Interim Meeting Minutes

21.5052.03000 NORTH DAKOTA LEGISLATIVE MANAGEMENT Minutes of the TAXATION COMMITTEE Tuesday, September 24, 2019 Roughrider Room, State Capitol Bismarck, North Dakota Representative Jim Grueneich, Chairman, called the meeting to order at 10:00 a.m. Members present: Representatives Jim Grueneich, Jason Dockter, Sebastian Ertelt, Patrick Hatlestad, Craig Headland, Tom Kading, Ben Koppelman, Alisa Mitskog, Vicky Steiner; Senators Dwight Cook, Jim Dotzenrod, Jordan Kannianen, Curt Kreun, Dale Patten, Jessica Unruh Members absent: Representatives Jake G. Blum, Matt Eidson, Ron Guggisberg Others present: Senator Joan Heckaman, New Rockford, and Representative Josh Boschee, Fargo, members of the Legislative Management See Appendix A for additional persons present. It was moved by Representative Mitskog, seconded by Representative Dockter, and carried on a voice vote that the minutes of the July 23, 2019, meeting be approved as distributed. SPECIAL ASSESSMENT REVENUE REPLACEMENT STUDY Chairman Grueneich called on Mr. Keith Hunke, City Administrator, City of Bismarck, for a presentation of information (Appendix B) comparing the number of residences paying special assessments to the number of utility bills on which an additional street utility tax would be imposed, and information on the use of supplemental or replacement taxes in other states. Mr. Hunke said 9,805 parcels are being billed for special assessments for street maintenance. He said 22,182 parcels are receiving a city utility bill on which the additional street utility tax could be applied if the tax was imposed. He said fees other than special assessments are being imposed to fund street maintenance in Oshkosh, Wisconsin and Oregon City, Oregon and by the Montana Department of Transportation. In response to a question from Representative Headland, Mr. Hunke said the appeals process for the fees imposed in Oregon City allows an individual to file a request for a service charge adjustment with the city manager within 30 days of the billing date. He said the city manager may adjust the charge under certain circumstances. He said city fees charged in Bismarck are approved by the city commission on an annual basis. He said a public hearing is held to provide the public an opportunity to appeal the fees. He said if cities were to receive authorization to proceed with a street utility tax, the specifics of the tax would be vetted through a public hearing process. In response to a question from Senator Kreun, Mr. Hunke said Bismarck could not impose a street utility tax due to legislation passed during the 2017 legislative session which prevents a city from seeking voter approval for any funding mechanism that was not present in a city's home rule charter before August 1, 2017. He said the city requests the committee recommend legislation to repeal the restriction passed in 2017. He said it might be difficult to outline all the specific details of a street utility tax in statute. He said other city administrators have noted the details relating to the street utility tax envisioned for Bismarck might not work for all cities. In response to a question from Representative Koppelman, Mr. Hunke said cities are not looking to mandate imposition of the tax, but if a city imposed the tax it would need to refrain from charging special assessments to fund the same purposes. He said the tax would replace special assessment charges for street maintenance if it was imposed in Bismarck. He said special assessments still would be allowed for other purposes. He said he would support legislation that delineated between special assessments for green field development, new development, and infrastructure maintenance. In response to a question from Senator Cook, Mr. Hunke said he understands the value of having an appeal process outlined in statute. He said the appeals process could be similar to the process for appealing water and sewer charges. He said the appeals process would be separate from the process of taking the question of the tax to the voters for initial approval. North Dakota Legislative Council September 24, 2019 21.5052.03000 Taxation Committee In response to a question from Senator Cook, Mr. Hunke said each community would need to determine how to address existing special assessment debt. He said cities could subsidize a portion of existing special assessments with sales tax collections or dedicate the first of the street utility tax collections to pay off existing debt before starting street maintenance projects. He said using utility tax revenue to pay existing special assessment debt might raise concerns among individuals who prepaid special assessment balances. He said he would prefer legislation that is flexible enough to allow cities to address their own unique needs. He said a list of detailed statutory requirements pertaining to imposition of the tax likely would not meet the needs of all cities. In response to a question from Representative Koppelman, Mr. Hunke said the task force would need to vet whether the tax would be used to pay existing special