Bill Summary – FastDemocracy

State of Alaska
                                                               Fiscal Note
                                                                                                     Bill Version:                    CSSB 132(FIN)
 2024 Legislative Session
                                                                                                     Fiscal Note Number:              4
                                                                                                     (S) Publish Date:                2/29/2024
 Identifier:        SB132-DOR-TAX-02-09-24                                             Department:       Department of Revenue
 Title:             EMPLOYMENT TAX FOR EDUCATION                                       Appropriation: Taxation and Treasury
                    FACILITIES                                                         Allocation:       Tax Division
 Sponsor:           BISHOP                                                             OMB Component Number:              2476
 Requester: (S) FINANCE
 Expenditures/Revenues
 Note: Amounts do not include inflation unless otherwise noted below.                                                                       (Thousands of Dollars)
                                                 Included in
                                    FY2025       Governor's
                                Appropriation      FY2025                                                   Out-Year Cost Estimates
                                  Requested       Request
 OPERATING EXPENDITURES               FY 2025        FY 2025       FY 2026                             FY 2027           FY 2028            FY 2029        FY 2030
 Personal Services                       966.9                        966.9                               966.9             966.9              966.9          966.9
 Travel                                     5.0                         5.0                                 3.0               3.0                3.0            3.0
 Services                                138.5                      1,138.5                             1,138.5           1,138.5            7,138.5        1,138.5
 Commodities                             133.8                         21.8                                21.8              27.1               27.1           27.1
 Capital Outlay                           12.0                                                                                                                 12.0
 Grants & Benefits
 Miscellaneous
 Total Operating                       1,256.2            0.0       2,132.2                             2,130.2           2,135.5            8,135.5        2,147.5
 Fund Source (Operating Only)
 1004 Gen Fund (UGF)                            1,256.2                               2,132.2           2,130.2           2,135.5            8,135.5        2,147.5
 Total                                          1,256.2               0.0             2,132.2           2,130.2           2,135.5            8,135.5        2,147.5
 Positions
 Full-time                                           8.0                                  8.0                8.0                8.0              8.0             8.0
 Part-time
 Temporary
 Change in Revenues
 1004 Gen Fund (UGF)                          10,700.0                               14,300.0          14,300.0          14,400.0          14,400.0        14,400.0
 Total                                        10,700.0                0.0            14,300.0          14,300.0          14,400.0          14,400.0        14,400.0
 Estimated SUPPLEMENTAL (FY2024) cost:                                         10,000.0         (separate supplemental appropriation required)
 Estimated CAPITAL (FY2025) cost:                                              0.0              (separate capital appropriation required)
 Does the bill create or modify a new fund or account?       No
 (Supplemental/Capital/New Fund - discuss reasons and fund source(s) in analysis section)
 ASSOCIATED REGULATIONS
 Does the bill direct, or will the bill result in, regulation changes adopted by your agency?                        Yes
 If yes, by what date are the regulations to be adopted, amended or repealed?                                        12/31/25
 Why this fiscal note differs from previous version/comments:
 Updated from SLA2023 to SLA2024 fiscal note template. The fiscal analysis has been updated to incorporate Department of Labor
 population projections and the most recent population actuals. Personal services costs have also been updated to reflect FY2025
 rates.
 Prepared By:                Brandon Spanos, Acting Director                                                               Phone:         (907)269-6736
 Division:                   Tax Division
                                                                      REPORT                                               Date:          02/05/2024 03:00 PM
                                                                                    ED
                                                                       SFC 02/2 OUT OF
 Approved By:                Eric DeMoulin, Administrative Services Director                                               Date:          02/09/24
 Agency:                     Department of Revenue
                                                                                     9/2024
Printed 2/29/2024                                                       Page 1 of 3                                                                Control Code: bWrUN
                                                                                                            CSSB 132(FIN) - Fiscal Note 4
                                                  FISCAL NOTE ANALYSIS
STATE OF ALASKA                                                                    BILL NO. SB 132
2024 LEGISLATIVE SESSION
Analysis
   Background
   This bill would enact a tax on both wage and self‐employment income. The tax would be payable by residents on income,
   wherever earned, and by nonresidents on income earned in Alaska. The amount of the tax is a flat $30 per person each
   year. The bill would require employers to withhold $30 from an employee's first paycheck of the year, in most cases, and
   remit the tax to the state. An employer would be liable for the tax, and a penalty, if it failed to withhold and remit the tax.
