Legislature(2017 - 2018)BUTROVICH 205
04/03/2018 03:30 PM STATE AFFAIRS
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HB 96-TAXES; DEDUCTIONS; FEES; TAX STAMP DISCOUNT 4:08:42 PM CHAIR MEYER announced the consideration of House Bill 96 (HB 96). 4:09:14 PM REPRESENTATIVE STEVE THOMPSON, Alaska State Legislature, Juneau, Alaska, Sponsor of HB 96, provided an overview as follows: House Bill 96 came about because 4 years ago we passed HB 306 which addressed indirect expenditures and it was passed and it's in the statutes now. Indirect expenditures are discounts that corporations can take against their state tax, it's a reduction in fees and things like that that we don't ever see, those fees never show up in the budget, we don't see them. So, HB 306 required that the Treasury Department every two years must make a report showing all of the foregone revenue that the state didn't receive due to indirect expenditures and discounts and reductions in fees; they make that report, they turn it over to Legislative Finance and they then produce a report that is passed out to all of the legislators so we can see the lost fees that we don't receive. HB 96 addresses 4 of those indirect expenditures and it will save the state or bring back to the state over $350,000. He added that his staff member would address the four indirect expenditures that HB 96 addresses. 4:10:44 PM FORREST WOLFE, Staff, Representative Thompson, Alaska State Legislature, provided an overview of HB 96 as follows: HB 96 repeals or removes 4 minor-indirect expenditures from state law which would provide a modest [inaudible] increased revenue to the State of Alaska. The first removes the deduction of federal taxes from the adjusted gross income when calculating the state tax collected on gambling onboard large cruise ships. The second is a provision that allows an investigation of expense under the Alaska Small Loans Act to replace a few required under the Alaska Businesses License Act. Third, it removes a four-tenths of one percent deduction from the tobacco tax for the expense of accounting and filing of that tax return each month. Finally, the fourth one is it repeals a discount on cigarette tax stamps which was originally intended to be compensation for physically affixing these stamps to the packages themselves. According to the fiscal note provided by the Department of Revenue, it is estimated that HB 96 will increase revenue by at least $339,500 if FY2019, of which about $220,000 will go to the unrestricted general fund. In this time of financial instability and economic hardship, the state needs to find increased revenue where ever it can, and HB 96 is a step in the right direction. CHAIR MEYER asked why the bill will generate revenue to the state. I noted that the state would no longer be paying for tax stamps to be placed on cigarettes packs. 4:12:53 PM REPRESENTATIVE THOMPSON explained that the state pays quite amount of money to cigarette companies to affix the tax stamp on the bottom of the pack of cigarettes. He specified that the expenditure was originally put into place so that the cigarette companies could pay for the equipment used to affix the tax stamps. He conceded that the tax-stamp equipment has been paid for many times over and the savings would be the largest amount of money from the legislation. He added that the discounts for filling out forms amounts to some money while the cruise ship tax is indeterminate and will be explained by Mr. Alper, [Tax Division Director]. CHAIR MEYER asked if each tobacco company affix tax stamps to their cigarette packs or does a single distributor affix tax stamps for all tobacco brands. REPRESENTATIVE THOMPSON replied that everyone must go through one machine. He specified that the state must pay for the tax stamp to be affixed to the cigarette packs. CHAIR MEYER asked to confirm that the state does not know if the equipment has been paid for and the equipment payoff is speculation. REPRESENTATIVE THOMPSON answered that if there is a cost that is going to happen for affixing the tax stamp, the cost will have to be added to a pack of cigarettes. He reiterated that the state continues to allow the fund to take a very large discount off corporate taxes. 