HB 162-INCREASE BUSINESS LICENSE FEE Number 1529 CHAIR ANDERSON announced that the final order of business would be HOUSE BILL NO. 162, "An Act increasing the fee for a state business license; and providing for an effective date." CHAIR ANDERSON reminded the committee that at the March 12, 2003, hearing HB 162 was amended to tier the fee costs as follows: 0-5 employees - $50 per year 6-25 employees - $100 per year 26-plus employees - $200 per year CHAIR ANDERSON noted that committee members should have a spreadsheet in which the groupings [of employees] were slightly revised as follows: 0-4, 5-19, and 20-plus. The spreadsheet illustrates what the governor's legislation will yield with the various changes in fees. He asked members to review the chart and decide whether there should be another amendment to the legislation in order to increase the amount or whether this tiered approach is sufficient. Number 1379 RICK URION, Director, Division of Occupational Licensing, Department of Community & Economic Development (DCED), acknowledged that [the design of the bill] is the legislature's decision. However, he remarked that it would be best to keep the [fee system] simple. Mr. Urion highlighted that this legislation does bring in a lot of revenue and most business owners don't mind paying that fee. Number 1350 DON JOHNSON, Fishing Charter Operator, informed the committee that he has a charter operation on the Kenai River and that in the 1980s there were no fees. Mr. Johnson pointed out that he is now paying between $3,000-$5,000 to put his boat in the water. This ongoing disregard of the public's willingness to pay fees is a mistake, he said. This [increase] in the business license fee is a generic tax on the state's residents who want to do business, and it discourages business. All these fees get passed on to the consumer. Mr. Johnson said, in the end, this [increase] will really hurt the fisheries industry. REPRESENTATIVE GUTTENBERG asked Mr. Johnson what he viewed as a reasonable fee for a business license for a year. MR. JOHNSON clarified that he works in a fishing and hunting guide business. He noted that this industry has experienced a tremendous increase in fees, and every time [there is an increase or a new fee] the comment is made, "No one will mind." He informed the committee that currently he has to take out a loan to pay all the fees before [starting his season]. Although he understands trying to fill in the fiscal gap with a user fee, he indicated that the fee structure would undermine the fishing industry. A lot of businesses have more than four, five, or ten employees, and those businesses will get hammered on this, he warned. Number 1155 REPRESENTATIVE GATTO pointed out that 20 years ago, when there were no fees, 2 million barrels of oil were produced on the pipeline. However, today there are just about 1 million barrels of oil produced. This reduction in revenue is part of the reason for this increase as is the desire to control the amount of use on the rivers, which indirectly helps those involved in commercial hunting and fishing. MR. JOHNSON reiterated that he thought generating revenue with a user fee is good, but he stressed the person wanting to access the lake or river should be charged rather than the businessperson. CHAIR ANDERSON turned to a chart provided by committee staff. He explained that the first section lays out [the income for HB 162, as proposed by the governor], with detail for each category of employees targeted by [the committee]. The second section desplays the three tiers of income under HB 162, as amended by the committee, and it illustrates a decrease in total income. The third section reflects the increase in income if the business license [fee for small employers] was increased [to $75] per year. The fourth section reflects the income if the business license [fee for the small employers] was increased to $100 per year; it moves the [revenue] closer to the governor's annual target of $7 million. Number 0970 JOSH APPLEBEE, Staff to Representative Tom Anderson, House Labor and Commerce Standing Committee, Alaska State Legislature, informed the committee that if the 20-plus category of employees was charged $500 for a business license and the 0-4 category of employees was charged $75, there would be new revenue in the amount of $4,244,900. CHAIR ANDERSON highlighted the need for a balanced approach so that small companies aren't [favored] while [large] businesses continue to pay their share. He emphasized that the committee must develop a reasonable fee that also generates revenue. REPRESENTATIVE CRAWFORD pointed out that [when a company pays for] a business license, it obtains a name that no one else can use, which is worthwhile and for which [there should be a fee]. He said he disagrees with the governor's legislation, which charges a $200 fee regardless of the size of