HOUSE BILL NO. 3 "An Act relating to specie as legal tender in the state; and relating to borough and city sales and use taxes on specie." 1:37:01 PM REPRESENTATIVE KEVIN MCCABE, SPONSOR, provided a brief recap of the legislation. He read from a prepared statement: The purpose of HB 3 was to recognize Alaska's constitutional duty, power and right under Section 10, Article I, of the United States Constitution, and the Tenth Amendment of the United States Constitution to make gold and silver legal tender in the payment of debt. The legislation would secure the rights of citizens of this state under the Ninth and Tenth Amendments of the United States Constitution to tender gold and silver in the payment of a debt should the merchant or payee agree to accept it. The bill took the first step in protecting specie from the borough city use or exchange tax. He added that 12 other states adopted laws to accept gold and silver coins as legal tender. As of 2022, 42 states had removed some or all taxes from the purchase of gold and silver. The bill would preserve, protect, and promote the state and its economic security, safety, health, and welfare of the people of this state; and protect the state and its citizens in the acquisition and possession of gold and silver and their use as legal tender in the payment of debt. 1:38:54 PM Co-Chair Foster asked for a review of the sectional analysis. BUDDY WHITT, CHIEF OF STAFF, REPRESENTATIVE KEVIN MCCABE, reviewed the sectional analysis (copy on file): Section 1 amends A.S. 29.45.650(a) to include a new subsection (l) outlined under Section 2 below. Section 2 amends AS 29.45.650 to add a new subsection to protect "specie" from a borough sales or use tax on the sale or exchange of specie. Section 3 amends AS 29.45.700(a) to include a new subsection (h) outlined under Section 4 below. Section 4 amends AS 29.45.700 to add a new subsection to protect "specie" from a city sales or use tax on the sale or exchange of specie. Section 5 amends AS 44.12 to add Article 5. Legal Tender which defines "legal tender" in the state to include gold and silver tender including "specie." This section also states that person is not required to accept gold or silver specie as tender and defines "specie" and "legal tender." Section 5 is further amended by adding a new section to read: "The House Finance committee shall study the possibility of establishing additional forms of legal tender for the payment of debts, including public charges, taxes, and other money owed to the state. If the committee determines that additional forms of tender are practical and beneficial, the committee shall prepare legislation establishing an additional form of legal tender for introduction." Section 6. Section 4, ch. 100, SLA 2002, as repealed and reenacted by sec. 9, ch. 117, SLA 2003 and sec. 2, ch 30, SLA 2005 is repealed, reenacted, and amended to read as outlined in Section 1 above. Mr. Whitt noted Section 5 regarding the House Finance Committee making the determination regarding additional forms of legal tender and informed the committee that the sponsor was agreeable to amending the provision. Representative Galvin shared that she had taken some time to read up on the constitution. She pondered what implementation of HB 3 would look like. She wondered if passage of the bill would send a message to Alaskans that they could pull their gold bars out of storage and pay for debt in that way. Representative McCabe responded in the negative. The tender would have to be in the form of a coin with a stamp stating its purity and value in ounces. If a merchant accepted the specie, the merchant and buyer would come to an agreement on the value of the coin and the merchant would provide change in whatever method of his or her choosing (specie or money). He stressed that the transaction was purely voluntary. Representative Galvin asked for verification that the exchange between an Alaskan and any vendor was voluntary. Representative McCabe responded in the affirmative. Representative Galvin cited page 2, line 21 of the bill as follows: The House Finance Committee shall study the possibility of establishing additional forms of legal tender for the payment of debts Representative Galvin did not know it was within the scope of the Finance Committee and questioned how that would work. Representative McCabe replied that Representative Hannan had brought the issue up the previous year. He recently spoke with Co-Chair Foster's office about changing the committee to the Legislative Budget and Audit Committee (LBA). He explained that the provision left the door open for the legislature to further consider the issue. 1:45:03 PM In response to a question by, Representative Galvin, Representative McCabe answered that the transaction was not on paper, it was actually a gold coin called specie. It was not a gold certificate; the specie was stamped by weight based on a troy ounce. Representative Galvin questioned whether whatever was exchanged or agreed upon, may be worth something else the next day because gold was a commodity. She understood there were things like inflation, but it was not exactly the same with specie, there was some risk. She asked what the sponsor would say if gold was used one day, and its value tanked the next day. There might be merchants that fault the state for legalizing the tender and putting them at risk. 1:46:58 PM Representative McCabe related a historical story about using a gold eagle worth $20 as currency. He reported that today a gold eagle was worth $2,200 and believed that gold had tracked with the rest of commodities, but money had not because of inflation. He thought that gold held a higher value and was not subject to inflation like the dollar. Representative Hannan observed that the bill protected gold and silver specie. She wondered what the differentiation was from just using a gold nugget. Representative McCabe responded that the gold had to be coined as money in order to be recognized by the bill. He ascertained that what she had described was bartering. Representative Hannan asked who was backing the currency. She remarked that the state was not backing the specie. She asked if it was a private currency exchanged between two people. She was trying to determine how it was a currency versus a private agreement between two people over a valued asset. Representative McCabe answered that it needed no backing because it was gold. He furthered that each certificate had a serial number and believed that it was safer than dollars in terms of counterfeiting. 