HOUSE RESOURCES STANDING COMMITTEE January 19, 1996 9:05 a.m. MEMBERS PRESENT Representative Joe Green, Co-Chairman Representative Scott Ogan, Vice Chairman Representative Alan Austerman Representative John Davies Representative Pete Kott Representative Don Long MEMBERS ABSENT Representative William K. "Bill" Williams, Co-Chairman Representative Ramona Barnes Representative Irene Nicholia COMMITTEE CALENDAR HOUSE BILL NO. 341 "An Act establishing a tax court to consider and determine certain taxes and penalties due and collateral matters, and amending provisions relating to taxpayer challenges to the assessment, levy, and collection of taxes by the state; and providing for an effective date." - HEARD AND HELD PREVIOUS ACTION BILL: HB 341 SHORT TITLE: ALASKA TAX COURT SPONSOR(S): REPRESENTATIVE(S) GREEN JRN DATE JRN-PG ACTION 05/09/95 2042 (H) READ THE FIRST TIME - REFERRAL(S) 05/09/95 2042 (H) RES, JUD, FINANCE 10/24/95 (H) RES AT 09:00 AM ANCHORAGE LIO 10/24/95 (H) MINUTE(RES) 01/19/96 (H) RES AT 09:00 AM CAPITOL 124 WITNESS REGISTER JACK CHENOWETH, Attorney Legislative Legal Counsel Legislative Affairs Agency 130 Seward Street, Suite 409 Juneau, Alaska 99801-2105 Telephone: (907) 465-2450 POSITION STATEMENT: Explained changes for proposed committee substitute for HB 341. DEBORAH VOGT, Deputy Commissioner Department of Revenue P.O. Box 110405 Juneau, Alaska 99801-0400 Telephone: (907) 465-2300 POSITION STATEMENT: Available for questions on HB 341. ACTION NARRATIVE TAPE 96-5, SIDE A Number 000 CO-CHAIRMAN JOE GREEN called the House Resources Committee meeting to order at 9:05 a.m. Members present at the call to order were Representatives Green, Austerman, Davies, Kott, Long and Ogan. Members absent were Representatives Barnes, Nicholia and Williams. HB 341 - ALASKA TAX COURT CO-CHAIRMAN GREEN, sponsor of HB 341, explained that the bill had been introduced the previous year. A hearing had been held in Anchorage during the interim, at which time deficiencies in the prior version were noted. Of primary concern was introduction of a tax court, a special entity, which met with severe fiscal problems. That version of HB 341 had been amended and the new version was now before the committee. CO-CHAIRMAN GREEN commented that under current law, when a tax bill was rendered to a taxpayer, the taxpayer requested review by the Department of Revenue before the issue ever went to the superior court. The court then relied heavily on the Department of Revenue's review process. He said this seemed like a stacked deck. HB 341 was designed to provide a more impartial review to an appellant. Number 192 REPRESENTATIVE ALAN AUSTERMAN asked whether the bill addressed a different type of review before the matter went to court. CO-CHAIRMAN GREEN answered that the intention was to not have all the review stay within the department that rendered the tax bill in the first place. Number 220 REPRESENTATIVE JOHN DAVIES asked if they were discussing version K; Co-Chairman Green confirmed that was correct. Number 230 JACK CHENOWETH, Attorney, Legislative Legal Counsel, Legislative Affairs Agency, referred to version K, page 3, Section 3, and said it amended the section of Title 43 dealing with taxation and revenue. There was a process in place for appeals; HB 341 left that process alone with respect to all the taxes in Title 43 except those identified in subsection (a) of Section 4, page 3, lines 10 through 14. The purpose of Section 3 was to say that the provisions of current law did not apply to the actions of the Department of Revenue if those actions were subject to the appeal provisions of AS 43.05.242. MR. CHENOWETH referred to Section 4 and said it created a new section covering the disposition on appeal of taxes and penalties relating to taxes identified under that section in paragraphs 1 - 5. Identified to be covered by the new appeal provision were questions arising under AS 43.19, the Multi-state Tax Compact; AS 43.20, the current corporate income tax; former corporate tax under AS 43.21; the severance tax under AS 43.55; the mining license tax under AS 43.65; and the fisheries taxes under AS 43.75. Number 419 DEBORAH VOGT, Deputy Commission, Department of Revenue, noted that AS 43.21 was a tax under which there were still a couple of old disputes pending. MR. CHENOWETH explained that under subsection (b), beginning on line 15, a person subject to one of the included taxes had the opportunity to challenge a determination by the Department of Revenue. The challenge could be brought through an informal hearing. A taxpayer who disagreed with the outcome of that hearing had two choices. First, under subsection (c)(1), the taxpayer could appeal to the superior court in the judicial district where he or she resided. Second, under subsection (c)(2), the taxpayer could ask for a formal hearing. Number 525 REPRESENTATIVE DAVIES asked whether the formal hearing was within the Department of Revenue; Mr. Chenoweth confirmed that it was. Number 540 REPRESENTATIVE AUSTERMAN commented that there had been a flow chart the previous year that showed the process. He requested that another