the business. He said he favors a modest change in the business fee. Number 0862 CHAIR ANDERSON proposed the following: 0-4 employees - $75 5-19 employees - $100 20-plus employees - $200 He inquired as to how much more revenue would be generated by changing the 0-4 employees category to $75, as specified above. He noted that the current legislation before the committee [example two on the spreadsheet] yields $2,133,675. MR. APPLEBEE informed the committee that the above change would result in total annual revenue of $3.611 [million]. CHAIR ANDERSON explained that [this fee structure] would provide another $1.5 million and would [reach] half of the governor's target. Number 0772 REPRESENTATIVE CRAWFORD pointed out that there are many seasonal jobs that have great fluctuations in the numbers of employees. When the fee is based on the number of employees, Representative Crawford said he believes those businesses that temporarily hire larger numbers of employees will be hurt the worst. REPRESENTATIVE GATTO asked if there is a breakdown that addresses sole proprietorships [separately] with the next category being 2-5 employees. Number 0660 REPRESENTATIVE GUTTENBERG agreed that there are lots of sole proprietorships. He also concurred with Representative Crawford's warning about the impact on seasonal businesses. MR. URION said that although the division has the number of sole proprietors, sole proprietors can have employees. With regard to determining the number of employees, Mr. Urion specified that those employers who file a quarterly report with the Department of Labor would be charged a fee on the basis of the number of employees [specified in the quarterly report]. Therefore, seasonal [businesses] will have to pay a fee at the high end [based on the number of employees during their busiest season]. Number 0504 REPRESENTATIVE CRAWFORD posed a situation in which an employee works for a single contractor [on and off] numerous times [during the year]. He asked if that employee would be counted once or each time the person was rehired. CHAIR ANDERSON pointed out that a contractor wouldn't obtain a business license for each job but rather for the year. Therefore, he assumed that the contractor's maximum number of employees for one year would be [the number considered] when purchasing the business license the next year. MR. URION, in response to Representative Crawford, explained that an employee would [only be counted once], no matter the number of times the employee worked for the employer in a year. Number 0398 REPRESENTATIVE LYNN informed the committee that he is a [real estate] broker associate for a large company in Anchorage. The company employs probably 100 agents who are independent contractors. He asked what would happen if the broker of the large company had his business license based on his number of employees and each of the independent contractors had their own license. MR. URION assumed that a real estate [broker] would have a business license. Number 0318 REPRESENTATIVE LYNN said that he didn't have a business license and he didn't believe anyone [in his position] did either. Representative Lynn explained that all his commissions come through the broker, although he is an independent contractor rather than an employee. MR. URION related his belief that an independent contractor had to have a business license. Furthermore, one can't be an independent contractor and an employee, the individual is one or the other. REPRESENTATIVE LYNN requested that Mr. Urion check on that. CHAIR ANDERSON informed the committee that he has provided Mr. Applebee with various scenarios to plug into his spreadsheet. Chair Anderson proposed a hypothetical scenario in which an employer of 0-4 employees paid $75, 5-19 employees paid $150, and 20-plus employees paid $300. Chair Anderson reiterated the need for balance, but mentioned that every other state has a higher business license fee than Alaska. He expressed the need to develop a number that brings in additional revenue to pay for the program and [ease] the budget deficit. Number 0113 REPRESENTATIVE GUTTENBERG asked if 20 employees is the highest number that is tracked. He remarked that it would seem appropriate to increase the fee for employers with 50 or more employees. CHAIR ANDERSON said that's something to consider. REPRESENTATIVE GATTO mentioned a $25 fee plus $10 per employee. TAPE 03-29, SIDE A  Number 0077 MR. URION indicated that 90 percent of the businesses [in Alaska] have 0-4 employees. The businesses on the high end [of employees] are so few that it would make little difference in [total revenue if fees for those few businesses were higher]. Number 0142 CHAIR ANDERSON gave the committee aide another set of figures to enter into his computer spreadsheet: $75 for 0-4 employees, $150 for 5-19 employees, and $200 for 20-plus employees. He noted that it would