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ARIZONA STATE LEGISLATURE
Forty-eighth Legislature – First Regular Session
RESERVATION TELECOMMUNICATIONS
Minutes of Meeting
House Hearing Room 3 – 1:30 p.m.
CoChairman Hale called the meeting to order at 1:49 p.m. and attendance was noted by the secretary.
Senator Albert Hale, CoChair man Representative Tom Chabin, CoChairman
Senator Jay Tibshraeny Representative John Nelson
Senator Jake Flake Representative Bill Konopnicki
Ron Lee, Navajo Nation Telecommunication Regulatory Commission
Ernest Franklin, Navajo Nation Telecommunication Regulatory Commission
Gary Pierce, Arizona Corporation Commission (ACC)
Jeff Hatch-Miller, Arizona Corporation Commission
Elaine Smith, Arizona Department of Revenue (DOR)
Anthony Forshino, Arizona Department of Revenue
Percy Deal, Navajo County
Jesse Thompson, Navajo County
Norbert Nez, Technology Manager, Navajo Nation
Mark Goldstein, AZ Telecom & Information Council (ATIC)
Mary Etsitty, Office of the Navajo Tax Commission
Sean Laux, Senate Research Analyst
INTRODUCTION
CoChairman Hale introduced the staff and welcomed the Indian Nation leaders. He stated that this legislative study committee will be looking at the Transaction Privilege Tax (TPT) to help fund telecommunication needs on the reservations. He explained that the TPT is a sales tax that is imposed under State law on non-Indian-owned businesses located on Indian lands. Once the tax is collected and put into the State treasury, it is distributed as follows: 50 percent stays with the State, 30 percent goes back to the counties and 20 percent goes to municipalities located in the counties. Indian reservations do not have municipalities that are recognized under State law so none of the Indian communities receive TPT monies. Some monies may go back through the counties in terms of services or through intergovernmental agreements but, for the most part, TPT money never goes to the Indian Nations.
CoChairman Hale explained the inequity of this: the State does not put money into the cost of developing the sites where non-Indian businesses are established, yet the State imposes a TPT on these businesses. The focus of this committee is to make recommendations which will lead to legislation that will return some of the TPT monies to develop and maintain technology infrastructure on Indian lands.
PRESENTATIONS
Navajo Nation Telecommunication Legislative Study Committee
Ron Lee, Navajo Nation Telecommunication Regulatory Commission, thanked Members for helping to set up the Reservation Telecommunications Legislative Study Committee. He presented a comparison of the reservations and national telecom issues (Attachment 1). He identified the challenges faced in Arizona and discussed HB2689, which was passed this year to identify issues and to make recommendations to the Legislature.
Mr. Lee stated that the TPT is an identifiable source of money for the telecommunications project, and described the current TPT distribution schedule and collection history. He also discussed important reporting requirements in 2007.
Ernest Franklin, Navajo Nation Telecommunication Regulatory Commission, addressed the committee to describe the lack of infrastructure as the biggest hurdle to the success of the telecommunications project. He then discussed other goals and requirements of the project:
Mr. Franklin stressed the importance of funding to create the backbone and infrastructure for telecommunications for the Navajo Nation, and described how the communities would be linked. He stressed that the goal is to raise awareness that telecommunications is not a luxury; it is a necessity that is needed to enhance the economic opportunities of people in rural areas.
CoChairman Chabin asked for details about the Commission; Mr. Franklin explained that the Commission’s goals are to regulate telecommunications activities in the Navajo Nation and to promote a rapid expansion of the telecommunications network. They then discussed the possible use of high-speed fibre network with a price of around $4 million; Mr. Franklin explained that the network would provide voice, video and data transmission.
Arizona Corporation Commission
Gary Pierce, Arizona Corporation Commission (ACC), addressed the committee to provide an overview of Arizona Corporation Commission’s involvement with the Navajo Nation Telecommunications Regulatory Commission. He explained that the ACC regulates communications that utilize a wire, but, in the case of a fibre network, the ACC would not. He discussed right-of-way issues and the importance of telecommunications for all of Arizona. He stated that the wish of the ACC is to ensure that everyone in Arizona is interconnected.
CoChairman Chabin asked why the wiring of small, rural community is as costly as that of big, urban areas. Mr. Pierce replied that the greater demand in populated areas probably keeps those costs down. CoChairman Chabin suggested that perhaps a tax or a commission could implement a fee to users to make the service more universal. Mr. Pierce replied that the Legislature has that authority, not the ACC.
