Legislature(2015 - 2016)

2016-07-11 Senate Journal

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2016-07-11                     Senate Journal                      Page 3057
SB 5002                                                                                                                       
SENATE BILL NO. 5002 BY THE SENATE RULES COMMITTEE                                                                              
BY REQUEST OF THE GOVERNOR, entitled:                                                                                           
          "An Act relating to the exploration incentive credit;                                                                 
          increasing the motor fuel tax; increasing the taxes on                                                                
          cigarettes and tobacco products; taxing electronic                                                                    
          smoking products; adding a definition of 'electronic                                                                  
          smoking product' and requiring labeling of an                                                                         
          electronic smoking product; increasing the excise tax                                                                 
          on alcoholic beverages; relating to exemptions from                                                                   
          the mining license tax; removing the minimum and                                                                      
          maximum restrictions on the annual base fee for the                                                                   

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          reissuance or renewal of an entry permit or an                                                                        
          interim-use permit; increasing the mining license tax                                                                 
          rate; relating to mining license application, renewal,                                                                
          and fees; increasing the fisheries business tax and                                                                   
          fishery resource landing tax; relating to refunds to                                                                  
          local governments; and providing for an effective                                                                     
was read the first time and referred to the Labor and Commerce and                                                              
Finance Committees.                                                                                                             
The following fiscal information was published today:                                                                           
 Fiscal Note No. 1, Department of Fish and Game                                                                                 
 Fiscal Note No. 2, Department of Revenue                                                                                       
Governor's transmittal letter dated July 8:                                                                                     
Dear President Meyer:                                                                                                           
Under the authority of Article III, Section 18, of the Alaska                                                                   
Constitution, I am transmitting a bill relating to taxation, including the                                                      
tax on motor fuel, the tax on tobacco products and taxing electronic                                                            
smoking products, the excise tax on alcoholic beverages, the mining                                                             
license tax, the fisheries business tax and fisheries landing tax, and                                                          
fees for commercial fisheries entry or interim use permits.                                                                     
This is a necessary measure to address our fiscal situation. My                                                                 
approach is a broad based tax bill to address Alaska's current and                                                              
projected budget deficits. Our current revenue decrease has made it                                                             
necessary to update our tax laws because for too long many industries                                                           
have been under-taxed. My proposed measures, while modest, will                                                                 
make a significant difference to the State's budget shortfall.                                                                  
The bill would increase outdated tax rates on motor fuels with                                                                  
increases on all types of motor fuel including aviation gasoline, motor                                                         
fuel used in and on watercraft, and aviation fuel other than gasoline.                                                          
The tax on a gallon of motor fuel used or transferred within the state                                                          
would be raised from eight cents a gallon to 16 cents a gallon.                                                                 
Likewise, the tax on aviation gasoline would be raised to seven cents a                                                         
gallon (the current rate is four and seven-tenths), the tax on marine                                                           