total $3,866,575, which is $1.7 million more than the current amended version of the bill, assuming no "dropouts" - people who refuse to pay the fee. Chair Anderson referred to the spreadsheet in committee packets that shows the amounts under HB 162 as currently amended, in addition to other scenarios including the governor's proposal under which everyone would pay $200. He explained that he'd like the total to be at least $3.5 million, half the revenue requested by the governor in the original bill. He sought members' input. Number 0219 REPRESENTATIVE GUTTENBERG suggested seeing how much would be generated if the fee were $500 for 20-plus employees under that scenario. CHAIR ANDERSON mentioned seasonal businesses and so forth, noting that it is quite a jump from the current $25. REPRESENTATIVE GUTTENBERG withdrew his suggestion. CHAIR ANDERSON said there was merit in that thought process. However, as Mr. Urion had said, 90 percent of Alaskan businesses have the smaller number of employees, and the higher amount would apply to so few [businesses] that it wouldn't increase revenue much. Number 0323 REPRESENTATIVE DAHLSTROM expressed concern that $3 million isn't what the governor asked for and that he'll make [budget] adjustments elsewhere without the legislature's input. CHAIR ANDERSON asked Mr. Urion whether he believes the $3.8 [million] would be more acceptable than the $2.1 million. MR. URION said every [increase in revenue] is appreciated. REPRESENTATIVE DAHLSTROM reiterated her concern [about additional budget cuts]. Number 0431 CHAIR ANDERSON said [this bill] reminded him of the [sharp increase] in the alcohol tax last year. He suggested the need to [increase revenues] in "baby steps" out of fairness. Number 0440 REPRESENTATIVE CRAWFORD mentioned the 300 percent increase originally proposed for the alcohol tax. He pointed out that the governor's proposal [for the business license] would be an 800 percent increase. REPRESENTATIVE DAHLSTROM highlighted Mr. Urion's testimony that this is the first increase in 50 years. She said it will affect her personally too. REPRESENTATIVE CRAWFORD pointed out that it won't affect [legislators] nearly as much as it will affect people who aren't [as well-off financially]. Number 0508 CHAIR ANDERSON returned attention to his recommendation of $75, $150, and $200. He explained that the biggest increase would be for businesses with more than 20 employees. They would pay $175 more a year, whereas businesses with 0-4 employees would pay only $50 more. Acknowledging Representative Dahlstrom's point, he added, "We're trying to work with the governor to cut costs and generate revenue." Number 0557 REPRESENTATIVE GATTO suggested that $200 was too close [to the $75 and $150 fees]. He proposed $250 or even $300, indicating it should account for the major difference in the number of employees. CHAIR ANDERSON indicated he was asking the committee aide to run a scenario for $75 and $150, and inquired about $250. He expressed dislike for $300, saying he wouldn't support such an amendment. MR. APPLEBEE said [increasing the fee for large employers] changes the revenue to $4,022,675. REPRESENTATIVE DAHLSTROM noted that it is a $400,000 increase. CHAIR ANDERSON said he believes a $275 increase a year [for a $300 fee for large employers] is too much and thus he wouldn't support it because some seasonal companies have 4 or 5 employees in the winter but 20-plus in the summer. He referred to Representative Guttenberg's remarks and pointed out that [ExxonMobil Corporation], for example, is in that 20-plus category. He suggested perhaps the House Finance Committee could look at [setting a fee for the large employers] further. Number 0643 REPRESENTATIVE LYNN raised the possibility of a graduated system that changes to a percentage of the gross or net revenue after a certain point. MR. URION surmised that NFIB [National Federation of Independent Business] would object and that many businesses wouldn't want to have to "disclose that to that degree." CHAIR ANDERSON agreed it is a good idea to look at ways to capitalize on the larger companies without making the smaller companies incur debilitating fees. He asked whether anyone had an amendment to raise the fees at some level in order to get closer to the governor's requested revenue. He reminded members that an amendment was adopted at the March 12 meeting that would bring in $2,133,675. Number 0760 CHAIR ANDERSON moved to adopt a conceptual amendment such that $75 would be the fee for 0-4 employees a year, $150 would be the fee for 5-19 employees a year, and $200 would be retained for 20-plus employees a year; that would yield $3,866,575 if there were no "dropouts," and would raise revenue over the amended bill by another $1,700,000. He said he'd like to raise it a little closer to the amount desired by the governor. Number 0840 REPRESENTATIVE