CoChairman Chabin reiterated the importance of universal access throughout the state, regardless of county or tribal boundaries. Mr. Pierce replied that the economic development of Arizona requires infrastructure and it is a statewide policy issue.
CoChairman Hale asked if tribal governments have jurisdiction over telecommunications services on tribal lands. Mr. Pierce replied that the ACC has jurisdiction over wired services, but that the tribe should be able to do it as long as the guidance is there from the ACC to ensure that the playing field is level for the providers; he cited the example that cities can regulate their own water.
Jeff Hatch-Miller, Arizona Corporation Commission, stated that the federal government is involved and that this is a money issue. He discussed the different telecommunications options: wire, fibre optics, DSL, satellite, broadband, etc. He stressed that each option has different regulatory issues and that some are regulated by the FCC. He stated that if the tribe gets the money to build the infrastructure, it would then have the authority, even with FCC involvement.
Arizona Department of Revenue
Elaine Smith, Arizona Department of Revenue (DOR), addressed the committee to discuss the TPT monies that are collected on the reservation; she distributed specific information (Attachment 2) regarding how businesses file, what is done with the money, how much goes to the tribes, and a sample TPT return from out-of-state retail businesses.
Ms. Smith stated that state-level data has been collected since legislation was passed in 1991; she clarified that county-level data is not collected. She then explained the procedures that businesses follow in order to file their collected TPT monies, using the sample TPT return.
CoChairman Chabin asked about the tax rate of 6.3 percent which retail businesses must collect; Ms. Smith replied that it is a state sales tax, a combination rate for: the state (5 percent), education (.6 percent), and Maricopa County (.7 percent).
CoChairman Chabin then asked if this was also collected from people who are exempt from paying this tax; Ms. Smith explained that if the transaction is taxable for that business and customer, then the tax must be collected.
CoChairman Chabin cited an example of a Navajo and a non-Navajo each buying an item at a retail store on the reservation and asked if this tax would be collected from the Navajo resident, as an exempt person.
Anthony Forshino, Arizona Department of Revenue, replied that this is not a sales tax, it is a TPT tax. He stated that the business is taxed, not the customer, so the business would not collect the tax from the customer, but would pay the tax and most likely pass the cost on to the customer, but not as a tax. He stated that in this instance, if the business is run by a tribal member, the sale to a Navajo would not be taxed and the sale to the non-Navajo would be taxed. He added that if the business is not owned by a tribal member, then both transactions would be taxed.
CoChairman Chabin requested further clarification on the TPT taxes as applied by businesses owned by non-natives. Mr. Forshino stated that he will check on that and reply to the committee. CoChairman Hale asked that the information be given to Sean Laux, Senate Research Analyst.
CoChairman Hale stated that the infrastructure development and services for these businesses are not undertaken by the state, but by the reservation, and that there is an inequity when these TPT monies do not make their way back to the tribes.
Senator Tibshraeny clarified that the state-shared revenues do not return to the tribes, whereas cities and towns do receive the revenue, and he asked if the tribe has the authority to implement their own TPT. CoChairman Hale explained that the Navajo Nation does have a sales tax that is imposed on businesses, similar to the TPT, and that a non-Indian-owned business on the reservation would pay two taxes, which, he stated, raises another issue of double taxation which can deter some businesses from coming onto the reservation.
Ms. Smith went on to explain the distribution of the TPT monies:
CoChairman Chabin asked for explanations of various tax-based terms on Ms. Smith’s report. She replied that she cannot disclose specific business information, and identified TPT, severance, and use taxes, which are state tax collections from sources located on the reservations.
CoChairman Hale thanked her for her presentation.
DISCUSSION AND POSSIBLE RECOMMENDATIONS
Percy Deal, Navajo County, stated his wish that this committee continue its research and that all of the tax and funding numbers be clarified. Mr. Deal discussed the Navajo Road Program and distributed information to the committee (Attachments 3, 4, 5, & 6).
CoChairman Hale asked about the reconciliation of the DOR and Navajo Tax Commission numbers. Mr. Deal replied that Navajo staff members contacted the DOR but were unable to get the relevant numbers from them; he requested the Senator’s help to obtain these numbers.