1:51:22 PM Representative Cronk asked if the sponsor had reached out to communities about sales tax loss. Representative McCabe answered in the affirmative. He had discussed the issue with the Alaska Municipal League (AML) who thought it could cost communities $5 million in taxes. He deduced that a $5 million loss at the lowest tax rate of 3 percent would equate to selling $167 million in specie per year. He noted another statement by AML that calculated a loss of $3000 in tax revenue in Wasilla. He spoke to the municipality who informed Representative McCabe that there was only one gold and silver buyer licensed in Wasilla who only purchased gold but did not sell it. He indicated that Juneau had informed him that they tracked sales tax by vendor in broader categories and did not know what impact the bill would have. He shared data from Arkansas with a population of over 3 million with a tax rate between 6.5 percent and 11.5 percent. Arkansas had lost $255,000 in sales tax due to its bill legalizing specie. The state of Tennessee lost $117,000 and Maine had lost $27,000 in sales taxes. He believed the benefit of the bill outweighed the losses. Co-Chair Foster asked why stores could not continue to charge sales tax and keep track, similar to regular currency. Representative McCabe answered that if a person used specie to buy something, the sales tax on the purchase would still apply. However, there would be no sales tax on the transaction when exchanging a gold specie for money. The one exception would be on collectible coins or dollars, which were taxed when purchased. 1:56:49 PM Representative Tomaszewski asked what the value of 1 troy ounce would be. Representative McCabe stated the biggest coin he had seen was valued at $50 and weighed one-fiftieth of a troy ounce. Co-Chair Foster moved to the fiscal note discussion. PAM LEARY, DIRECTOR, TREASURY DIVISION, DEPARTMENT OF REVENUE (via teleconference), relayed that the department did not have a fiscal note. She did not have additional comments on the bill. Representative Galvin referenced Representative McCabe's statement that another department might study other forms of tender instead of the House Finance Committee. She assumed the Department of Revenue (DOR) was not part of the bill, but if that were the case, she asked if it would take some resources to carry out the study. Representative McCabe answered that they had decided a better entity to address the issue was the Legislative Budget and Audit Committee. Representative Galvin asked for verification LB&A would implement the bill and determine the costs. Representative McCabe answered in the affirmative. Representative Hannan asked how the department felt about the bill. 2:00:23 PM Ms. Leary answered that the department was neutral on the current version of the bill. She had testified in a previous committee [House State Affairs Committee] on Section 5 that authorized a study that included the state accepting payment in gold or another legal tender. She informed the committee that the state did not have any expertise in precious metal within the treasury. She discovered that there were not many if any states accepting specie as a payment for taxes. She indicated that if the state accepted gold, it would be difficult to value the gold and the state would bear the risk of the valuation. She understood that there were ways of establishing usage outside of the treasury, but it was not something the department could currently handle. 2:01:54 PM ROBERT PEARSON, STATE/FEDERAL PROGRAMS MANAGER, DEPARTMENT OF COMMUNITY AND REGIONAL AFFAIRS (via teleconference), spoke to the Department of Commerce, Community and Economic Development's zero fiscal note FN2 (CED). The bill would not impact the Department of Commerce, Community and Economic Developments (DCCED) operations. 2:03:21 PM Co-Chair Foster OPENED public testimony. 2:04:07 PM GEORGE HIGHTOWER, SELF, WASILLA (via teleconference), spoke in support of the bill. He shared that he was 66 years old and recalled when people carried gold and silver coins in everyones pockets. He referenced Article 1 and Article 2 of the United States (US) Constitution naming gold and silver as legal tender in the payment of debt. He recalled as a child in the early 60s paying for goods and receiving change in silver quarters and dimes and half dollars coined by the US Mint. He offered that today the same quarter coined by the U.S. Mint would purchase more than one gallon of gas today because the silver quarter would now be worth $5.00. He believed that proved the stability of using of silver and gold as the foundation of the monetary system. He thought that it spoke to the question of taxation and inflation. The value of silver and gold had kept up and surpassed inflation over time. He spoke to the effects of inflation on the dollar. He believed that money was lost through inflation by not utilizing gold and silver as money. He believed that the bill was reestablishing something that was already proven to be a sound system. He added that other nations were also moving back to accepting gold and silver as money. 2:11:38 PM Co-Chair Foster CLOSED public testimony. Representative Hannan stated that the Alaska Municipal League had answered some questions that were included in the bill packet (copy on file). She asked about capital gains taxes and noted that AML stated species was still subject to capital gains taxes. She asked for the sponsor's thoughts on the topic. She asked about the problem the sponsor was aiming to solve through the bill. Representative McCabe responded in the affirmative and stated that specie was still subject to capital gains tax, and it was a federal requirement. He shared that a constituent brought the idea of the bill to him who wanted to store gold specie instead of saving cash. He discovered that it was possible to pay taxes in Texas with gold. Representative Hannan stated it was her understanding that four states had gold specie: Utah, Nevada, Wyoming, and New Hampshire. She wondered why Alaska needed its own specie if others existed. Representative McCabe answered that the state did not need to produce its own specie since other states specie would be valid. He thought it would be amazing if Alaska produced its own with images of Denali and other Alaskan symbols. He added that specie could be currently purchased but it could not be used in cities that had sales tax unless tax was paid on the specie. 2:17:07 PM Representative Stapp thanked the sponsor for bringing the bill forward. He favored the state to producing its own specie. Co-Chair Foster asked the Department of Administration to review its fiscal note. HANS ZIGMEND, DIRECTOR, DIVISION OF FINANCE, DEPARTMENT OF ADMINISTRATION (via teleconference), reviewed the department's zero fiscal note. He voiced that there would be minimal impact on the Division of Finance and the State of Alaska's accounting system, which could be absorbed with existing resources. Co-Chair Foster set an amendment deadline of Friday, May 5 at 5:00 p.m. Representative McCabe appreciated the committee hearing the bill. HB 3 was HEARD and HELD in committee for further consideration. 2:19:46 PM AT EASE 2:26:23 PM RECONVENED