flow chart be created for the new scenario, because it greatly simplified understanding the process. CO-CHAIRMAN GREEN replied that they would produce a flow chart for the following Wednesday's hearing, and would have available both the existing chart and the new one. Number 611 MR. CHENOWETH returned to his earlier discussion. He referred to Section 1 and said that on page 1, subsection (d)(1) restated existing law as it related to the superior court's consideration of an appeal from an inferior court. HB 341 removed the reference to an administrative agency. Mr. Chenoweth added that all administrative agency references were now at the top of page 2. He explained that paragraph 2, page 2, provided the taxpayer an opportunity to have the matter heard before the superior court and to require a trial de novo, as a matter of right, on appeal from a decision at an informal hearing. It would not be discretionary with the court to give a trial de novo on appeals at that stage. Number 818 MR. CHENOWETH referred to paragraph 3 and said it covered appeals to the superior court from a formal hearing. There, the law would remain the same as current law. The appeal would remain on the record unless the superior court, in its discretion, granted a trial de novo in whole or in part. Mr. Chenoweth then referred to paragraph 4 and said it covered all other administrative agency appeals. There again, the law remained the same as current law. REPRESENTATIVE DAVIES asked for confirmation that in current law the issue of trial de novo was discretionary with the superior court. Number 690 MR. CHENOWETH confirmed that was the case. He added that paragraph 2, by making the trial de novo a matter of right, affected an appellate procedure court rule, which change was noted in Section 10 of HB 341. He then referred to page 4, line 16, and said there was language in AS 43.05.244 that clarified payments of tax penalties and interest before an appeal was taken. He said language in AS 43.05.245 amended existing law relating to collection of tax penalties and interest to pick up reference to the appeals that may be taken under either AS 43.05.240, which is current law, or the new AS 43.05.242 on page 5, line 5. Number 911 MR. CHENOWETH referred to Section 6 and said it discussed methods of handling overpayments. The amendment in Section 7 joined in the new section covering the appeal process of AS 43.05.242. He said Section 8 was similar. In Section 9, he explained, since the severance tax under AS 43.55 would be shifted from being the subject of an appeal under AS 43.05.240 to the subject of an appeal process under AS 43.05.242, the reference to AS 43.05.240 was being deleted on line 10 and the reference to AS 43.05.242(c)(2) was being inserted. Number 945 MR. CHENOWETH returned to page 2, line 28, which expanded the references relating to where money went in terms of the budget reserve fund on the basis of the outcome of tax appeals. He added that the heart of HB 341 is in Section 4, the administrative appeal provisions, as well as in the granting of de novo trials as a matter of right in Section 1, paragraph 2, at the top of page 2. Number 1004 REPRESENTATIVE LONG asked if in Section 4, in particular, these were compilations of law already on the books. MR. CHENOWETH said that was correct. He explained the practice was to draft in order by number, which sometimes put the most important part of a bill in the middle or at the end. Therefore, when he explained a bill, he tried to focus on the major change and then show what needed altered because of those amendments or deletions. Number 1052 REPRESENTATIVE LONG questioned whether the language under consideration was new. MR. CHENOWETH explained that new language was either underlined or said "is amended by adding new subsections to read," followed by the new wording. Number 1090 REPRESENTATIVE KOTT asked Mr. Chenoweth to explain the significance of interchanging the terms "person" and "taxpayer" throughout. MR. CHENOWETH replied that "person" would be the taxpayer; he said the terms should be consistent within each chapter despite not being consistent throughout Title 43. Number 1141 REPRESENTATIVE SCOTT OGAN asked Mr. Chenoweth whether the de novo trial portion of HB 341 would add costs to the state. MR. CHENOWETH responded that if a taxpayer opted to use the informal hearing, was dissatisfied with the outcome, and chose to appeal to the superior court, the record of the informal hearing was not the only evidence the superior court would consider. Rather, the court would essentially start with a blank page and expect the parties to bring forward whatever evidence they felt necessary to resolve the matter. He added that would also be true if the taxpayer went through the informal hearing process, went to a formal hearing, and then decided to appeal to the superior court under subsection (c)(1). In this latter instance, however, the law stated that the granting of a trial de novo was discretionary with the superior court; the case could be decided based on the prior record at the administrative level. Mr. Chenoweth admitted