Legislature(1995 - 1996)

04/11/1995 08:07 AM STA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
 HB 232 - ECONOMIC DEVELOPMENT TAX CREDIT                                  
 ROD MOURANT, Administrative Assistant to Pete Kott, presented a               
 proposed CS for HB 232.  It was titled 9LS0323/0.  He said the                
 difference between this version and the other version, which had              
 passed through the Economic Development Committee, was the result             
 of conversations their office had with the Department of Revenue,             
 the Department of Commerce, and the Alaska Industrial Development             
 and Export Authority.  Mr. Mourant confirmed that the original                
 concept still pertains to a tax credit for economic development               
 that results in real business expansion; real increase in the                 
 states economy; and a real increase in jobs in the state.  Those              
 themes remained intact throughout that draft legislation.                     
 MR. MOURANT informed the committee what had changed in the new                
 version of the bill.  The change was who the authority is who would           
 be responsible for reviewing the proposals for an economic tax                
 credit.  Also, there was language in the original HB 232 about                
 creating a new Board.  Version O states, instead, that the Alaska             
 Industrial Development and Export Authority had the expertise and             
 ability, and capability, to review proposals of this type for                 
 economic development.                                                         
 MR. MOURANT said he spoke with Department of Commerce, and                    
 Department of Revenue, and both support the concepts of this                  
 legislation.  They would work together to decide what would be in             
 regulation and in statute, and also what would be in the actual               
 conduct of the tax credit and how it would be administered. Section           
 1 of the legislation of Version O defines the program.  It also               
 limits the tax credit that could be granted under this program to             
 no more than 10 consecutive tax years.  In addition, it could not             
 be used in conjunction with any other tax credit program on the               
 books.  So, if a corporation availed themselves with this economic            
 development tax credit they could not use it with another tax                 
 program in statute.  This legislation calls for an annual review by           
 the Commissioner of Revenue, to assess the companies that receive             
 this tax credit, and to see how well they have done to meet their             
 expectation, and also comparing the effectiveness of the program.             
 The determination of compliance comes about when the entity files             
 their annual corporate tax returns with the state.                            
 MR. MOURANT continued to say there are criteria to determine which            
 programs qualify, and it includes that the authority must verify              
 that at least one other state is considering this project.  For               
 example, if Tyson Seafood decided to put in a value added                     
 processing plant, shore based instead of offshore, they could show            
 that Washington State was considering the same project and that it            
 would cost more for the company to put it in Alaska.  That would              
 meet the criteria of an eligible tax credit.  This would create a             
 new business, expand a business, and expand employment in the                 
 state.  It is that kind of value added manufacturing and processing           
 that this bill hopes to motivate in the state.  They dont believe             
 there will be a huge growth with people applying.  This bill lays             
 out criteria for the number of employees also.  It will have to be            
 at least an increase of 25 percent in an existing business.  It               
 does not preclude the Mom and Pop operations with only a few                  
 employees from being eligible. The proposal has to include the                
 potential effect on the economy, the potential investment, the                
 magnitude of cost differential between here and another that is               
 considering the project.  Mr. Mourant explained that the credit is            
 limited to the lesser of 5 percent of the gross wages payable to              
 new employees, or 25 percent of the tax due, and payable by the               
 taxpayer under the state tax codes.  They would have 10 years to              
 take that credit, and, again, they could not take it in conjunction           
 with any other program.  Their certificate of verification will               
 have to be filed annually with their tax returns, so the program              
 can be monitored.                                                             
 TAPE 95-47, SIDE A                                                            
 Number 000                                                                    
 MR. MOURANT explained that the department would be more comfortable           
 with the bill if it said Membership of the Authority, AIDEA," so              
 it was clear whom they were addressing. Also, for the record, the             
 AIDEA Board is comprised of the Commissioner of Revenue, the                  
 Commissioner of Commerce, and a commissioner appointed by the                 
 Governor, and two public members.  They would be the controlling              
 authority using the staff expertise within AIDEA.                             
 Number 017                                                                    
 CHAIR JAMES asked if people must apply for this before they begin             
 development, or after the development is established.                         
 MR. MOURANT said the program is designed to encourage development,            
 so the legislation speaks of applying before development begins.              
 One of the criteria for receiving the tax credit is evidence that             
 the development would not be economically sound without a tax                 
 credit of this type to help it through the financial struggles of             
 the first five years.                                                         
 CHAIR JAMES inquired about the possibility of acquiring tax relief            
 for the Danish Pork Project they are currently working on.  This is           
 a $210 million investment and it involves approximately 1000                  
 employees.  The Danish people had asked for some sort of tax relief           
 to get that moving, but whether or not they could get moving                  
 without the tax credit, she did not know.  She wondered if they               
 would fit under the criteria.                                                 
 MR. MOURANT answered that they could apply, but he could not answer           
 for the AIDEA board about whether or not it would meet the                    
 criteria.  He thought it might have potential for meeting the                 
 required criteria.                                                            
 Number 053                                                                    
 REPRESENTATIVE PORTER had two questions.  In reference to the                 
 prohibition against applying this to a program that was already               
 receiving tax credits, he wondered if they meant state tax credits.           
