04/01/2017 01:00 PM House LABOR & COMMERCE
| Audio | Topic |
|---|---|
| Start | |
| HB103 | |
| HB124 | |
| HB36 | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 124 | TELECONFERENCED | |
| *+ | HB 36 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HB 103 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
HOUSE LABOR AND COMMERCE STANDING COMMITTEE
April 1, 2017
3:03 p.m.
MEMBERS PRESENT
Representative Sam Kito, Chair
Representative Adam Wool, Vice Chair
Representative Andy Josephson
Representative Chris Birch
Representative Gary Knopp
Representative Colleen Sullivan-Leonard
MEMBERS ABSENT
Representative Louise Stutes
Representative Mike Chenault (alternate)
Representative Bryce Edgmon (alternate)
COMMITTEE CALENDAR
HOUSE BILL NO. 103
"An Act relating to the practice of optometry."
- MOVED CSHB 103(L&C) OUT OF COMMITTEE
HOUSE BILL NO. 124
"An Act relating to corporations, including benefit
corporations, and other entities; and providing for an effective
date."
- HEARD & HELD
SPONSOR SUBSTITUTE FOR HOUSE BILL NO. 36
"An Act bearing the short title of the 'Fair Contribution by
High Profit Businesses Act'; requiring certain persons in the
business of oil and gas production or transportation to pay
income tax; establishing a tax on the income of a sole
proprietorship, partnership, limited liability company, or an S
corporation; relating to exemptions from the tax on
corporations; and providing for an effective date."
- HEARD & HELD
PREVIOUS COMMITTEE ACTION
BILL: HB 103
SHORT TITLE: OPTOMETRY & OPTOMETRISTS
SPONSOR(s): REPRESENTATIVE(s) SPOHNHOLZ
02/03/17 (H) READ THE FIRST TIME - REFERRALS
02/03/17 (H) HSS, L&C
03/14/17 (H) HSS AT 3:00 PM CAPITOL 106
03/14/17 (H) Heard & Held
03/14/17 (H) MINUTE(HSS)
03/16/17 (H) HSS AT 3:00 PM CAPITOL 106
03/16/17 (H) Scheduled but Not Heard
03/18/17 (H) HSS AT 3:00 PM CAPITOL 106
03/18/17 (H) Moved CSHB 103(HSS) Out of Committee
03/18/17 (H) MINUTE(HSS)
03/22/17 (H) HSS RPT CS(HSS) NT 5DP 1NR
03/22/17 (H) DP: JOHNSTON, TARR, SULLIVAN-LEONARD,
KITO, SPOHNHOLZ
03/22/17 (H) NR: EASTMAN
03/27/17 (H) L&C AT 3:15 PM BARNES 124
03/27/17 (H) Heard & Held
03/27/17 (H) MINUTE(L&C)
03/29/17 (H) L&C AT 3:15 PM BARNES 124
03/29/17 (H) Heard & Held
03/29/17 (H) MINUTE(L&C)
04/01/17 (H) L&C AT 1:00 PM BARNES 124
BILL: HB 124
SHORT TITLE: BENEFIT CORPORATIONS
SPONSOR(s): REPRESENTATIVE(s) KITO
02/15/17 (H) READ THE FIRST TIME - REFERRALS
02/15/17 (H) L&C, FIN
04/01/17 (H) L&C AT 1:00 PM BARNES 124
BILL: HB 36
SHORT TITLE: TAX: INCOME FROM NON C CORP ENTITIES
SPONSOR(s): REPRESENTATIVE(s) GARA
01/18/17 (H) PREFILE RELEASED 1/13/17
01/18/17 (H) READ THE FIRST TIME - REFERRALS
01/18/17 (H) L&C, FIN
02/27/17 (H) SPONSOR SUBSTITUTE INTRODUCED
02/27/17 (H) READ THE FIRST TIME - REFERRALS
02/27/17 (H) L&C, FIN
04/01/17 (H) L&C AT 1:00 PM BARNES 124
WITNESS REGISTER
REPRESENTATIVE IVY SPOHNHOLZ
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: As the sponsor re-introduced HB 103.
BIANCA CARPENETI, Staff
Representative Sam Kito
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: On behalf of Representative Kito, sponsor,
provided an overview of HB 124.
STEPHEN TRIMBLE, Founder and Chief Executive Officer (CEO)
Arctic Solar Ventures
Anchorage, Alaska
POSITION STATEMENT: Testified in support of HB 124.
REPRESENTATIVE LES GARA
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: As the sponsor introduced SSHB 36 via a
PowerPoint presentation entitled, "HB 36: Fair Contribution by
High Profit Businesses Act."
JOHN LETOURNEAU, Certified Public Accountant
Thomas, Head & Greisen, PC
Anchorage, Alaska
POSITION STATEMENT: As an invited witness answered questions
related to SSHB 36.
LAURA CHARTIER, Staff
Representative Les Gara
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Answered questions related to SSHB 36.