that he did not know under what circumstances the court would or would not grant a trial de novo. Number 1277 REPRESENTATIVE OGAN asked whether under a de novo trial the superior court could consider new evidence above and beyond what the Department of Revenue had considered. MR. CHENOWETH explained that a trial de novo opened up a matter as if there were no record. REPRESENTATIVE OGAN further questioned whether if there were a trial de novo, parties and witnesses would have to be deposed again. MR. CHENOWETH responded that he did not know if they needed to reconsider material touched on before. But there was an opportunity to bring in additional evidence, including evidence previously deemed inadmissible by the Department of Revenue. Number 1389 REPRESENTATIVE DAVIES asked whether, as a matter of right, the taxpayer would have the right to depose people again. He said he was concerned about the impact it might have on deadlines within the process. He then asked what signals the termination of the process and how did a person know when the hearing was over. He further asked how long a taxpayer had to bring a request for either an informal or a formal hearing. Number 1457 MR. CHENOWETH replied that in an earlier version of the bill, they had added a provision making use of a reference to "final decision." Mr. Chenoweth referred to a draft prepared in December which said a decision of the Department of Revenue was final if the decision disposed of either the entire case or the entire issue in controversy, and may include an order entered on a motion for summary or partial summary judgment if the order constituted final disposition of an entire issue in controversy. Mr. Chenoweth commented that he had removed that language because he did know what the consequences of the language would be. He said that if the committee needed that kind of certainty, they would have to reinsert that language to fit the context in which it was being offered. He stated that the language was as loose in HB 341 as it was in current law. In all fairness, he said, the sponsor had tried to make the language more certain; but Mr. Chenoweth said he himself had decided to remove it only because he did not see how it needed to be worded to fit into HB 341. If certainty was required, that language needed to be built back into the bill. REPRESENTATIVE DAVIES asked what the time line was to request the hearings in the first place. Number 1535 MR. CHENOWETH replied that on page 3, line 16, after a determination was made by the Department of Revenue, the taxpayer had 60 days from the date of mailing of the notice of determination to request an informal hearing. Under either subsection (c)(1) or (c)(2), the taxpayer then had 30 days after the date of decision resulting from an informal hearing to either request a formal hearing or appeal to the superior court. Number 1535 CO-CHAIRMAN GREEN asked if there were any other questions as to the intent of the bill. REPRESENTATIVE DAVIES referred to the list of taxes in Section 4 and asked what the decision process had been in choosing those taxes. Specifically, he wanted to know if other taxes had been omitted from the list and what the rationale was for those on the list. Number 1608 MR. CHENOWETH responded that Section 4 did not address, for example, questions involving the estate tax, taxes on coin-operated devices and punch boards, the motor fuel tax, the tobacco tax, the pipeline property tax, the oil and gas conservation tax, taxes on alcoholic beverages, the Business License Act tax or the existing salmon enhancement tax. All those, he said, continued to be resolved by the appeal process under AS 43.05.240, which was the appeal process in current law. He added that the selection of the particular taxes listed went back to the original work order request that came from the sponsor of the bill. He noted that when the bill originated, it was with the idea of a separate tax court. Now, there was no separate tax court being considered, but the appeal process was being modified in relation to the same taxes originally being considered under the bill. Number 1661 REPRESENTATIVE DAVIES redirected his question to the sponsor of the bill, Co-Chairman Green, asking how the particular taxes listed in HB 341 had been chosen. CO-CHAIRMAN GREEN explained that these were major taxes and affected fewer members of the general public than would, for example, the tobacco tax or gasoline tax. He suggested these taxes were of more consequence and of a higher visibility for dispute than some others. The intent was not to resolve disputes over the existence of the taxes, but rather to resolve differences in case- by-case applications involving how the amounts were calculated. In contrast, he said, methods of figuring taxes on gasoline and tobacco would not be under dispute in individual cases. Number 1736 REPRESENTATIVE LONG asked for clarification that not all state taxes were being affected by HB 341. CO-CHAIRMAN GREEN confirmed that it was only certain taxes, and added that they were not eliminating those taxes. It affected methods of deriving taxes and