HOUSE LABOR AND COMMERCE STANDING COMMITTEE April 2, 1997 3:23 p.m. MEMBERS PRESENT Representative Norman Rokeberg, Chairman Representative John Cowdery, Vice Chairman Representative Bill Hudson Representative Jerry Sanders Representative Joe Ryan Representative Tom Brice MEMBERS ABSENT Representative Gene Kubina COMMITTEE CALENDAR * HOUSE JOINT RESOLUTION NO. 31 Requesting the United States Congress to amend the Federal Food, Drug, and Cosmetic Act. - MOVED HJR 31 OUT OF COMMITTEE * HOUSE BILL NO. 72 "An Act repealing certain filing statements and bonds for enforcement and collection of certain taxes and license fees; relating to service of process on nonresident taxpayers; and providing for an effective date." - MOVED HB 72 OUT OF COMMITTEE KASSENBAUM/KENNEDY DISCUSSION (* First public hearing) PREVIOUS ACTION BILL: HJR 31 SHORT TITLE: FEDERAL FOOD, DRUG, AND COSMETIC ACT SPONSOR(S): REPRESENTATIVE(S) KOTT JRN-DATE JRN-PG ACTION 03/18/97 736 (H) READ THE FIRST TIME - REFERRAL(S) 03/18/97 736 (H) LABOR & COMMERCE 04/02/97 (H) L&C AT 3:15 PM CAPITOL 17 BILL: HB 72 SHORT TITLE: SERVICE OF PROCESS ON NONRES TAXPAYERS SPONSOR(S): RULES BY REQUEST OF THE GOVERNOR JRN-DATE JRN-PG ACTION 01/15/97 70 (H) READ THE FIRST TIME - REFERRAL(S) 01/15/97 70 (H) ECD, LABOR & COMMERCE, FINANCE 01/15/97 71 (H) 2 ZERO FISCAL NOTES (DCED, REV) 01/15/97 71 (H) GOVERNOR'S TRANSMITTAL LETTER 03/14/97 676 (H) ECD REFERRAL WAIVED 04/02/97 (H) L&C AT 3:15 PM CAPITOL 17 WITNESS REGISTER NICOLE POIRRIER, Intern to Representative Pete Kott Alaska State Legislature Capitol Building, Room 204 Juneau, Alaska 99801 Telephone: (907) 465-3765 POSITION STATEMENT: Gave sponsor statement for HJR 31. REPRESENTATIVE PETE KOTT Alaska State Legislature Capitol Building, Room 204 Juneau, Alaska 99801 Telephone: (907) 465-3777 POSITION STATEMENT: Sponsor of HJR 31. BOB BARTHOLOMEW, Deputy Director Income and Excise Audit Division Department of Revenue P.O. Box 110420 Juneau, Alaska 99811-0420 Telephone: (907) 465-2320 POSITION STATEMENT: Testified on HB 72. MARIANNE BURKE, Director Division of Insurance Department of Commerce and Economic Development P.O. Box 110805 Juneau, Alaska 99811-0805 Telephone: (907) 465-2515 POSITION STATEMENT: Participated in Kassenbaum/Kennedy discussion. CECIL BYKERK, Chairman Board of Directors Comprehensive Health Insurance Association; Representative, Mutual of Omaha Insurance Company 9643 Oak Circle Omaha, Nebraska 68124 Telephone: (402) 351-2534 POSITION STATEMENT: Participated in Kassenbaum/Kennedy discussion. ACTION NARRATIVE TAPE 97-31, SIDE A Number 001 CHAIRMAN NORMAN ROKEBERG called the House Labor and Commerce Standing Committee to order at 3:23 p.m. Members present at the call to order were Representatives Rokeberg, Ryan, Cowdery, Brice and Sanders. Representative Hudson arrived at 3:25 p.m. HJR 31 - FEDERAL FOOD, DRUG, AND COSMETIC ACT Number 030 CHAIRMAN ROKEBERG announced the first order of business would be HJR 31, "Requesting the United States Congress to amend the Federal Food, Drug, and Cosmetic Act," sponsored by Representative Pete Kott Number 086 NICOLE POIRRIER, Intern to Representative Pete Kott, Alaska State Legislature, came before the committee to address HJR 31. She said the resolution asks Congress to take a look at the Federal Food, Drug and Cosmetic Act. Currently, there are several products that are in the testing phase that could be more rapidly approved to assist patients suffering from various illnesses. She said HJR 31 asks Congress to speed up that process. Number 149 REPRESENTATIVE TOM BRICE asked Ms. Poirrier if she has specific recommendations of the Food and Drug Administration (FDA) about how they could speed up that process. REPRESENTATIVE PETE KOTT, sponsor of HJR 31, responded, "In specific, there are no general areas that we're specifically looking at. In generalities, that whole U.S. code is a fairly extensive session. We actually ran off a copy, but not to bore you with the details, we tried to peruse it as much as possible and tried to glean from what steps are involved and it's a nightmarish code that's really difficult to understand to begin with." Representative Kott said it is his understanding that Congress currently has two measures, one in the House and one in the Senate, that analyzes the code for those red tape areas that could expedite products coming to market much more sooner than they currently are. He pointed out many of the products are in the testing stage and could take three to eight years to be released. He said an example is AZT, which treats AIDS (acquired immune deficiency syndrome), was in the experimental stage for about four and a half to five years. He said he thinks that those people who suffered from the virus would have liked to have taken their chances early on versus not having anything for treatment. Representative Kott said the resolution asks Congress to look at that area in the code and determine what areas need to be changed that could potentially expedite these products coming to market. Number 307 REPRESENTATIVE JOE RYAN said Representative Kott talked about