House committee hears bill to eliminate tax discounts

The Alaska House Labor and Commerce Committee heard Senate Bill 164 on Monday. The bill would eliminate several tax discounts and deductions, raising nearly $500,000 annually for the state.

Senator Kelly Merrick of Chugiak-Eagle River presented the bill. It targets tax breaks identified in the state's Indirect Expenditure Report as potentially obsolete. The Department of Revenue and Legislative Finance Division publish the report every other year. It analyzes where Alaska may be foregoing revenue.

"This is an itty-bitty tax bill," Merrick said. "It is not creating a new tax. It is eliminating tax discounts and deductions." She added that the recovered funds "can be included in the capital budget to fund education or public safety and more."

The bill removes five separate tax breaks. Section 1 eliminates the timely filing credit for motor fuel taxes, enacted in 1951 and last amended in 1997 or 2015. About 83 companies currently benefit from the credit, receiving no more than $1,200 per year each. The change would recover an estimated $68,000 annually.

Section 2 removes the tobacco products tax commission deduction, instituted in 1988 and last amended in 1997. The deduction was intended to cover expenses of accounting for and remitting tobacco taxes to the state. Roughly 30 companies benefit from this deduction, totaling just over $2,200 per year per company. Legislative Finance recommended ending it. The division stated the reduction may be obsolete given that online tax payments have significantly simplified the process. This section would recover an estimated $52,000 annually.

Sections 3 and 4 eliminate the cigarette stamp tax discount. The legislature instituted this discount in 2003 to defray the costs of purchasing new equipment required for stamping cigarettes. At the time, the machine cost $75,000 and the discount was up to $50,000. The stamps are affixed to acknowledge taxes have been paid on the cigarettes. Today, these machines have been purchased and the stamping is largely done out of state. Legislative Finance recommended ending the discount. The division stated the stamps should be considered a cost of doing business when selling cigarettes in Alaska. Eight companies benefit from this discount to the tune of $40,000 per year per company. These sections would recover $308,000 annually.

Section 5 largely repeals the tire fee timely filing discount. Like the other timely filing discounts in the bill, not all taxpayers receive a discount for paying their taxes on time. Roughly 56 companies use this discount, retaining about $600 each. This section would recover roughly $38,000.

Representative Dan Saddler said he supported the philosophy behind the bill. "The expectation that people will pay their taxes on time is a reasonable one," Saddler said. "To give them a discount or a bonus for doing what they should be doing anyway is maybe the state being a little too generous."