Legislature(2011 - 2012)BARNES 124

03/11/2011 03:15 PM LABOR & COMMERCE


Download Mp3. <- Right click and save file as

* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+= HB 155 PUBLIC CONSTRUCTION CONTRACTS TELECONFERENCED
Heard & Held
+= HB 122 NATUROPATHS TELECONFERENCED
Heard & Held
+= HB 118 RESEARCH AND DEVELOPMENT TAX CREDIT TELECONFERENCED
Moved CSHB 118(L&C) Out of Committee
+ Bills Previously Heard/Scheduled TELECONFERENCED
           HB 118-RESEARCH AND DEVELOPMENT TAX CREDIT                                                                       
                                                                                                                                
3:26:25 PM                                                                                                                    
                                                                                                                                
CHAIR OLSON announced  that the first order of  business would be                                                               
HOUSE  BILL  NO. 118,  "An  Act  relating  to  a tax  credit  for                                                               
corporate   income  taxes   paid  for   qualified  research   and                                                               
development expenditures; and providing for an effective date."                                                                 
                                                                                                                                
3:27:00 PM                                                                                                                    
                                                                                                                                
CURTIS  THAYER,  Deputy  Commissioner,  Department  of  Commerce,                                                               
Community & Economic Development  (DCCED), stated that innovation                                                               
can be expensive  and time consuming.  It can  also spark a chain                                                               
reaction of investments  and capital that spills  over into every                                                               
sector of our  economy.  Forty other states  have recognized that                                                               
by  establishing a  tax credit  for research  and development  in                                                               
addition  to  demonstrating  economic   benefits,  gives  them  a                                                               
competitive  advantage over  Alaska.   This bill,  HB 118,  would                                                               
address this  issue by establishing  a 20 percent tax  credit for                                                               
qualified  research   and  development  conducted   by  corporate                                                               
taxpayers in  Alaska.   In effect,  the research  and development                                                               
tax   credit   would   stimulate   private   sector   investment,                                                               
entrepreneurial activity,  and business expansion in  Alaska.  It                                                               
would  bring  opportunity  and   sustain  long-term  benefits  to                                                               
Alaska's economy.   This bill would allow  Alaska corporations to                                                               
receive a  20 percent tax credit,  not to exceed $10  million per                                                               
taxpayer, per tax year.   The research and development activities                                                               
or the employee  payroll must take place in Alaska.   In a recent                                                               
column  in  the Juneau  Empire,  University  of Alaska  Fairbanks                                                               
Chancellor   Brian  Rogers   recognized   tangible  benefits   to                                                               
incentivize homegrown  research and development.   He paraphrased                                                               
Mr.  Roger's comments  that the  Governor's proposal  on research                                                               
and  development tax  credit has  the potential  to significantly                                                               
boost  Alaska's  economic  development  in  Alaska.    Chancellor                                                               
Rogers has long recognized the  value of partnering the knowledge                                                               
and  expertise  of  university  researchers  with  the  needs  of                                                               
communities  and  private  businesses  across  the  state.    The                                                               
University of Alaska  has a robust research program  that has led                                                               
to  technology  development in  areas  directly  relating to  the                                                               
needs  of  the  state's economy  including  energy,  engineering,                                                               
geophysics, petroleum, mining,  health sciences, and agriculture.                                                               
Mr.  Rogers   explained  how  UAF's   newly  created   office  of                                                               
intellectual property  and commercialization could  augment these                                                               
efforts  and  facilitate  new  partnerships  that  will  work  to                                                               
commercialize intellectual  property technology created  by UAF's                                                               
efforts.                                                                                                                        
                                                                                                                                
3:29:38 PM                                                                                                                    
                                                                                                                                
MR.  THAYER continued.   The  UAF's efforts  will offer  a strong                                                               
complement to the Governor's proposal.   In most states a healthy                                                               
private  research  and development  sector  work  in tandem  with                                                               
university research.  This has not  been the case in Alaska since                                                               
very  little research  and development  has  occurred in  Alaska.                                                               
The  research  and  development  tax  credit  could  change  this                                                               
dynamic.   Independent  research and  development could  create a                                                               
ripple  effect  that  benefits  more  than  just  the  businesses                                                               
involved.    He  referred  to  a 2005  Federal  Reserve  Bank  of                                                               
Cleveland  study which  examined economic  drivers for  state per                                                               
capita income.  The study  indicated the greatest factors related                                                               
states'  innovation and  workforce development.   A  research and                                                               
development   tax  credit   would   incentivize  innovation   and                                                               
contribute to specialized  work forces.  In turn  this would lead                                                               
to an  entrepreneurial activity business  expansion in  the state                                                               
that would bring jobs and economic opportunity to Alaskans.                                                                     
                                                                                                                                