dissemination of information. He asked him if he knows if Congress has any plans in "ringing" in these people a little bit. He said he has noticed that lately they prohibit anybody from saying (indisc.) to say what benefits may be derived from using a certain vitamin and yet, physicians will give you certain vitamins during pregnancy to make sure certain diseases don't happen because it could be from a vitamin deficiency that causes these diseases. Yet the FDA won't allow anybody to put on a vitamin label any information as to what the use of vitamins will do to help you. They shut down people's ability to make statements that are proven scientific facts. REPRESENTATIVE KOTT said he isn't aware of any of the specifics that Representative Ryan is addressing. He pointed out many of the products that are currently being dispensed are dispensed for a certain ailment that a product has been approved to be dispensed for. He said, "What I am of the understanding is that we're also asking, through the Congressional legislation, is for those products that are currently approved to at least provide additional, and this is the pharmaceuticals, provide information to those physicians for some of the ailments that the product is not approved for that could lead to them at least assisting in the discussion and dialogue with patients perhaps offering additional options." He said the whole process is basically one that's a very difficult one and there is a lot of red tape and hurdles to jump through. He noted he thinks we have come a long ways from the initial writing of the code and it's time to revisit it. He said maybe there needs to be a preapproval stage for those cases that are terminal. Number 528 CHAIRMAN ROKEBERG said he noticed in his committee file that there is a page of information referencing the activities of the 104th Congress and specific references to SB 1477 and HR 3199. He asked if those are Senate joint and the House resolutions regarding this activity. REPRESENTATIVE KOTT said that is correct. CHAIRMAN ROKEBERG asked where those currently are in the realm of things. REPRESENTATIVE KOTT said they're moving through the process at a relatively stable and slow rate as most Congressional actions move. He said HJR 31 asks Congress to continue moving that legislation through the process. He said he is not asking that public safety be jeopardized in any shape of fashion. It asks them to look at the procedures involved to see if we can maintain public safety as well as to move those products to market. CHAIRMAN ROKEBERG said HJR 31 is intended to spur along the passage of those particular Congressional actions. REPRESENTATIVE KOTT said that is correct. CHAIRMAN ROKEBERG asked if the Pharmaceutical Association is interested in this activity. REPRESENTATIVE KOTT indicated they are supportive. Number 632 REPRESENTATIVE BILL HUDSON asked if this is something that is moving through the National Conference of State Legislatures (NCSL) where there is a broad base of states that are appealing for this kind of legislation. REPRESENTATIVE KOTT said he isn't sure if it is supported by the NCSL, but said he wouldn't be surprised if it is because they are generally in support of this kind of legislation. He noted there are 20 plus states that have submitted resolutions of similar nature. Number 711 REPRESENTATIVE JOHN COWDERY made a motion to move HJR 31 out of committee with individual recommendations. CHAIRMAN ROKEBERG asked if there was an objection. Hearing none, HJR 31 moved out of the House Labor and Commerce Standing Committee. HB 72 - SERVICE OF PROCESS ON NONRES TAXPAYERS Number 747 CHAIRMAN ROKEBERG announced the committee would hear HB, 72 "An Act repealing certain filing statements and bonds for enforcement and collection of certain taxes and license fees; relating to service of process on nonresident taxpayers; and providing for an effective date," sponsored by Rules by request of the Governor. BOB BARTHOLOMEW, Deputy Director, Income and Excise Audit Division Department of Revenue, came before the committee to explain the bill. He said his division is responsible for administering what is called the nonresident tax affidavit bond program. Mr. Bartholomew pointed out that currently in statute is a program that was established in 1955 to try to give the state some additional tools in collecting tax liabilities. It effects nonresident corporations, which is any business whose primary headquarters is not registered in Alaska. It could be fish processors in Seattle or the oil companies on the West Coast. They have to annually file a two or three page affidavit and form with the Department of Revenue. The department's staff processes it. They have to go to an insurance company and get a bond or pledge real estate to cover their tax liability. Mr. Bartholomew said in all the years the department has been administering this, staff can't remember ever using the affidavits or the bonds to secure tax liabilities. He said the department basically goes against their bank accounts or they take away their business license. He said the department hasn't used