GUTTENBERG objected. He said the committee aide had done a good job, but he recalled asking for a larger spreadsheet to show some different numbers at the previous meeting. He suggested it would have helped to have had multiple scenarios "already built in to something." He expressed concern about the disproportionate burden on [companies with] 0-4 and 15-19 employees compared with [large oil companies like ExxonMobil Corporation, for example]. He also mentioned [companies with] seasonal employees and the need to build those concerns into [the committee's solution]. He said he didn't think there was a simplistic answer. CHAIR ANDERSON agreed. Number 0919 REPRESENTATIVE DAHLSTROM reiterated that this will affect her and several members of her family, but expressed confidence that the governor will come up with the $7 million. She said she'd rather know exactly where it will come from, rather than be surprised later. Number 0961 REPRESENTATIVE CRAWFORD acknowledged that it isn't "fun business" to close a budget gap. He referred to Representative Guttenberg's comments and said this [amendment] doesn't address a lot of concerns. For example, a sole proprietor or a business with one employee could earn $1 million a year, whereas a company with 100 employees in a year could do only a few hundred thousand dollars in business. He pointed out that there will be millions of dollars more to [raise] in future years. Representative Crawford suggested the need for a broad-based plan that addresses the whole problem with a phased approach over a number of years. He said he will wait for a good, honest-to-goodness fiscal plan. CHAIR ANDERSON agreed and said he is wearing "two hats." One [of his concerns] is that there is a budget deficit that must be addressed immediately. Noting that this is one targeted area [in which to raise revenues], he said businesses should pay a little more "business tax," but asked what "a little bit more" should be. He said he was pleased that the committee passed an amendment to reduce what the governor proposed, but he now finds himself in a quandary coming back to the committee and asking for an amendment that would generate revenue closer to what the governor targeted. He said that he doesn't hear anyone else recommending this approach and said that if nobody supports this amendment, he will withdraw it and pass on the bill as amended previously. He acknowleged Representative Guttenberg's point about how the numbers were arrived at, but surmised that "everybody has an idea on what the categories could be." Number 1118 REPRESENTATIVE LYNN commented that no combination of numbers would please everyone and that there is no perfect answer. Mentioning a desire to provide the revenue sought by the governor, he said it doesn't seem feasible when [the majority of the businesses] are mom-and-pop [operations]. Noting that he does photography on the side and has gladly paid $50 [for a two- year license] to show his photographs at a Saturday market, he said he might not have been so eager to do that "hobby business" if he'd had to pay $75, $150, or $200 [a year]. He admitteded that the burden falls on those businesses [with 0-4 employees] because there are more of them. He expressed reluctance about doing that, however, and said it is too bad the committee cannot find a way to match [the business license fee] to the income [of the particular business]. He pointed out that everyone turns in a tax return, but acknowledged that it is confidential. Number 1201 REPRESENTATIVE GATTO offered that sole proprietors are smart people and will [adapt]; for example, they may combine with others and obtain one license for the amalgamated business. "You're going to wind up with less money than you think," he predicted, indicating the numbers proposed by Chair Anderson were acceptable. He compared Alaska favorably with California, which is $35 billion in the hole and already has a sales tax and income tax. Number 1254 CHAIR ANDERSON withdrew his amendment. He explained that he believes businesses under the current amended bill would be paying enough. He suggested revisiting [business license fees] in the future if the department indicates that the state isn't "imposing enough business tax to operate." He suggested that the committee members concur with the witnesses like Mr. Johnson who say that businesses, with this hike, are paying enough. He requested a motion to move the bill from committee, stating that the message from the committee will be: "This is all we want businesses to pay at this stage, and it can be revisited by another legislature at another date." Number 1299 REPRESENTATIVE GATTO moved to report HB 162, as amended, out of committee with individual recommendations and the accompanying fiscal notes. There being no objection, CSHB 162(L&C) was reported from the House Labor and Commerce Standing Committee.