CoChairman Hale commented that it is important to have some idea how the monies total such a large amount and that it is his understanding that they are a combination of TPT, use tax, and severance tax dollars. He stated that additional clarification is needed.
Jesse Thompson, Navajo County, addressed the committee to encourage further clarification of the funding numbers. He stressed that the Navajo County is committed to making life better on the reservations, including using general fund dollars to renovate public buildings, to support the high-speed internet project, and to improve the transportation system.
CoChairman Chabin stated that he would like to hear discussion from the counties regarding what structure could be used to accomplish the taking of some of the monies and directing them back to the tribes, particularly since some tribes cross county boundaries.
CoChairman Hale asked Mr. Thompson to provide a list of his questions to Senate staff.
Norbert Nez, Technology Manager, Navajo Nation, described the proposed system for the internet backbone to be made up of high-speed microwave links of the major communities which would cost $4 million. This would form the core trunk of the entire system, an important piece that is not yet in place. This also would relieve the telecommunications providers of the effort to maintain the infrastructure. Mr. Nez stated that the ultimate goal is to build out in fiber.
CoChairman Chabin asked about the cost to build in fiber; Mr. Nez replied that a mix of fiber and microwave would cost about $150 million, and that would connect every community beyond the core trunk.
Mark Goldstein, AZ Telecom & Information Council (ATIC), addressed the committee to explain that ATIC has existed for about twelve years as an essential infrastructure unit to help Arizona flourish during the 1990’s.
He discussed right of way and funding for telecom systems and described the possibility of an initiative that could garner economic development funding to address the core trunk issue.
Mr. Goldstein described the several aspects of the digital divide:
He offered his group, with its variety of stakeholders, as a sounding board for this project.
CoChairman Hale asked about the possibility of bonding and the grants that he mentioned; Mr. Goldstein replied that bonding authority has not yet been discussed, but that grants have been discussed for non-municipal population centers.
Mr. Lee clarified that the Greater Arizona Development Authority addresses the technical assistance component as differentiated from the funding component.
Mary Etsitty, Office of the Navajo Tax Commission, stated that the Navajo Nation does have its own tax system, which includes a sales tax (Attachment 7). She clarified that Indians do pay all sorts of taxes, including state and local sales taxes and federal income taxes.
Ms. Etsitty stated that her interpretation of the TPT is that it is non-Indian to non-Indian. She then informed the committee about the tax-sharing agreements that the State of Arizona has with the Navajo Nation, which include fuel excise and tobacco taxes.
CoChairman Chabin asked about the gasoline tax; Ms. Etsitty replied that the Navajo Nation collects the tax and does remit to the State.
CoChairman Hale commented on the complexity of the tax structures.
CoChairman Chabin spoke to the fact that Native American services are available to all individuals passing through or visiting the reservations.
CoChairman Hale stated that Indian Nations are governments with all the attendant infrastructure and services, yet are not allowed to impose taxes to support those. He stated that the Supreme Court seems to view the Nations as social organizations, rather than government entities. He stated that education of youth may be the only way to get beyond this misunderstanding so that there will be an understanding that Indian Nations are indeed viable, sovereign entities that predate the Constitution, that predate the formation of state governments.
CoChairman Chabin stressed the importance of this discussion to give authority to the tribes.
CoChairman Hale submitted the Reservation Telecommunications Legislative Study Committee Presentation, February, 2007 (Attachment 8).
Sean Laux, Senate Research Analyst, explained that the statutory authority governing this committee expires at the end of the year, absent some legislation to continue the committee. He stated that an alternate option would be to approach the Speaker and the President to continue the committee on an ad hoc basis with the same charge. Mr. Laux said he would draft such a letter.
CoChairman Chabin submitted the Arizona State Legislature Reservation Telecommunications Legislative Study Committee meeting in Flagstaff, September, 21, 2007 (Attachment 9).
CoChairman Hale could not allow a motion due to the lack of a quorum, but stated that there will be another meeting to discussion the collection of the taxes.
Without objection, the meeting adjourned at 4:58 p.m.
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Jane Dooley, Committee Secretary
October 25, 2007
(Original minutes, attachments and audio on file in the Office of the Chief Clerk; video archives available at http://www.azleg.gov/)
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RESERVATION TELECOMMUNICATIONS
LEGISLATIVE STUDY COMMITTEE
2
October 25, 2007
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