Legislature(1995 - 1996)
04/11/1995 08:07 AM STA
* first hearing in first committee of referral
= bill was previously heard/scheduled
= 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 it. 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 beginning. 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 draft. CHAIR JAMES said the CS was before the committee, and they had an amendment. 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 committee. 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, passed.