this tool and are spending about 800 hours a year, between three people in the department's compliance unit, to administer the program. He said the department feels it has enough tools to collect taxes and the businesses haven't seen a benefit from this program. MR. BARTHOLOMEW said a similar piece of legislation made it through the Senate, but there wasn't time for it to move through the House. He noted the Senate bill has been heard in two Senate committees this year and moved with all "do pass" recommendations. He also noted there is a zero fiscal note and the reason for that is the department has been taking budget reductions every year for the last three years and they are trying to catch up. They have more work that bodies. Mr. Bartholomew informed the committee they also receive a lot of complaints from businesses, whether they are motor fuel, tax payers or fishery business tax payers, that they are paying their taxes and they want to make sure the other guy is too. They want the department to increase compliance. He said the department knows they won't get new positions and they are looking at ways to do it and that is why they are trying to refocus the 800 hours that go into processing this tax bond. Number 996 CHAIRMAN ROKEBERG said, "That was certainly one of mine that relates to the fiscal note because it should be a negative fiscal noted, if you will. But that's where you're redirecting the 800 hours. Is that the $30,000." MR. BARTHOLOMEW explained it is about 800 staff hours, so it is the equivalent personal services that would cover and then there are some mailing costs that they would no longer be incurring. He informed the department has tried several ways to beef up compliance. They have implemented a new computer system two years ago to try and automate a lot of in-house analysis before they decide where there might be trouble or who might not be paying taxes. Number 1047 REPRESENTATIVE COWDERY asked, "How does this differ from in-state to out-of-state people? How does it differ?" MR. BARTHOLOMEW pointed out that the statute only requires the Department of Revenue to administer this for nonresident corporations. So if you are a 100 percent Alaska corporation and your incorporation paperwork states "Alaska," then you are not subject to this requirement. If your official headquarters is Washington, Oregon, California, New York, then you come under this act and have to fill out the paperwork and register with the department in addition to normal tax filings. Mr. Bartholomew said people in the department spoke with the Anchorage Chamber and the State Chamber and there was the issue of, "Is there something here that we don't want to do that would disadvantage in-state businesses?" They also went to the small business development program and the university and all three of them felt that from a business perspective it was in the best interest of all businesses to eliminate a layer of paperwork. At this point, in-state are not effected and wouldn't be if the bill passes. Number 1128 REPRESENTATIVE COWDERY asked if the information that is provided by outside corporations is confidential or public information. MR. BARTHOLOMEW said the way the statute is structured is any information that is provided on a tax return is confidential. He noted any information provided on a business license application is public information and would continue to be public information. REPRESENTATIVE HUDSON asked if there are other areas, in statute, that require a bond posting. He also asked if the legislature has ever acted on those. MR. BARTHOLOMEW said the other area that his division is involved in relates to fisheries. He said some fishery businesses do post a bond and the reason that has been required was that historically, there were certain situations where fishermen weren't getting paid for the fish. They would catch them, deliver them to a processor or an intermediate boat that hauled them off. There were situations where fishermen weren't paid so the legislature enacted a bond. He said he knows that probably several times a year they do pay on those bonds to fishermen. REPRESENTATIVE HUDSON asked how the department accesses those bonds. MR. BARTHOLOMEW said it generally requires a court action. The court would establish that there is a legal debt and that is all the department needs. He said the department either has an insurance bond or a cash bond. If it is cash, the department would then cut a warrant, via the court document, to the person claiming it. If it through an insurance company where a bond has been posted, it is his understanding that the person would work directly with the insurance company. Number 1297 CHAIRMAN ROKEBERG referred to information from 1996, which said that $2,119,584 was prepaid by 239 corporations and interest of approximately $58,000 was earned. He asked what the $2,119,584 was. MR. BARTHOLOMEW said, "There were 2,000 corporations that filed the affidavit, and of the 2,000, 239 of them rather than going to an insurance company and giving a bond, they actually put a cash deposit with the Department of