4:15:07 PM SENATOR GIESSEL thanked Representative Thompson for bringing HB 96 forward and identifying four-indirect expenditures. She said she looked at the indirect expenses report and could hardly believe the expenditures that were in place. SENATOR EGAN asked to confirm that the tax stamps prove that "it's Alaska." He noted that he has friends that buy cigarettes from tribes in Washington state and the cigarette packs do not have tax stamps. REPRESENTATIVE THOMPSON explained that cigarettes sold commercially in the State of Alaska must have the state's tax stamp affixed. SENATOR EGAN replied that he understood the tax stamp requirement. REPRESENTATIVE THOMPSON specified that commercial sellers of cigarettes without the state's tax stamp are liable for a very large fine. He noted that people could possibly buy cigarettes online to avoid paying the tax. SENATOR EGAN asked if the cigarettes sold onboard cruise ships have the state's tax stamp. REPRESENTATIVE THOMPSON suggested Senator Egan's question be posed to Mr. Alper. CHAIR MEYER asked how other states deal with their cigarette tax stamps. REPRESENTATIVE THOMPSON replied that he does not know. He noted that there is a big movement across the nation to address indirect expenditures at the state level. He pointed out that indirect expenditures do not show up in a budget and nobody really sees how much money that are forgone. CHAIR MEYER asked how long the state has been dealing with indirect expenditures. REPRESENTATIVE THOMPSON suggested that Chair Meyer's question be posed to Mr. Alper. 4:18:14 PM KEN ALPER, Director, Tax Division, Alaska Department of Revenue, Juneau, Alaska, said three of four items in the bill relate to the Tax Division. He explained that the first item relates to the cruise-ship-gambling tax, which was a component of the initiative that put the $50 head tax on cruise ships in the 2006 election. He said large cruise companies file the gambling tax which is 33 percent of net profits tax on the activities while ships are in state waters. He detailed that the tax brings in about $6 million per year in general funds. He noted that the cruise ship gambling tax is one of ten excise taxes that includes: alcohol, tobacco, motor fuels, mining, tires, vehicle rental, marijuana, and remnants of the film-tax program. He explained that the two other items in the bill relate to the tobacco tax, the second item in the bill eliminates the four- tenths of one-percent discount for timely filing, an activity that is not unusual in the taxing world. He said the third item is eliminating the cigarette-tax-sticker discount. He explained that the tax is unusual because the stickers are presold to the tobacco distributors in Alaska. He detailed that the stickers are discounted by 1 to 3 percent, amounting to approximately $250,000. He noted that Alaska's cigarette tax annually brings in $20 million to $25 million to the state. 4:22:55 PM CHAIR MEYER noted that Senator Egan addressed cigarettes purchased from tribes without tax stamps and inquired if military bases have similar privileges. MR. ALPER replied that he did not know the military rules but noted that there are maritime tax-off stamps. He disclosed that the tax division has a criminal investigations unit. He concurred that there are online sources for cigarettes and noted that purchasing online is not inherently illegal, but the person that does purchase online is obligated to pay the state's excise tax, $20 per carton. CHAIR MEYER asked if Mr. Alper would like to see any changes or modifications to HB 96. MR. ALPER commented that elements within the bill are fine and noted that he would not have an issue if the committee addressed other indirect expenditures like an early filling discount for motor fuel. He pointed out that HB 399 is a bill that would eliminate some corporate income tax loopholes, savings that would amount to $6 million to $7 million. He summarized that bit-by-bit it is important to scoop up revenue that is "being left on the table," especially before adding any new taxes. 4:26:23 PM CHAIR MEYER said he questioned the gambling activities onboard the cruise ships and noted that the calculation of the tax was "kind of a mystery." MR. ALPER pointed out that the gambling tax only applies to large vessels with more than 500 passengers that are in state waters. He remarked that the gambling tax is not one that the division has massive resources to invest in auditing the timeclocks on the cruise ships' casinos, so a little bit of trust is involved with the tax collections. He said regarding what happens with the deduction of federal taxes and not being able to forecast their federal taxes, predicting what the number is hard but estimated that the amount is in the low six figures, a relatively small increment on top of the existing tax. 4:27:44 PM CHAIR MEYER opened and closed public testimony. 4:28:12 PM CHAIR MEYER held HB 96 in committee.