MR. THAYER related that the  bill's details indentify the kind of                                                               
research  which would  qualify for  the research  and development                                                               
tax  credits.   He said  it is  more important  to look  at other                                                               
states  to  review how  investing  research  and development  has                                                               
enhanced their  "business friendly"  environment and  helped them                                                               
maintain a  competitive edge.   He stated that Virginia  has been                                                               
at the top  of Forbes ten best states for  business ranking since                                                               
it has recognized that promoting  science and technology research                                                               
and development  has had a  positive effect  on its economy.   He                                                               
pointed  out that  North Caroline  has also  been honored  by the                                                               
site selection committee in nine of  the past 10 years.  Over the                                                               
years, North  Carolina has provided  tax incentives  to encourage                                                               
research  and development  and  increase technology  investments.                                                               
The state  has remained consistent  with its support  of research                                                               
and development tax  credits.  He said that North  Dakota was the                                                               
only state which  showed growth through the  recent recession and                                                               
has been  high ranked  in business climate  polls.   Research and                                                               
development tax  credits are of  the tools in  its tool box.   He                                                               
concluded that it  is time to place Alaska on  equal footing with                                                               
other states. This  bill, HB 118, has the capacity  to create job                                                               
opportunities  for   Alaskans,  and  spur  growth   for  Alaska's                                                               
businesses.  It's  good for the economy.  It's  good for Alaska's                                                               
families and  it needs  to be part  of Alaska's  economic toolbox                                                               
when Alaska is trying to recruit businesses to Alaska.                                                                          
                                                                                                                                
3:31:57 PM                                                                                                                    
                                                                                                                                
MR.  THAYER referred  to a  PowerPoint  presentation in  members'                                                               
packets.                                                                                                                        
                                                                                                                                
3:32:40 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SADDLER asked  whether the  oil and  gas industry                                                               
sector would  benefit or  to identify  which industry  would most                                                               
benefit from the research and development tax credits.                                                                          
                                                                                                                                
MR.  THAYER related  that the  bill was  modeled after  a federal                                                               
research and development program.                                                                                               
                                                                                                                                
3:33:14 PM                                                                                                                    
                                                                                                                                
JOHANNA BALES,  Deputy Director, Tax Division,  Anchorage Office,                                                               
Department of  Revenue (DOR),  answered that  could this  bill is                                                               
targeted   for  corporations.     Oil   and  gas   companies  are                                                               
corporations and  corporate income taxpayers.   In some instances                                                               
the  oil  and   gas  corporations  could  receive   oil  and  gas                                                               
production tax credits as well  as a corporate income tax credits                                                               
for   the   same  expenditures,   but   only   in  very   limited                                                               
circumstances.   She reiterated  that the oil  and gas  credit on                                                               
the production tax side are very limited.                                                                                       
                                                                                                                                
3:33:59 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SADDLER related  his understanding  that the  oil                                                               
and  gas   corporation  income  tax   credit  and   research  and                                                               
development tax  credits could overlap,  but it is not  likely or                                                               
would happen infrequently.                                                                                                      
                                                                                                                                
MS. BALES answered yes.   She said that oil and  gas would not be                                                               
allowed any  exploration credit or  the research  and development                                                               
tax credits on exploration activities.   However, another oil and                                                               
gas credit pertains  to capital improvements which  may allow for                                                               
depreciation on  the capital improvements if  the equipment being                                                               
depreciated  is used  for research  and development.   Thus,  the                                                               
research  and development  tax credits  could apply  but only  in                                                               
very limited circumstances.                                                                                                     
                                                                                                                                
REPRESENTATIVE  SADDLER asked  which industry  sector would  most                                                               
likely take advantage of the program.                                                                                           
                                                                                                                                