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fuel would be raised to ten cents a gallon (the current rate is five                                                            
cents), and the tax on aviation fuel other than gasoline (including jet                                                         
fuel) would be six and one-half cents a gallon (the current rate is three                                                       
and two-tenths). The bill would also double the credit for highway fuel                                                         
used to operate an internal combustion engine off-road, from six cents                                                          
a gallon to 12 cents a gallon.                                                                                                  
The bill would update our cigarette taxes and would allow us for the                                                            
first time to collect a tax on electronic smoking products. Smoking                                                             
technology has advanced beyond single use paper-rolled cigarettes to                                                            
include multiple use electronic smoking products. Therefore, our                                                                
tobacco tax statutes (AS 43.50 Cigarette Tax Act) should be revised to                                                          
include this new product. To further update our outdated tobacco tax                                                            
structure, I propose to amend the additional tax levy on cigarettes -                                                           
which has not been raised since 2007 - from 62 mills to 112 mills.                                                              
This equals an increase of five cents per cigarette, or one dollar per                                                          
standard pack. I also propose increasing the tax rate on tobacco                                                                
products (other than cigarettes) from 75 percent of the wholesale price                                                         
to 100 percent of the wholesale price. These reasonable adjustments                                                             
will bring our tax structure up to date.                                                                                        
The alcoholic beverage tax rates have not been raised for many years.                                                           
Therefore, the bill would increase the tax rates on alcoholic beverages                                                         
under AS 43.60 (excise tax on alcoholic beverages). Alcoholic                                                                   
beverage excise taxes are levied on malt beverages, cider with at least                                                         
0.5 percent alcohol, wine, and other beverages with a higher alcohol                                                            
content. The bill would double the tax rates on each gallon or fraction                                                         
of a gallon. As a result, the excise tax on malt beverages or cider                                                             
would be $2.14 a gallon or fraction of a gallon; the tax on wine or                                                             
other beverages would be $5.00 a gallon or fraction of a gallon; and                                                            
the tax on beverages containing more than 21 percent alcohol by                                                                 
volume would be $25.60 a gallon. The tax on the first 60,000 barrels                                                            
of beer from small craft breweries, as defined by the federal                                                                   
government, would be increased to 70 cents a gallon. I believe these                                                            
proposed increases are reasonable, especially considering the high                                                              
societal cost of alcoholic beverage consumption. Under this bill, the                                                           
alcoholic beverage industry would bear a fairer share of industry costs                                                         
to the state, yet still continue as an economically healthy industry.                                                           

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The bill also would amend AS 43.60.040(a) related to surety bonds for                                                           
alcoholic beverage taxpayers. Current law requires a $25,000 surety                                                             
bond before a license is issued. This amount is out of date as many                                                             
wholesalers would require a surety bond much greater than that to                                                               
protect the State's interests. At the same time very small brewers and                                                          
distillers may require a smaller surety bond. The bill proposes to                                                              
amend AS 43.60.040(a) to delete the $25,000 bond and instead add                                                                
language that the surety bond amount would be determined by the                                                                 
Department of Revenue.                                                                                                          
The mining industry is important to the State, but the current Mining                                                           
License Tax rates are too low to maintain. My proposal makes                                                                    
necessary adjustments to the tax imposed on mining operations,                                                                  
including changing the exemption from paying the mining license tax                                                             
for new operations from three and one-half years after production                                                               
begins to a more reasonable two years. This provides a sustainable                                                              
balance between assisting new mining operations and taxing revenues                                                             
from those operations. Additionally, the bill would change the way the                                                          
mineral and coal deposit exploration incentive credits are used by                                                              
removing the ability to apply the credit against mineral royalty                                                                
production payments. The bill also would increase the mining license                                                            
tax rate from seven percent to nine percent for that portion of net                                                             
income in excess of $100,000.                                                                                                   
Further, the bill would increase the tax rates of the fisheries business                                                        
tax (AS 43.75.015) and the fishery resource landing tax (AS                                                                     
43.77.010). The tax rates covered by these statutes vary from three                                                             
percent to five percent of value, depending on the type of fishery. The                                                         
bill would increase those tax rates by one percentage point across the                                                          
board. Currently, the revenue generated by these taxes is split evenly                                                          
between the State and the municipalities where the fisheries are                                                                
located. The bill would exempt this one percent increase from the                                                               
revenue sharing arrangement, thereby insuring that the entire increase                                                          
is applied to the general fund. Some developing fisheries are exempted                                                          
from the increase.                                                                                                              
Finally, the bill eliminates the cap on the annual fees charged by the                                                          
Commercial Fisheries Entry Commission. This fee, which is tied to a                                                             
percentage of the value of a fishery, is currently capped at $3,000 per                                                         
year, providing a substantial advantage to the largest and most                                                                 
profitable fisheries.                                                                                                           

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The citizens of our state are ready to pitch in to solve our fiscal crisis.                                                     
My measures, by involving a broad base of industries, would result in                                                           
each industry bearing a small share of needed tax changes. Together                                                             
we can continue to assure Alaska's strong and stable financial future.                                                          
I urge your prompt and favorable action on this measure.                                                                        
Bill Walker