HOUSE BILL NO. 236 An Act imposing a tax on employment; and providing for an effective date. REPRESENTATIVE MIKE HAWKER commented that the legislation would impose an education tax on wages and net earnings from self-employment in Alaska. HB 236 provides that the tax collected would be separately accounted for and may be appropriated for education. The tax imposed may not exceed $100 per calendar year. · Section 1: Provides a short title: Alaska Education Tax Act. · Section 2: Adds the education tax to the list of taxes that are prior, paramount and superior to all other leans upon the real and personal property of the person liable for the tax. TAPE HFC 04 - 61, Side B  Representative Hawker continued: · Section 3: · 43.45.011: Imposes a tax, not to exceed a combined total of $100 a calendar year on wages and net earnings from self-employment in excess of $600. The tax is imposed at a rate of 0% on the first $600 of earnings, 10% on the next $1,000 of earnings and 0% on all other earnings. Section 3 also provides that the tax is imposed only in calendar years th following a June 30 fiscal year end when the cash balance in the Constitutional Budget Reserve Fund (CBR) is less than $1.0 billion dollars. The tax would be suspended in a subsequent calendar year th following a June 30 fiscal year end when the cash balance in the CBR was greater than $2.5 billion dollars. · 43.45.021: Provides that the education tax is to be collected from wages by employers in accordance with regulations adopted by the Department of Revenue. · 43.45.026: Provides that the Department may require security deposits from employers who have been delinquent in remitting the education tax. · 43.45.031: Provides that self-employed individuals remit their education tax in accordance with regulations adopted by the Department of Revenue. · 43.45.041: Provides for refunds of overpayment of the education tax. · 43.45.051: Requires that a person required to report a payment to a self-employed individual to the federal government, report the same information to the Department of Revenue. · 43.45.061: Provides that the tax collected be accounted for separately and may be used for education. · 43.45.099: Defines critical terms by reference to the Internal Revenue Code (26 U.S.C.) Representative Hawker highlighted the sectional analysis: · Section 4: Allows the Department of Revenue to develop regulations to implement the Act before the effective date of the Act. · Section 5: Allows Section 4 of the Act to take effect immediately. · Section 6: Allows the other sections of the Act to st take effect January 1, 2005, although the education tax would not actually be imposed until the CBR trigger point was reached. REPRESENTATIVE PEGGY WILSON commented that Alaska has many resources and that the most precious resource is our children. A head tax for education is important. In response to Co-Chair Williams, Representative Wilson thought that the caller option would be a good idea, as it would allow the people of the State to keep the Legislature in a position of reporting what is spent in regard to what is paid. It provides the necessary "pressure" for when times are economically difficult statewide. Co-Chair Williams inquired how the Ways and Means Committee had determined the statewide testimony issues regarding revenue taxes. Representative Wilson replied that the Ways and Means Committee, which helped in making the determination for the education tax calculation, had heard a lot of statewide testimony. Representative Hawker added that the idea of a school tax was voiced throughout the State during the summer hand he was impressed that the school tax had been consistently supported. He added that many Alaskan residents are hesitant to support the Percent of Market Value plan without initiating taxes first. Co-Chair Williams questioned how much would be generated from receipt of the tax. Representative Wilson anticipated approximately $43 million dollars collected and the cost to administer the tax will be about $1.4 million dollars. Vice Chair Meyer addressed the fiscal note, pointing out that the initial capital cost would be about $683 thousand dollars and that the Department would need to hire about 10 people to administer the program. He commented that was a "lot of expense" to administer this program. Vice Chair Meyer suggested that an income tax "could get to the same place and generate the same amount". Representative Wilson acknowledged that she would be willing to "switch". Vice Chair Meyer reiterated concerns with the high administrative costs for the program. Vice Chair Meyer asked about a "double tax" for those that live outside of Alaska who come to work in State. Representative Hawker pointed out that the initial fiscal note had been overviewed on with the Department of Revenue. When the bill is in place, it will cost the State approximately $1 million dollars a year to administer and collect almost $46 million dollars a year. It is not intended to be a complete income tax but rather a small component to deal with the fiscal concern. He argued that a $1 million dollar cost to administer a program that would generate $46 million dollars would be a fair exchange. He added that placing a surcharge on the out-of-state workers remains an issue. Vice Chair Meyer commented the idea would be more "sellable" if out-of-state workers could be taxed more. He asked about the $685 thousand dollar fiscal note. Vice Chair Meyer asked how the legislation would deal with the person working for multiple employers. Representative Hawker responded that the provisions in the bill address that first and if the person overpays during the course of a year, the State would refund that at the end of the year. There is a provision that an employer "shall" withhold money from an employee, unless the employee can provide written documentation that they had previously paid the tax. If there were sequential employers throughout the year, it would be easy to take their pay stubs in and show that the amount had been paid. The responsibility rests on the employee. Representative Croft asked where the language was located that indicates the tax will go to education. Representative Hawker replied it is on Page 5, Line 18, the disposition of tax proceeds. Representative Croft responded that it shall be deposited into the general fund and that the Legislature "may" appropriate for education. He questioned if the amount could be appropriated for anything else. Representative Hawker advised that the State constitution prohibits the absolute dedication of funds. It is a "best interest determination" that the money be set-aside for specific purposes. It becomes a statement of legislative intent that the funds are designated for that purpose, by creating separate accounting of those funds. Representative Stoltze inquired if Representative Wilson favored the trigger mechanism. Representative Wilson said she did. Representative Stoltze noted his concern with "triggers", commenting that the money should go directly to the education cause. Co-Chair Williams advised that amendments to the bill would be taken at the next meeting. Vice Chair Meyer voiced appreciation to the sponsors for bringing the education concept forward. HB 236 was HELD in Committee for further consideration.