 MR. MOURANT answered, Yes.  He said the legislation spells that               
 out.  It says: unto this chapter.                                             
 REPRESENTATIVE PORTER verified that if they were getting federal              
 tax credits it would not affect them.                                         
 MR. MOURANT said that was correct.                                            
 REPRESENTATIVE PORTER went to page 4 of the bill.  He asked,                  
 referring to the criteria for establishing the amount of credit--25           
 percent of the tax due and payable by the tax payer under this                
 chapter, or 5 percent of the wages--if he could assume that was a             
 years worth of taxes.  He noted that it did not say annual                    
 taxes, so that should be looked into.                                         
 MR. MOURANT confirmed that it was a years worth of taxes.  It                 
 refers to AS 43.20, which is the chapter they are speaking of, on             
 annual state filings.  He confirmed that he would make certain of             
 Number 081                                                                    
 REPRESENTATIVE GREEN spoke on the restrictions of requiring that at           
 least one other state be considered, and further, that the project            
 would be cheaper to develop in the other state than in Alaska.  He            
 wondered, if the company needed a tax credit in order to justify              
 its existence in Alaska, if it would cause such a burden that they            
 wont go to the other state.  To say it will cost more here, like              
 the Pork Project, they will need a tax credit, but they probably              
 look at Alaska because it fits into a scheme that makes it more               
 advantageous to work here.  He wondered if this bill would work               
 against the Pork Project because of those restrictions.                       
 MR. MOURANT reflected back to the criteria at the bottom on page 2.           
 (See Sec.2.) An applicants project satisfies at least one of the              
 following:  They verify that at least one other state is being                
 considered for the project, and they determine that the projected             
 costs for the applicants project in this state would exceed the               
 costs of the project in the competing state, and, third, that the             
 tax credit is a major factor.  That is one possibility for                    
 eligibility of a tax credit.  The second possibility is that it               
 increases 25 percent of the number of new employees.                          
 Number 135                                                                    
 CHAIR JAMES said there are other options they could meet, so for              
 the Danish Pork Project the restrictions probably were not a                  
 concern.  She agreed with Representative Green, that this was                 
 skimming it pretty slim concerning people looking to put anything             
 here in Alaska who are also looking at another state.  They would             
 be looking for the resource or whatever it is that we have.  She              
 asked about when the numbers of years of credit are established for           
 the development, so they know when the credit expires.                        
 MR. MOURANT said this legislation merely sets a limit of no more              
 than 10 years.  In working out the details for a company awarded              
 $10 thousand worth of credit, he did not know what fashion the                
 state would use to set a time limit, but it would have to use it              
 within 10 years.  He said it would be hard to predict a year to               
 year businesss needs for credits.                                             
 Number 161                                                                    
 CHAIR JAMES had an experience to share that was applicable to the             
 subject.  She was involved in the city planning department in her             
 area before moving to Alaska.  The city had a saw mill, which had             
 been in the area for 20 years.  In order to get that saw mill into            
 town they gave them free water.  They used large amounts of water.            
 So, for 20 years they grew and became very successful, and after 20           
 years things changed.  There were new people, and new city                    
 planners, and people were begrudging about the mill getting free              
 water; so, the city fathers decided they would no longer provide              
 the saw mill with water without charge.  Six months later the saw             
 mill closed down and put 500 people out of work.  There is a                  
 benefit to having some decision making down the road.  So, a point            
 Representative James wished to make was that there should be some             
 closure, and boundaries, and something these companies can depend             
 on in the future, so they know what the rules are from the                    
 MR. MOURANT said that the established agreement would hold for the            
 duration of the terms of the agreement, unless the taxpayer                   
 violated the agreement, or failed to comply.                                  
 CHAIR JAMES asked if there were any more questions on this bill.              
 There were no problems, so they could move it out.                            
 Number 207                                                                    
 REPRESENTATIVE PORTER moved to adopt CS for HB 232, Version /O, as            
 their working draft, dated 4/6/95.  Hearing no objections, the                
 motion passed and CS for HB 232, Version /O, became their working             
 CHAIR JAMES said the CS was before the committee, and they had an             
 REPRESENTATIVE PORTER moved they adopt the amendment, which they              
 would mark as number 1.   It was HB 232 9LS0323/O.  There being no            
 objections, the amendment was approved.                                       
 Number 225                                                                    
 REPRESENTATIVE PORTER moved to pass from committee CS for HB 232 as           
 amended, with individual recommendations and a zero fiscal note.              
 There being no objections, the motion was passed out of committee.            
 REPRESENTATIVE ROBINSON asked if they should add that it is a zero            
 fiscal note with the changes, since they do not have a fiscal note            
 on it yet.                                                                    
 CHAIR JAMES wanted to put on the record that a zero fiscal note is            
 anticipated on this bill.  It is not attached, but it is                      
 anticipated, and should be attached before reaching the next                  
 MR. MOURANT said he would provide the Chair copies of the fiscal              
 note when he received it.                                                     
 CHAIR JAMES said the motion before them was to move out HB 232,               
 Version O, as amended, and with a presumed zero fiscal note.  There           
 were no objections, so the motion to pass CS for HB 232, Version O,           

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