   This bill would require self‐employed individuals to file and pay the tax with the Department of Revenue (DOR) in
   accordance with regulations adopted by the DOR. Resident individuals with wage income entirely from sources outside
   the state would also be required to file and pay the tax.
   There would likely not be a need for the majority of taxpayers to file a return since the tax is a very simple, flat rate with a
   one‐time withholding in most cases. Wage earners in Alaska would simply have their $30 withheld from their first
   paycheck of the year and would not need to file anything with the DOR unless they had multiple jobs and had the $30
   withheld more than once. In that case, the taxpayer would need to file for a refund claim. Self‐employed individuals and
   residents with income from sources entirely outside the state would need to file and pay taxes with the DOR. The bill
   allows for the Department of Labor and Workforce Development (DOLWD) to collect or coordinate collection and
   reporting of the tax. However, since not all taxpayers interface with DOLWD (e.g., residents who earn all their wages
   outside the state) the DOR believes it is better suited to collect the tax.
   This bill would tax only wages and self‐employment income. Dividends, capital gains, pensions, and other forms of income
   would not be taxed.
   Revenue Impact
   Our estimate is based on solid wage earner data and on less solid self‐employment data. As the taxpayer base, we
   estimate about 413,000 resident wage earners and resident self‐employed individuals and about 62,000 nonresident wage
   earners and nonresident self‐employed individuals.
   This revenue analysis assumes an effective date of January 1, 2025, and that FY2025 revenue would be for only the second
   half of the fiscal year. However, since the tax is a flat amount withheld from the first paycheck of the calendar year, we are
   estimating FY25 revenue at 75% of the amount that would be collected in a full year.
   Implementation Cost
   The $10 million supplemental request reflects an estimate for our contract with FAST Enterprises to develop a new
   module for this tax type in our Tax Revenue Management System (TRMS). The breakdown of that cost is an estimated $8
   million for development, and an extra $2 million for an expedited rollout because of such a short timeline for
   programming and implementation before the effective date. This is also the reason for a supplemental request as opposed
   to our usual capital request‐‐the need to expedite the development. In addition to the tax return filing and examination
   functions, the contractor will need to provide for the associated databases, forms, communications, and integration with
   our existing imaging, accounting, and collections modules. There would also be an online component to allow taxpayers to
   file, pay and request refunds electronically. Services would increase in FY2026 and forward as it is the first year of
   additional maintenance and support of the new TRMS modules after rollout, which would be approximately $1 million per
   year.
(Revised 10/31/23 OMB/LFD)                                                                                             Page 2 of 3
SB132-DOR-TAX-02-09-24                                           Page 2 of 3                                                Control Code: bWrUN
                                                                                                           CSSB 132(FIN) - Fiscal Note 4
                                                  FISCAL NOTE ANALYSIS
STATE OF ALASKA                                                                    BILL NO. SB 132
2024 LEGISLATIVE SESSION
Analysis
   Currently, the DOLWD administers the Employment Security Tax, which establishes a relationship for data and tax
   collection with most employers in Alaska. It is possible that some efficiencies could be achieved by linking these databases.
   However, the proposed legislation adds at least two major functions that do not exist within the Employment Security Tax.
   These are: (1) receiving and processing individual (rather than employer aggregated) tax returns as well as direct payments
   from self‐employed individuals, and (2) providing refunds in the event of overpayment.
   Even though this bill would create a very large tax base, the tax is simple and could be administered by a relatively small
   group. Our initial analysis is that we would need to add 8 new employees to implement this tax.
   Additional travel is largely for public education efforts, as well as the need to train new staff on the tax management
   system. Cost for services reflects primarily internal core services paid to other state agencies, due to additional staff within
   the Tax Division.
(Revised 10/31/23 OMB/LFD)                                                                                            Page 3 of 3
SB132-DOR-TAX-02-09-24                                          Page 3 of 3                                                Control Code: bWrUN
Statutes affected: 
SB0132A, AM SB 132, introduced 04/21/2023: 23.05.060, 43.45.021, 43.45.011, U.S.C, 43.45.031, 43.05.245, 43.45.041, 43.05.280, 23.20.165, 43.45.051, 43.45.061, 37.05.560, 43.45.099
SB0132B, AM CSSB 132(FIN), introduced 03/01/2024: 23.05.060, 43.45.021, 43.45.011, U.S.C, 43.45.031, 43.05.245, 43.45.041, 43.05.280, 23.20.165, 43.45.051, 43.45.061, 37.05.560, 43.45.099