"An Act relating to the levy and collection of sales and use taxes, and to the levy, collection, and expenditure of municipal taxes; and providing for an effective date."

The State of Alaska's revenue structure is heavily dependent on the production and price of oil. The production of oil in Alaska has steadily declined over the years, and with national and local environmentalists' opposition to exploration and development of oil and gas in the Arctic National Wildlife Refuge and the National Petroleum Reserve, experts predict an irreversible decline in production.

Over the last decade, the State of Alaska has closed its budget deficit by borrowing funds from the Constitutional Budget Reserve (CBR). Office of Management and Budget (OMB) forecasts predict that under current budget levels, oil production, and oil prices, the CBR will no longer have funds available to transfer to the General Fund within the next several years. OMB's forecast assumes no major rise in state expenditures and predictable oil prices. A major dip in world oil prices or major increases in the cost of education or formula-driven programs will undoubtedly turn a general fund budget deficit into a true fiscal crisis.

Unless other sources of revenue are enacted, it is only a matter of time before the Governor and the State Legislature will be forced to enact draconian taxes - which may ravage the state's economy and overburden taxpayers - or will be forced to enact draconian cuts that will devastate Alaska's schools, leave infrastructure to deteriorate, and leave the most vulnerable Alaskans out in the cold.

Recognizing the current and future budget realities, SB 366 is proposed for consideration.

SB 366 as proposed would institute a statewide 3% tax on the sale, lease, rental, or use of tangible personal property and services within the state. The tax is caped at $60 per purchase.

This proposal also includes a revenue sharing component for communities that currently have a local sales tax. Communities with a local sales tax at 3% or above would be remitted a portion of the state's 3% sales and use tax. A transition period for communities with less than a 3% sales and use tax is provided.

In jurisdictions with two taxing authorities (i.e. Kenai Peninsula Borough and the City of Soldotna), the sales tax would be combined for the purposes of calculating the remittance of the state's share. Each taxing authority would receive a proportional amount of the state's 1% remittance.

Exemptions from the sales and use tax include:

• Government agencies
• Purchases with food stamps or WIC program benefits
• Isolated or occasional sales, leases, rents, and services
• Healthcare services by licensed providers
• Prescription drugs and medical equipment prescribed by licensed providers
• Utilities
• Sale for resale
• Goods used for the purposes of manufacturing & industrial materials
• Transportation of persons and goods
• Property and services used in the development of natural resources
• Wages, salaries, and tips
• Financial services
• Sale, lease, or rental of Real Property and construction of Real Property
• Sale, lease, or rentals made in communities with a population of less than 500.

SB 366 would streamline the administration of all sales and use taxes under the responsibility of the state, resulting in cost savings to local communities and predictable administration for businesses. This legislation allows the state to contract with local communities for field offices, thereby working with local communities in the collection of the tax.

I would appreciate your support.

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