MATTHEW GARDNER, Senior Fellow
Institute on Taxation and Economic Policy
Washington, DC
POSITION STATEMENT: Provided invited testimony on SSHB 36.
ACTION NARRATIVE
3:03:22 PM
CHAIR SAM KITO called the House Labor and Commerce Standing
Committee meeting to order at 3:03 p.m. Representatives Kito,
Sullivan-Leonard, Knopp, Birch, and Josephson were present at
the call to order. Representative Wool arrived as the meeting
was in progress.
HB 103-OPTOMETRY & OPTOMETRISTS
3:04:06 PM
CHAIR KITO announced that the first order of business would be
HOUSE BILL NO. 103, "An Act relating to the practice of
optometry; and providing for an effective date." [Before the
committee was CSHB 103(HSS).]
3:04:34 PM
REPRESENTATIVE IVY SPOHNHOLZ, Alaska State Legislature, Juneau,
Alaska, as the sponsor, re-introduced HB 103. She explained
that HB 103 would update the Board of [Examiners in] Optometry
to be more in line with the practices that are consistent with
those other boards overseeing health professions throughout the
state of Alaska. It would give the board the authority to
regulate its own practice and would move management of
optometrists away from the legislature and into the board.
3:05:45 PM
CHAIR KITO moved to adopt Amendment 1, labeled 30-LS0459\J.5,
Bruce, 3/28/17, which read:
Page 2, lines 6 - 7:
Delete "standards for the practice of optometry
as provided"
Insert "whether optometry practice procedures or
policies comply with acceptable standards of the
practice of optometry, as provided"
3:05:57 PM
The committee took a brief at-ease.
3:06:34 PM
CHAIR KITO again moved to adopt Amendment 1.
3:07:04 PM
REPRESENTATIVE JOSEPHSON said he is unable to tell what the
[proposed] change is.
REPRESENTATIVE SPOHNHOLZ explained Amendment 1 would tighten the
definition of standard of practice in a manner that is
consistent with the exact language that is used by the Board of
Nursing. She said the amendment is at the recommendation of the
Department of Law to ensure that the definition of the standard
of practice is clearly defined as complying with acceptable
standards of practice of optometry. According to the Department
of Law, she added, this would tighten the definition of standard
of practice in a way that makes it more useful.
3:07:59 PM
There being no objection, Amendment 1 was adopted.
3:08:04 PM
The committee took a brief at-ease.
3:08:42 PM
REPRESENTATIVE JOSEPHSON moved to adopt Amendment 2, labeled 30-
LS0459\J.1, Bruce, 3/27/17, which read:
Page 1, line 9, following "disease":
Insert "as provided under AS 08.72.272"
CHAIR KITO objected for purposes of discussion.
3:08:52 PM
REPRESENTATIVE JOSEPHSON explained Amendment 2. He related that
in oral testimony and written comments, several ophthalmologists
stated that they don't prescribe anything more powerful than
hydrocodone, which, to his knowledge, was not controverted. He
further related that these ophthalmologists stated that eyes do
not respond well to pain medication. He said that as he reads
the bill, it would provide that optometrists could prescribe any
[pharmaceutical] ever invented.
REPRESENTATIVE JOSEPHSON further explained that Amendment 2 is
consistent with a forthcoming amendment which would repeal
language that would give optometrists the authority through
their board to prescribe anything they want to. Amendment 2, he
stated, would return to existing language in Alaska Statute (AS)
08.72.272. He said it would be hard to say optometrists didn't
make certain arguments about the need to oversee their own
practice. However, he continued, they didn't make any arguments
in testimony or in writing about why they needed to expand the
kinds of prescriptions they make. Given the crisis the state is
confronted with, he said he doesn't know why that expansion is
necessary, which is why he is offering Amendment 2.
3:11:13 PM
REPRESENTATIVE SULLIVAN-LEONARD inquired as to what AS 08.72.272
describes in detail.
REPRESENTATIVE JOSEPHSON replied that Amendment 2 would bring
this back to current law that exists under [AS 08.72.272],
Pharmaceutical Agents, subsection (a), which says optometrists
can prescribe for assorted things. Amendment 2, he said, says
the status quo will prevail and optometrists will have the
authority that they currently have to prescribe.
3:12:11 PM
REPRESENTATIVE SPOHNHOLZ rebutted that part of the intent of the
legislation was to simplify and to streamline the legislation
authorizing the [Board of Examiners in Optometry] to oversee
their practice. She related that [the board] has testified it
will continue to work with the four-day limitation on the supply
of opioids, for example. Also, she continued, other regulation
is being put into practice regarding the opioid epidemic, which
she strongly feels the legislature needs to address by advancing
HB 159 for that purpose. She said she understands the maker of
the amendment's concerns, but the statutory language currently
in place is outdated and leaves [legislators] in a position of
overseeing specific kinds of medications for which [legislators]
don't have the expertise to be managing. Therefore, it is
better to have this authority placed at the board level, she
stated.