the final dollar amounts owed, not the question of whether taxes were owed at all. Number 1777 REPRESENTATIVE PETE KOTT asked whether under AS 43.65, the mining license tax, there had ever been a dispute. He wondered why that had been included and said he felt it was an oddball in the group. MR. CHENOWETH responded that, to his best recollection, the mining license tax was a bit of a misnomer. Although it was a license tax, part of the liability was determined with respect to the amount of deduction. Consequently, there was potential for a significant question on liability based upon something that was or was not produced. Number 1856 CO-CHAIRMAN GREEN noted that although they had not been requested to include timber, that might be a category to be added. REPRESENTATIVE AUSTERMAN asked whether timber fell under the severance portion of the bill. CO-CHAIRMAN GREEN said he did not know and deferred to Deborah Vogt for a response. MS. VOGT explained that the severance tax included in HB 341 was the oil severance tax. As to the mining license tax, to her knowledge, there had never been a significant dispute, nor even any significant revenue resulting from it. CO-CHAIRMAN GREEN asked Ms. Vogt to address the timber portion in order to answer Representative Kott's question. MS. VOGT replied she did not know the answer. Number 1965 MR. CHENOWETH said he knew of no separate levy on timber. CO-CHAIRMAN GREEN agreed it was a good question and suggested that it would be looked into and addressed at the next meeting. REPRESENTATIVE KOTT asked Mr. Chenoweth about page 3, line 24. He wondered if after the informal hearing, there would be written notification to the taxpayer and if so, could it be tied to the date of mailing of the notice as it was on page 3, line 15. He also wanted to know how much time the Department of Revenue needed to prepare and provide the records to the taxpayer. MR. CHENOWETH replied that he did not know the mechanics of how the Department of Revenue formally advised the taxpayer of the outcome of an informal conference or hearing. He noted that page 3, lines 20 and 21, states that if the department determines a correction is warranted, the department shall make the correction. He said he assumed the outcome would be communicated either by phone or in writing to the taxpayer, regardless of the outcome. He added that AS 43.05.240 was the model for this part of HB 341. He further stated that the language could be expanded to tie in with the outcome of the informal hearing to the first day the taxpayer had to either appeal to the superior court or to request a formal hearing. Number 2038 REPRESENTATIVE KOTT asked, if the Department of Revenue needed 28 days to get the records to the taxpayer, giving the taxpayer two days to look them over, would that be enough time. Number 2040 MS. VOGT responded that the Department of Revenue issued written informal conference decisions. She noted that the one thing different was that an informal conference was an optional procedure that can be skipped. She said the taxpayer's files are always available to the taxpayer throughout any proceeding. However, there might be attorney work product that was unavailable to the taxpayer under any circumstances. In an informal conference decision, most of what the taxpayer would not have seen would be the decision itself. She added she foresaw no problem with the 30- day period that already existed between the informal conference decision and the deadline for appeal. She added that within the department, they would have the power to grant an extension and she could not imagine they would not do so if it were warranted. Number 2196 REPRESENTATIVE OGAN asked Ms. Vogt to explain how the bill would affect how the Department of Revenue operated, and asked whether it would detrimentally affect the revenue stream of the state of Alaska. MS. VOGT conveyed her understanding that there would be no testimony at the meeting, and added that she was not prepared to respond. CO-CHAIRMAN GREEN reminded the committee that these issues would be addressed at the full hearing on Wednesday. The current meeting was for familiarization only. MS. VOGT clarified that she would gladly address technical aspects about how the Department of Revenue operates. Number 2245 CO-CHAIRMAN GREEN added that the Department of Revenue had introduced a bill similar to HB 341. He said that by Wednesday, the committee would have looked at the two bills to determine if there was some way to combine them. MS. VOGT noted that the bill was HB 427, with SB 224 being an identical bill on the Senate side. Number 2290 REPRESENTATIVE KOTT moved to adopt CS for HB 341 as a working document. CO-CHAIRMAN GREEN asked if there was any objection to adopting the committee substitute for HB 341, version K, as the working draft. There being no objection, it was so ordered. REPRESENTATIVE OGAN expressed his appreciation at hearing the bill before adopting it as a working document. Number 2315 ADJOURNMENT There being no further business to conduct, CO-CHAIRMAN GREEN adjourned the House Resources Committee meeting at 9:50 p.m.