MS. BALES related  that the oil and gas  corporations could avail                                                               
themselves  of  the  program to  offset  their  corporate  income                                                               
taxes, but  the governor's intent  and focus  is to bring  in new                                                               
industries,  such   as  the  mid   to  larger   size  multi-state                                                               
corporations  who  could use  the  research  and development  tax                                                               
credits.   She reported that  34 other states offer  research and                                                               
development  tax  credits.   The  state  hopes  to bring  in  new                                                               
industry to Alaska and this is the first step to incentivize.                                                                   
                                                                                                                                
REPRESENTATIVE SADDLER  pointed out that she  identified the size                                                               
of the industry that may benefit  from the program.  He asked for                                                               
further clarification on the type of industry.                                                                                  
                                                                                                                                
MS.  BALES   answered  the  program   would  likely   target  the                                                               
technology-based  industries  since  that is  the  focus  on  the                                                               
federal side.                                                                                                                   
                                                                                                                                
MS. BALES commented that one area  the state has had some success                                                               
in the past is cold region  research.  She related that Alaska is                                                               
ideally situated and suited for this type of research.                                                                          
                                                                                                                                
3:36:31 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  MILLER  asked  whether  a  single  company  would                                                               
qualify for four or six tax credits for the same work.                                                                          
                                                                                                                                
MR. THAYER  answered no.  This  bill would apply to  new research                                                               
and development  and would reach  beyond what has  been budgeted.                                                               
He pointed out HB 118 contains  a "look back" provision for three                                                               
years on  the records  to identify  new research  and development                                                               
for a company.                                                                                                                  
                                                                                                                                
REPRESENTATIVE MILLER related his  understanding that there would                                                               
not be  any possibility for  tax credit  or rebate to  develop an                                                               
existing oil  field.  In  the meantime the oil  corporation would                                                               
be conducting research  to remove heavier oil.   He asked whether                                                               
both credits would apply.                                                                                                       
                                                                                                                                
MS. BALES referred to  page 2, line 8 of HB  118.  This provision                                                               
provides that a person may not  claim a credit under this section                                                               
for qualified  research and  development expenditures  which were                                                               
either deducted in  the calculation of tax  liability or utilized                                                               
for  any other  credits.   Thus, if  the corporation  was allowed                                                               
another  corporation  income  tax,  noting  that  credit  is  for                                                               
corporate  income  tax, the  tax  credit  could not  be  utilized                                                               
anywhere  else.   The expenditures  are  not allowed  to also  be                                                               
deducted and used in the  calculation of any other credit against                                                               
corporate income tax, she said.                                                                                                 
                                                                                                                                
3:38:53 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SADDLER  asked for  an estimate  of how  well this                                                               
investment tax credit has worked federally.                                                                                     
                                                                                                                                
MR. THAYER  responded that the  federal research  and development                                                               
tax credits  have been in place  for over 20 years.   The federal                                                               
program  keeps getting  extended.   He  reported that  a bill  is                                                               
currently pending.   He  pointed to other  states, such  as North                                                               
Carolina, have  successfully used  this to bring  in Caterpiller,                                                               
Inc.  which  provided 1,250  new  jobs  in  North Carolina.    He                                                               
suggested that the state should  also review Virginia's aerospace                                                               
industry  since Alaska  is  trying to  expand  its Kodiak  Launch                                                               
facility  and  Ft.  Greeley with  respect  to  potential  missile                                                               
defense.                                                                                                                        
                                                                                                                                
3:39:58 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE THOMPSON moved  Amendment 1 labeled 27-GH1951\A.1,                                                               
Bullock, 2/17/11, which read as follows:                                                                                        
                                                                                                                                
     Page 2, line 12:                                                                                                           
          Following "year,":                                                                                                    
          Insert "if three or more taxpayers claim the                                                                          
     credit  authorized   under  this  section   during  the                                                                    
     immediately preceding year,"                                                                                               
          Delete "names"                                                                                                        
          Insert "number"                                                                                                       
                                                                                                                                