Revenue. We collect that, we put it on account - we basically put it in the general fund and do an accounting of it. The state does earn interest on that. The money still belongs to the business and if they pay their taxes, we would pay them back their cash. As stated in that bullet, the state earned $58,000 in interest last year on that money. And it's the Department of Revenue's position that that is a loss of interest income, but that one that is probably more appropriately -- the businesses interest income and if they get to retain the cash, would earn the interest. And we feel that by redirecting the 800 hours that in our compliance work, we would more than recover what's lost in interest. That's another reason why we wanted to show the $58,000, but we didn't put it in a fiscal note because we feel that we're gonna collect more than that through the compliance efforts." Number 1418 REPRESENTATIVE HUDSON asked if current regulations restrict the manner in which the department can invest these kinds of deposits. He said he received a telephone call from somebody who said, "Do you realize that there is millions of dollars that are collected from contractors from all over the state of Alaska and, by law, they can only invest them in the lowest income producing mechanisms available, the IRAs or what ever they are." He said they also asked him if he would consider changing the law to provide for a better investment return on their money. Representative Hudson asked Mr. Bartholomew if he is involved in the investment of these kinds of monies. MR. BARTHOLOMEW said through the Department of Revenue, the Treasury Division does have the responsibility for investing all of the funds and there is quite an array of accounts and funds that are invested. In the general fund with all the subaccounts, which would include bonds or any other kinds of deposits on account, they would be invested by the Treasury Division. They do try to look at the individual accounts and what they are for. If a bond is on account, his assumption would be that they will only invest that in short-term. This is because they don't know when it will be called. If there was a problem where the bond was called, and whenever there is an uncertainty as to when it will be demanded, they put it into those short-term categories. Number 1516 REPRESENTATIVE RYAN said he understands if people overpay their taxes, they receive 11 percent interest on the overpayment. He asked where the difference comes between that and putting an amount of money on deposit with the state as a bond, etc. He asked where the distinction was made. MR. BARTHOLOMEW explained the distinction was actually made in the tax code and they do specifically address the overpayment of taxes or refunds due. He said, "The 11 percent, what it is is it's - we're gonna pay you a certain percentage over the federal discount rate or 11 percent, whichever is more. And at this point the federal rate is like around 5 percent or 5 and a 1/4. So the 11 percent is actually quite high compared to what you'd earn in the market, but it is also what taxpayers who are delinquent have to pay us. So they've kind of tied them together. And, again, we feel though we do pay out a little more than the market and we have a risk of people using us as a bank, it has been such a good tool for the department to encourage the larger taxpayers to come forward and not hold out and take everything through appeal and through the courts when they're having to pay us 11 percent. That's was part of the incentive during Governor Hickel's Administration we caught up on a lot of the old oil cases. They changed the law from what was 5 or 6 percent to 11 and it pretty amazing how many people stepped forward to payoff large tax liabilities rather than accrue that interest liability." CHAIRMAN ROKEBERG asked what the will of the committee is. Number 1629 REPRESENTATIVE HUDSON moved and asked unanimous consent to pass HB 72 out of committee with a zero fiscal note and individual recommendations. Hearing no objection, HB 72 was moved out of the House Labor and Commerce Standing Committee. Number 1697 CHAIRMAN ROKEBERG called for an at-ease at 3:53 p.m. He called the meeting back to order at 3:58 p.m. KASSENBAUM/KENNEDY DISCUSSION TAPE 97-31, SIDES A & B TAPE 97-32, SIDE A SUMMARY OF INFORMATION MARIANNE BURKE, Director, Division of Insurance, Department of Commerce and Economic Development, participated in Kassenbaum/Kennedy discussion. CECIL BYKERK, Chairman, Board of Directors, Comprehensive Health Insurance Association; Representative, Mutual of Omaha Insurance Company, participated in Kassenbaum/Kennedy discussion. COMMITTEE ACTION The committee took no action. ADJOURNMENT The meeting was adjourned at 5:02 p.m. NOTE: The meeting was recorded and handwritten log notes were taken. A copy of the tapes and log notes may be obtained by contacting the House Records Office at 130 Seward Street, Suite 211, Juneau, Alaska, 99801-1181, (907) 465-2214, and after adjournment of the second session of the Twentieth Alaska State Legislature, in the Legislative Reference Library.