CS FOR HOUSE BILL NO. 193(FIN) "An Act relating to the joint administration of tobacco taxes by the state and a municipality." 10:31:15 AM DIRK CRAFT, STAFF, REPRESENTATIVE LANCE PRUITT, introduced SB 193. He stated that Passage of CS HB 193 seeks to promote greater cooperation and reciprocal information sharing between State and local jurisdictions in Alaska resulting in more efficient and effective oversight, enforcement and collection of commonly assessed, legally due taxes (e.g., tobacco tax and rental vehicle tax). The result of information sharing between State and local jurisdictions is that tax evasion by businesses and individuals will be less likely to occur, thereby promoting a more competitive business environment for Alaskan businesses and decreasing tax subsidization caused by willful tax evaders who otherwise shift the tax burden to law abiding citizens. Such joint information sharing between state and local government is a commonly authorized practice in many other state statutes. The proposed change to state statutes is comprised of two sections. The first section amends existing language to add political subdivisions of the State to the list of entities with which the State can share information. Implementation is expected to be cost neutral and should produce additional revenue through shared results of discovery efforts and audits. The second section of the CS HB 193 authorizes the State of Alaska Department of Revenue (Department) to enter into an agreement such as a Memorandum of Understanding (MOU) with a municipality, authorizing the Department to act as central administrator of any potential joint tobacco tax stamp program which meets their economy of scale criteria. The purpose of section two of the bill is to promote efficiency with respect to any potential joint tobacco stamp program, and to minimize impact on private sector stamp purchasers. Program administration by the Department would include central issuance of joint tobacco stamps as well collection of associated tobacco stamp revenues on behalf of a municipality. The cost causer - cost payer principle would be in effect, such that a participating municipality would be responsible for reimbursing the Department for direct, incremental cost increases resulting from a joint tobacco tax program. A number of jurisdictions, particularly in more largely populated city areas around the country, have multi- jurisdictional tobacco stamps in use based on economies of scale. Vice-Chair Fairclough wondered why the state was incurring an additional cost on behalf of municipalities. Mr. Craft stated that the Department of Revenue (DOR) might be better suited to answer the question. Senator Olson inquired what the vendors thought of the bill. Mr. Craft replied that he understood that there was no opposition from the vendors. 10:35:00 AM DANIEL MOORE, TREASURER, MUNICIPALITY OF ANCHORAGE, ANCHORAGE (via teleconference), spoke in support the legislation. He stated the bill served two purposes. It was an information sharing bill as well as. It made sense for the state to administer the program on behalf of the municipalities. He expressed that there had been concern that had been voiced by lobbyists regarding the information sharing portion of the bill; however, language had been developed that had led to a consensus between all parties and he hoped that the committee would consider adopting it. He referenced a letter of support from the Municipality of Anchorage (copy on file): The Municipality strongly supports passage of HB 193 which benefits municipalities in Alaska by promoting greater cooperation and reciprocal information sharing between State and local jurisdictions concerning administration and enforcement of commonly assessed, legally due taxes. The primary concept behind this legislation is consistent with joint information sharing practices cited in many other state statutes. HB 193, if passed, will result in more efficient and effective oversight, enforcement and collection of taxes assessed by both the State of Alaska and municipalities (i.e., enforcement of tobacco tax and rental vehicle tax). Overall revenue realization by the State and municipalities is likely to be strengthened through shared results of discovery actions and audits. and more coordinated administration and enforcement of these commonly assessed taxes will serve to notably reduce tax evasion, thereby: (1) promoting a more competitive business environment for Alaskan businesses; and (2) decreasing the tax subsidization caused by willful tax evaders who otherwise shift tax burden to law abiding citizens. In summary HB 193 is sound legislation that encourages greater intergovernmental efficiency and effectiveness in fulfilling tax collections mandated by law at both the State and local level. This bill levels the playing field for law abiding businesses and citizens by helping to reduce the number of willful tax evaders not paying their fair share of legally due taxes. 10:40:45 AM Vice-Chair Fairclough looked at the fiscal note, and wondered if the Municipality of Anchorage was prepared to take on the additional cost. Mr. Moore replied that he provided previous testimony that state that Anchorage would evaluate the cost of the program at the time it was ready to pursue a local stamp option. He remarked that there were other considerations such as inflation proofing that were already built into its tobacco tax. He felt that there would need to be an analysis in order for Anchorage to sign on to covering the additional cost. He furthered that if multiple jurisdictions participated in local stamp programs, it would make it more affordable and cost- beneficial for Anchorage. Co-Chair Meyer CLOSED public testimony Vice-Chair Fairclough wondered if the fiscal note should be amended to show a change of revenue on the positive of $136,700, which would require the department to wait to set up the person until the revenue was received by the requestor. JOHANNA BALES, DEPUTY DIRECTOR, TAX DIVISION, DEPARTMENT OF REVENUE (via teleconference), responded that Vice-Chair Fairclough had a fair assessment of the fiscal note. She furthered that she was directed to estimate the cost if municipalities wanted to enter into a memorandum of agreement with the state to administer a tax stamp on their behalf. Instead of showing the tax stamp as revenue, it would be shown as a designated general fund that would be reimbursed from the municipalities. Senator Olson queried the frequency of flexibility recommendations at the cost detriment to the state. Ms. Bales replied that there were not many programs that worked directly with the government. Senator Olson wondered how often investigations occurred with large sums of money at stake. Ms. Bales responded that most investigations did not deal with millions of dollars, but shared that there were some vehicle rental cases that were in the hundreds of thousands of dollars range. Vice-Chair Fairclough shared that the Division of Motor Vehicles (DMV) had taxation, and wondered if there may be dual taxation. She asked Ms. Bales to be prepared for that type of discussion at a later meeting. CS HB 193(FIN) was HEARD and HELD in committee for further consideration.