     Page 2, lines 16 - 25:                                                                                                     
          Delete    "Notwithstanding     AS 40.25.100    and                                                                    
     AS 43.05.230,  a  taxpayer  claiming the  credit  under                                                                    
     this section consents to                                                                                                   
               (1)  the public disclosure of its name and                                                                       
     status as a beneficiary of the credit;                                                                                     
               (2)  inclusion of the amount of the credits                                                                      
     granted  to it  under this  section and  the number  of                                                                    
     employees conducting  the research and  development for                                                                    
     which  it claims  the credit  in  the cumulative  total                                                                    
     calculated  by the  department for  reporting purposes;                                                                    
     and                                                                                                                        
               (3)  report on the impact of the credit on                                                                       
     research and development for each  year that the credit                                                                    
     is claimed."                                                                                                               
                                                                                                                                
CHAIR OLSON objected.                                                                                                           
                                                                                                                                
3:40:27 PM                                                                                                                    
                                                                                                                                
MR. THAYER  explained the  purpose of Amendment  1 is  to protect                                                               
confidentiality of the taxpayer.   In response to Chair Olson, he                                                               
related  that  the amendment  was  necessary  due to  a  drafting                                                               
error, which was discovered by the Department of Revenue (DOR).                                                                 
                                                                                                                                
CHAIR OLSON  removed his  objection.   There being  no objection,                                                               
Amendment 1 was adopted.                                                                                                        
                                                                                                                                
3:42:36 PM                                                                                                                    
                                                                                                                                
BILL   POPP,  President;   Chief  Executive   Officer,  Anchorage                                                               
Economic Development  Corporation (AEDC),  stated that  Alaska is                                                               
in  significant  competition  with other  communities  and  other                                                               
states.   He pointed out that  the AEDC competes daily  with over                                                               
4,000  economic  development organizations.    In  the "world  of                                                               
incentives"  a  targeted incentive  can  be  powerful to  attract                                                               
homegrown  investments.   He  explained the  AEDC  has worked  on                                                               
research and  development projects for industries,  including the                                                               
cool  supply   chain,  automotive,  renewable   energy,  military                                                               
technical,   aviation,  life   science,   biotech,  and   medical                                                               
industries.   This  type  of  tax credit  can  be beneficial  for                                                               
projects often  caught in the "valley  of death" or in  the early                                                               
start-up  phases in  which  companies attempt  to  go beyond  the                                                               
initial concept phase  and move to the prototype  phase.  Another                                                               
important  part of  the research  and development  tax credit  is                                                               
that  the  credits  can help  attract  research  and  development                                                               
venture capital.  This is  a very difficult proposition in Alaska                                                               
and the  tax credit can  not only  leverage the money  the credit                                                               
will  be applied  against, but  could  generate additional  funds                                                               
which  go  beyond that  by  reducing  the  risk for  the  venture                                                               
capitalists to  become involved in  the research  and development                                                               
startup.  He urged support for HB 118.                                                                                          
                                                                                                                                
3:45:05 PM                                                                                                                    
                                                                                                                                
DAN WHITE,  Associate Vice Chancellor of  Research, University of                                                               
Alaska Fairbanks (UAF),  stated that he has been  charged to lead                                                               
the Office of Intellectual Property  and Commercialization at the                                                               
University  of Alaska  Fairbanks.    The UAF's  goal  is to  move                                                               
technology from  the university to  the private sector.   Applied                                                               
research  and  development  used  in  the  private  sector  gives                                                               
businesses a  competitive advantage  in the  global market.   The                                                               
critical   link  in   economic  development   is  enhanced   when                                                               
businesses  can invest  in the  research and  development itself.                                                               
This  bill  would  allow  the  state  to  provide  a  significant                                                               
incentive   to  businesses   to   take   advantage  of   emerging                                                               
opportunities.   This bill would  contribute to  the university's                                                               
mission to  conduct research and  development as well as  to help                                                               
move research and  development forward in the  private sector for                                                               
long-term economic development.  He  offered his belief that this                                                               
would be  particularly true  if this  bill results  in businesses                                                               
and industry funded  research at the UAF since  this could bridge                                                               
the two and lead to economic diversification for the state.                                                                     
                                                                                                                                
