SJR 33-CONSTITUTIONAL AMENDMENT: TAX CAP  CHAIRMAN TAYLOR noted the committee received a letter from the Commissioner of the Department of Revenue (DOR) that answers some of the questions asked at the last meeting. He stated that he prepared a sponsor substitute (SS) for SJR 33. The drafter had sent along with it a resolution that provides for a title change. He questioned why another resolution is necessary since SJR 33 is a Senate resolution and, in addition, he has not seen any title change in the sponsor substitute. SENATOR AUSTERMAN also expressed confusion as to why a second resolution accompanied SJR 33 and noted that he is not aware of any title change. CHAIRMAN TAYLOR and SENATOR AUSTERMAN then clarified the new version is a committee substitute, not a sponsor substitute. Senator Austerman prepared a sponsor substitute, but Chairman Taylor changed it to a committee substitute so that the resolution would not have to be re-read on the Senate floor. SENATOR COWDERY asked if an accompanying resolution for a title change would be required if the original resolution came from the House. CHAIRMAN TAYLOR said it would. He then said SJR 33 was introduced on February 4, 2002 and was referred to the Senate Judiciary and Finance Committees. He asked Senator Austerman if SJR 33 received an additional referral. SENATOR AUSTERMAN said it did not and noted that he submitted a sponsor substitute to the Senate Judiciary Committee in error. CHAIRMAN TAYLOR clarified that the version before members is not a committee substitute for a sponsor substitute, it is a committee substitute to the original resolution. SENATOR COWDERY moved to adopt the proposed committee substitute, Version F, as the work draft before the committee. CHAIRMAN TAYLOR announced that without objection, Version F was before the committee. He then moved to delete from the bill heading the words "FOR SS" so that the title of the bill reads: CS FOR SENATE JOINT RESOLUTION NO.33(JUD)    There being no objection, the motion carried. SENATOR AUSTERMAN informed members that the only change in the CS is that the word "retail" was added on page 1, line 12 before the words "sales tax." CHAIRMAN TAYLOR noted that change was made to clarify that the provision does not apply to wholesale sales. He pointed out that Mr. Persily answered the committee's questions about what adjusted gross income means, about what the percentage would be and the amount that percentage would generate. He expressed concern that the limiting factor of five percent of the federal adjusted gross income is hardly a limit. That amount would probably generate about $550 to $600 million. MR. LARRY PERSILY, Deputy Commissioner, Department of Revenue, explained that Chairman Taylor's estimate is correct and that amount would go a long way in solving Alaska's fiscal problems. SENATOR COWDERY noted that Mr. Persily defined "federal taxable income" as income remaining after itemizing deductions. He asked if earnings from another state would be considered an itemized deduction. He said that if an individual had income derived from another state with an income tax, the individual might be able to deduct them, but if the income was derived in a state without an income tax, those wages would have to be included in the federal return. MR. PERSILY clarified that federal taxable income would include income from all sources. If Alaska had an income tax and part of one's income was earned in Washington, which has no personal income tax, Alaska could impose an income tax on all of the income earned in Washington state because that individual's domicile is in Alaska. If Washington had an income tax and one- third of the individual's earnings were from Washington, Alaska could tax two-thirds. He stated an individual would never pay taxes to two states on the same income. SENATOR COWDERY pointed out Alaska would draw in the income derived from other states with no income tax. MR. PERSILY said the state could benefit by taxing the earnings of its residents where those earnings are earned in states without a personal income tax. SENATOR AUSTERMAN said that works both ways as Oregon residents who earn their wages in Alaska are taxed by Oregon. SENATOR COWDERY said that is the point he has a problem with. He said he believes an Alaska income tax should be based on Alaska income. SENATOR THERRIAULT referred to the limit of 5 percent and questioned whether Alaskans would see it as a cap since it is at the upper limit. He asked Senator Austerman if he feels strongly about the five percent. SENATOR AUSTERMAN said his only thought is if the legislature asks the public to vote on a constitutional amendment, it should allow the public the latitude of future growth. He said if it reads two or three percent, a future legislature will probably have to go back to the public for another vote. He noted that he anticipates that Alaska will have a broad based tax structure in the not-too-distant future but he does not believe it will be just an income tax and sales tax. He also anticipates the permanent fund will be part of the solution so he does not believe the five percent cap will be reached for a very long time. He maintained that is a policy call the legislature will have to make. CHAIRMAN TAYLOR said the overall policy call reaches far beyond the numbers. His concern is that today, under Alaska's Constitution, people are not afforded an opportunity to vote on the budget or to vote on the level of taxation that the legislature chooses to impose. He thought it would be a good idea to have a cap or limit on taxation, but expressed concern that placing a cap in the Constitution creates a significant policy shift. The Constitution was originally designed so that questions of revenue would be left up to the legislature and that initiative petitions could not be brought to amend the Constitution. In addition, one of the things the framers truly isolated at the state and municipal levels is that the public does not have a vote on that. By putting any number in the Constitution, that number can only be changed by a public vote. He said he believes that is a major shift within the framework of Alaska's Constitution. SENATOR COWDERY noted the title does not say that an income and sales tax will be implemented, it only says if the legislature decides to impose one, it must be limited to five percent so it is moot until a tax is in place. SENATOR AUSTERMAN said that is correct and stated, "The whole issue, and I believe the courts have upheld also, like you indicated, the initiative process, they cannot set the budget by initiative process but this is not necessarily setting a rate, but it's setting the maximum at this point in time that the public would feel comfortable with." CHAIRMAN TAYLOR asked Senator Therriault his thoughts on three percent, which would generate almost $400 million. SENATOR THERRIAULT said he prefers 2.5 percent. He then moved to replace the word "five" on page 1, line 10 with "2.5." CHAIRMAN TAYLOR asked Senator Therriault if it is his intent to make the same change on lines 7 and 12. SENATOR THERRIAULT clarified that he would take Chairman Taylor's suggestion to make the same change on line 7 to be a friendly amendment to his amendment, but it is not his intent to make the same change on line 12 as that applies to a sales tax. CHAIRMAN TAYLOR asked if there was objection to adopting the amendment and then objected for the purpose of allowing Senator Austerman time to review the amendment. SENATOR AUSTERMAN thanked Chairman Taylor. CHAIRMAN TAYLOR announced that with no further objection, the amendment was adopted. CHAIRMAN TAYLOR moved to replace "five" on page 1, line 12, with 2.5 to limit the percent of sales tax that could be levied by the state to 2.5. He noted that without objection, the motion carried. There being no further testimony, SENATOR COWDERY moved CSSJR 33(JUD) as amended from committee with individual recommendations. CHAIRMAN TAYLOR announced that without objection, the motion carried.