assessment debt and whether the use of revenue for that purpose would raise legal concerns. Senator Unruh said any proposed legislation relating to the tax should contain protections for taxpayers to ensure they have a clear understanding of how the tax would operate and have the opportunity to be heard throughout the process. Senator Patten said he would like clarity on how a city would transition from imposing special assessments to imposing a street utility tax. He said the committee would need to determine whether proposed legislation would address the treatment of existing special assessment debt. Representative Koppelman said legislation introduced during the 2019 legislative session allowed special assessment debt to remain on properties but required street utility tax revenue to be used to pay the annual installments on existing debt. Representative Headland said the committee has several details to sort in regard to the tax and the bill introduced last session might serve as a good starting point for a bill draft. He said he is interested in proposed language relating to an appeals process and the treatment of existing special assessment debt. Senator Cook said it would be beneficial for committee members to contact the Chairman or the Legislative Council staff with any suggested changes to the language in House Bill No. 1474 (2019) so proposed changes could be discussed at the committee's next meeting. ECONOMIC DEVELOPMENT TAX INCENTIVES STUDY Chairman Grueneich called on Mr. Ryan Rauschenberger, Tax Commissioner, for a presentation (Appendix C) of information related to economic development tax incentives and online sales tax collections. Mr. Rauschenberger said the fiscal information on tax incentives supplements information previously provided to the committee. He said the information is being provided due to the department's receipt of a written request for information from the chairman of the Legislative Management. He said legislation enacted during the 2017 legislative session allows the department to disclose data on incentives claimed by five or fewer claimants upon receiving a request from the chairman of the Legislative Management. He said the exemption for data centers has been exhausted as it is limited to the first four claimants. He said no exemptions have been claimed for the fertilizer or chemical processing plant sales tax exemption as the exemption is specific to the feed stock of a certain type of plant. He said the sales tax exemption related to the use of carbon dioxide for enhanced recovery also has not been claimed as most projects associated with this exemption are in the feed study and engineering early project stages. In response to a question from Representative Ertelt, the Legislative Council staff said North Dakota Century Code Section 57-01-02(17) authorizes the disclosure of information on incentives claimed by five or fewer claimants. She said the letter signed by the chairman of the Legislative Management requested data on all the incentives the committee selected for study this interim. She said the department will continue to provide incentive data throughout the interim. Mr. Rauschenberger said the department received over 5,000 sales and use tax permit applications from remote sellers from June to August of this year. He said $16 million in sales tax has been collected from remote sellers during that period and the department expects collections to far exceed the $25 million collection amount forecast for this biennium. In response to a question from Senator Cook, Mr. Rauschenberger said the department notified marketplace sellers of their duty to collect sales tax starting October, 1, 2019, as a result of legislation passed during the 2019 legislative session. He said the department has seen evidence that marketplace sellers intend to collect the tax. CHARITABLE GAMING TAX STUDY Chairman Grueneich called on the Legislative Council staff for presentation of a background memorandum entitled Charitable Gaming Background Memorandum. The Legislative Council staff said the charitable gaming law North Dakota Legislative Council 2 September 24, 2019 21.5052.03000 Taxation Committee study outlined in Senate Bill No. 2015 (2019) has been assigned in part to this committee and in part to the Judiciary Committee. She said this committee will be studying only the tax aspects of charitable gaming. Chairman Grueneich called on Ms. Deborah A. McDaniel, Gaming Director, Attorney General's office, for a presentation of information (Appendix D) relating to charitable gaming tax collections, electronic pull tabs, and issues impacting the gaming division. Ms. McDaniel said gaming activities are expected to generate over $10 million in revenue for deposit in the general fund during the 2017-19 biennium. She said the gaming division anticipates an estimated $1 billion in gaming gross proceeds during the 2019-2021 biennium. She said the legalization of electronic pull tabs, combined with recent budget cuts, has placed a strain on the gaming division.

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