HOUSE BILL NO. 88 "An Act relating to remittance of tire fees; and providing for an effective date." 1:34:07 PM JERRY BURNETT, DEPUTY COMMISSIONER, TREASURY DIVISION, DEPARTMENT OF REVENUE, testified that the bill would align the filing date for tire fees with other taxes filed on a monthly basis. He shared that tire fees currently were filed every 30 days, after the beginning of each quarter, rather than the end of the month. BRANDON S. SPANOS, DEPUTY DIRECTOR, TAX DIVISION, DEPARTMENT OF REVENUE (via teleconference), relayed that the bill would align the filing date for quarterly tire fee tax payers. He said that the tax return and payment were currently due after the end of quarter, which confused some tax payers during the months of July, October and January because the quarter ended one day before the end of the month. He shared that the confusion had led to late filings which resulted in their losing a timely filing credit, causing complaints. He stated that the legislation would eliminate confusion for tax payers, as well as protect them from the 5 percent penalty for filing only one day late. 1:37:16 PM Co-Chair Thompson recalled that the committee had studied the change when it examined the Indirect Expenditure Report. He noted that the change had the potential of costing the state money. He believed that filing timely reports should be a practice of doing business in Alaska. Vice-Chair Saddler understood that there was a credit to be earned by vendors who filed in a timely manner as well as a 5 percent penalty for filing late. Mr. Spanos replied in the affirmative. He said that the penalty applied to all tax types in the division and the timely filing credit was specific to only a few tax types, the tire fee being one of those tax types. Vice-Chair Saddler asked how much the fees were and how much of the fee was passed onto the consumer. Mr. Spanos answered that the tax was $2.50 per new tire and the additional studded tire fee of $5.00; a new studded tire would be $7.00 total. He said that there were exemptions for tires not used on roads, such as tires for all terrain vehicles. Vice-Chair Saddler asked how much revenue came in from the tire fees. Mr. Spanos replied that he did not have the figure on hand. Mr. Burnett interjected that the figure was approximately $1 million annually. Co-Chair Thompson noted that the 5 percent of the amount collected would not exceed $900 per quarter. He asked for further detail. 1:40:54 PM Mr. Spanos replied that the $900 per quarter figure had been created when the fee was passed. He believed that the cap stemmed from concern that the state would pay too much of an incentive for timely filing. Co-Chair Thompson understood that the maximum was $900. Mr. Spanos replied in the affirmative; if 5 percent of the tax exceeded $900 dollars then the credit would be limited to $900. Representative Kawasaki asked for the total value of the indirect expenditure credits. He surmised that the amount of money collected did not appear to be high. Mr. Spanos answered that he did not have the detail on hand. Co-Chair Thompson wondered why the vendors received the credit. He did not believe the state gave rental car companies credits. Mr. Spanos relayed that he did not know. He pointed out to the committee that there was a vehicle rental tax in place. Mr. Burnett noted that the legislation had been passed during the Murkowski Administration. He noted that other credits were being examined in order to decide whether it made sense to continue to honor them. Co-Chair Neuman asserted that there were significant requirements for tire sales that made the credits necessary. He referred to data provided by Dave and Judy Schneider, Diversified Tires, Wasilla. He wondered why the type of tire sold was of such importance. Mr. Spanos replied that it was fairly common in the division to request gross income before a net number was realized. He used the example of cigarette sales; the division wanted to know whether the cigarettes were being sold to Indian Reservations or being exported out of the state. He stated that for exempt purposes the tire would be taxable except for the exemption; if a tire was sold to the United States government for official use then it would not be taxed but the division would still require a record of the sale of the tire. 1:45:59 PM Co-Chair Neuman noted that sellers were required to report how many tires were studded each day. He observed that companies had to stud tires in September to be ready for the winter season. He opined that the businesses had to physically count the number of tires each season. He believed that the businesses were subject to too many requirements. Co-Chair Thompson observed that state government was making the issue more complex than necessary. Representative Gattis relayed that she spoke to the same business owners. She thought that the bill insulted the intelligence of business owners. She expressed embarrassment that the legislation was under debate during the current fiscal climate. Mr. Burnett rebutted that the bill would make it easier for tire dealers to know when to report. He noted that there had been confusion on the issue and cited examples of businesses reporting at the incorrect time and being penalized. He said that the department had reviewed some internal processes and that this particular issue had risen to the forefront. 1:49:23 PM Representative Kawasaki thought the change should be made in regulation, not statute. Mr. Burnett replied that there was a specific date set in statute, which could not be changed by regulation. Representative Kawasaki wondered whether it was the department's intention to include language that changed the date to a specific day of the month. Mr. Burnett replied that the date would be the last day of the calendar month. Representative Kawasaki understood that a previous months tire receipts were due 15 days into the following month. Mr. Spanos clarified that it was currently 30 days after the end of the calendar quarter. He explained that the change would be to the end of month following the end of the calendar quarter. Representative Kawasaki queried how many Alaskans filed the tire tax. Mr. Spanos replied that the data was available in the division's annual report. He believed it was approximately 100 filers. Representative Kawasaki asked for the title of the division's report. Mr. Spanos answered that it was the department's tax division's annual report. Representative Kawasaki wondered if the report was provided to the legislature in paper form. Mr. Burnett replied no. He shared that the report could be found online. Representative Guttenberg understood that the bill had been crafted as a result of complaints from tire tax filers. He wondered how many filers were repeat offenders and what the average penalty was. 1:53:14 PM Mr. Spanos responded was not sure about repeat offenders. He said that when filers appealed they had claimed that the date had confused them and should be clarified. Representative Guttenberg asked how the businesses filed for the tax. Mr. Spanos answered that the process included a new online filing option. Previously filing had been only in paper form; filers now had both options. Representative Guttenberg asked about any feedback given on the integration of the two options. Mr. Spanos replied that there had been hiccups, but feedback had primarily been positive. Representative Guttenberg whether the date change would be problematic for the computerized filing process. Mr. Spanos replied no; it involved in simply changing the field on the computerized spreadsheet. Representative Gara stated that the bill was to protect businesses who had been caught in the glitch in the law. He thought that the bill offered a simple fix that would save the state money. He expressed confusion at individual committee member's opposition to the legislation. 1:58:09 PM Vice-Chair Saddler believed that the bill would provide simplicity and consistency. Representative Gattis recommended that the inventory forms for businesses be reviewed and changed. Representative Pruitt wondered why this tax item had been chosen as a priority. He probed whether there were other opportunities within the tax division for change that could be included in the bill. Mr. Burnett answered that the bill had come up through the tax division to the commissioner's office in the time needed to get a bill introduced at the beginning of the current legislative session. He believed there would be additional items in the future. Representative Pruitt wondered whether the possible other items would be introduced in multiple small bills. Co-Chair Thompson replied in the negative. HB 88 was HEARD and HELD in committee for further consideration.