ALLAN  JOHNSTON,  Vice   President,  Wedbush  Morgan  Securities,                                                               
stated that he is a very strong  supporter of the tax credit.  He                                                               
offered his belief that the tax  credits will not be the solution                                                               
but represents  another tool.   Currently, the biggest  hurdle in                                                               
Alaska  is how  to build  a culture  of empowerment.   This  bill                                                               
represents an  investment for  tomorrow.  He  said it  seems like                                                               
just  yesterday  when Ken  Thompson  who  was President  of  ARCO                                                               
Alaska,  Inc. ran  television advertisements  depicting a  female                                                               
engineer with a tubular water  separator.  She indicated that the                                                               
technology  saved the  industry over  $100 million  dollars.   He                                                               
described the  pride that comes  from changing things  within the                                                               
community instead  of waiting for  things to happen.   Currently,                                                               
Alaska seems to be waiting for  things to happen.  He highlighted                                                               
the  collective  importance  of   research  and  development  tax                                                               
credits   to  help   empower  people   to  make   changes.     He                                                               
characterized this bill as a good  start.  He stated that he will                                                               
also work to support other tools  like the ones this bill offers,                                                               
as well.                                                                                                                        
                                                                                                                                
3:48:55 PM                                                                                                                    
                                                                                                                                
CHAIR  OLSON,  after first  determining  no  one else  wished  to                                                               
testify, closed public testimony on HB 118.                                                                                     
                                                                                                                                
REPRESENTATIVE JOHNSON  remarked that it  is about time.   Alaska                                                               
has been  lacking in  research and development.   He  offered his                                                               
belief that Alaska  has lost intellectual property due  to a lack                                                               
of opportunities  for research.   He reiterated that it  is about                                                               
time.                                                                                                                           
                                                                                                                                
REPRESENTATIVE JOHNSON  moved to report  HB 118, as  amended, out                                                               
of   committee   with    individual   recommendations   and   the                                                               
accompanying  fiscal notes.  There being  no objection,  the CSHB
118(L&C) was reported from the  House Labor and Commerce Standing                                                               
Committee.                                                                                                                      

Document Name Date/Time Subjects
Additional Documents 3-11-2011.pdf HL&C 3/11/2011 3:15:00 PM
HB 122
HB122 Opposing Documents - Letter ASMA 3-9-2011.pdf HL&C 3/11/2011 3:15:00 PM
HB 122
HB122 Opposing Documents - Letter ASMA 3-10-2011.pdf HL&C 3/11/2011 3:15:00 PM
HB 122
HB122 Opposing Documents - Medical Code of Ethics from ASMA (JJordon) 3-10-2011.pdf HL&C 3/11/2011 3:15:00 PM
HB 122
HB122 Supporting Documents - Fax Wayne Aderhold 3-9-2011.pdf HL&C 3/11/2011 3:15:00 PM
HB 122
Additional Documents 3-11-2011.pdf HL&C 3/11/2011 3:15:00 PM
HB 155
Additional Documents(2) 3-11-2011.pdf HL&C 3/11/2011 3:15:00 PM
HB 155
HB155 Opposing Documents - Assorted Emails or Faxes 3-10-11.pdf HL&C 3/11/2011 3:15:00 PM
HB 155
HB155 Opposing Documents - Assorted Emails or Faxes 3-11-11.pdf HL&C 3/11/2011 3:15:00 PM
SFIN 4/17/2011 10:00:00 AM
HB155 Opposing Documents - Assorted letters 3-10-11.pdf HL&C 3/11/2011 3:15:00 PM
SFIN 4/17/2011 10:00:00 AM
HB 155
HB155 Supporting Documents - Email Bryan White 3-10-2011.pdf HL&C 3/11/2011 3:15:00 PM
HB 155
HB155 Supporting Documents - Email Craig Campeau 3-10-2011.pdf HL&C 3/11/2011 3:15:00 PM
HB 155
HB155 Supporting Documents - Email Don Callahan 3-10-2011.pdf HL&C 3/11/2011 3:15:00 PM
HB 155
HB155 Supporting Documents - Email Marie McGlinchy 3-10-2011.pdf HL&C 3/11/2011 3:15:00 PM
HB 155
HB155 Supporting Documents - Email Pete Haggland 3-11-2011.pdf HL&C 3/11/2011 3:15:00 PM
HB 155
HB155 Supporting Documents - Email Steve Brefczynski 3-10-2011.pdf HL&C 3/11/2011 3:15:00 PM
HB 155
HB155 Supporting Documents - Email Tim Staton 3-10-2011.pdf HL&C 3/11/2011 3:15:00 PM
HB 155