all of the partners.           
 This limited partnership is only with respect to the negligent or             
 the wrongful acts of an individual.  He reiterated that this                  
 provision is only changing the liability of personal assets with              
 respect to negligence on the part of a partner or an employee of              
 the firm that a partner is directing.                                         
 Number 413                                                                    
 CRAIG INGHAM, testifying from Fairbanks on behalf of the Alaska               
 Bankers Association, stated their opposition of SB 348, because               
 they feel it does open the door for any and all partnerships to               
 limit their liability for their acts.  State legislation and state            
 law has always held that one partner's act creates the liability              
 for all of the partners in a partnership.  He said that is a very             
 fundamental point that is there because partners and owners are               
 direct managers of the business organization.                                 
 Speaking to  SB 347  (LIMITED LIABILITY COMPANIES), Mr. Ingham said           
 it has the potential to profoundly change the way business is done            
 in the State of Alaska.  There are three basic structures as far as           
 businesses are concerned:  sole proprietorship, partnership and               
 corporation.  Limited liability is only allowed for corporations              
 because the owner of a corporation and its shareholders are not to            
 allowed to manage the affairs of the corporation.  They have to               
 elect a board of directors to manage the affairs of a corporation.            
 Mr. Ingham then addressed several sections in SB 347 and said there           
 are many areas of the bill that are highly technical in nature and            
 are extremely confusing to the reader.  He said the bill in its               
 present form is dangerous piece of legislation, and the banking               
 community feels very strongly that it needs to be examined very               
 SENATOR KELLY closed the public testimony on SB 347 and SB 348 and            
 stated they would be back before the committee at a later date.               
 There being no further business to come before the committee, the             
 meeting was adjourned at 2:20 p.m.                                            

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