3:13:19 PM
REPRESENTATIVE BIRCH spoke against Amendment 2. He recalled the
committee hearing testimony about what an optometrist could
prescribe and that nurses could not prescribe [narcotics].
However, he continued, he was informed by a friend who is a
nurse that nurses can prescribe narcotics in Alaska, have done
so for decades, and that nurses need the same Drug Enforcement
Administration (DEA) authority as a physician or any other
clinician. Therefore, he said, he is not troubled about
providing the latitude proposed [in HB 103].
3:14:01 PM
REPRESENTATIVE KNOPP asked whether Section 4, page 2, of the
bill does what the maker of the amendment is trying to do.
REPRESENTATIVE JOSEPHSON responded, "This brings us back to the
overall." What he means, he continued, is it makes the board
the ultimate decider about what those prescriptions should be,
and he is not comfortable with that. The people who testified
have spent more time than anyone else working on eye care and
they said they never use more than hydrocodone. Under current
law, he continued, "optometrists can do that very thing, but [HB
103] would lift that and say, 'prescribe what you want,' if that
[is] what the board says, 'prescribe what you will.'" He
further noted it means that the attorney general would have to
look at this language and determine whether the board acted
consistent with the language [of HB 103 in section 4, page 2],
and he would conclude that as long as they establish the what,
where, and why of what they were doing, maybe they would say
yes. "But," he added, "that is our point we'd make it valid
and ? there's that argument that the attorney general would have
to give them that authority."
3:16:00 PM
REPRESENTATIVE WOOL offered his understanding that optometrists
can already prescribe certain controlled substances. He said he
doesn't see that as being a problem in the past; it is a
responsibility that [optometrists] have handled.
3:16:30 PM
CHAIR KITO maintained his objection to Amendment 2.
A roll call vote was taken. Representatives Josephson voted in
favor of Amendment 2. Representatives Knopp, Sullivan-Leonard,
Wool, Birch, and Kito voted against it. Therefore, Amendment 2
failed by a vote of 1-5.
3:17:10 PM
REPRESENTATIVE JOSEPHSON moved to adopt Amendment 3, labeled 30-
LS0459\J.2, Bruce, 3/27/17, which read:
Page 2, lines 20 - 24:
Delete all material.
Renumber the following bill sections accordingly.
3:17:12 PM
CHAIR KITO objected.
REPRESENTATIVE JOSEPHSON explained Amendment 3. He said it is
the same argument as Amendment 2, and that he is not convinced
the board has the training, education, and experience to make
decisions about pharmaceutical agents in every case. While he
is comfortable in some cases, [the bill proposes] to expand this
in a way that is, in his view, far beyond [the board's] training
and therefore he is offering Amendment 3.
REPRESENTATIVE SPOHNHOLZ opposed Amendment 3. She said her
comments on the amendment are much the same as for Amendment 2.
The language in Section 4, she stated, is clear that the
pharmaceutical agent prescribed needs to be consistent with
their standards of practice. Like optometrists, there are other
professions that have the authority to practice within this
scope that have not gone to medical school and therefore are not
under the [State Medical Board].
REPRESENTATIVE BIRCH said he has similar concerns as he voiced
before in that if the board is recognized as having the capacity
and the ability to make those recommendations, it is not
dissimilar from other clinicians in that line of work.
3:19:00 PM
CHAIR KITO maintained his objection to Amendment 3.
A roll call vote was taken. Representative Josephson voted in
favor of Amendment 3. Representatives Birch, Sullivan-Leonard,
Knopp, Wool, and Kito voted against it. Therefore, Amendment 3
failed to be adopted by a vote of 1-5.
3:19:30 PM
REPRESENTATIVE JOSEPHSON moved to adopt Amendment 4, labeled 30-
LS0459\J.3, Bruce, 3/27/17, which read:
Page 2, following line 24:
Insert a new bill section to read:
"* Sec. 5. AS 08.72.273 is repealed and reenacted
to read:
Sec. 08.72.273. Non-invasive procedures. Except
as provided in AS 08.72.278, a licensee may perform
non-invasive procedures including
(1) removing superficial bodies from the
eye and its appendages;
(2) epilating misaligned eyelashes;
(3) placing punctal or lacrimal plugs;
(4) diagnosing dilation and irrigation of
the lacrimal system;
(5) performing orthokeratology;
(6) prescribing and fitting contact lenses
with the purpose of altering refractive error;
(7) using diagnostic instruments that use
laser or ultrasound technology; and
(8) other similar procedures within the
scope and practice of optometry."
Renumber the following bill sections accordingly.
Page 2, line 26, following "practice.":
Insert "(a)"
Page 2, following line 29:
Insert a new subsection to read:
"(b) A licensee may not perform ophthalmic surgery.
In this subsection, "ophthalmic surgery" means an
invasive procedure where human tissue is cut, ablated,
or otherwise penetrated by incision, laser, or other
means to treat diseases of the human eye, alter or
correct refractive error, or alter or enhance cosmetic
appearance; "ophthalmic surgery" does not include the
procedures described under AS 08.72.273."
CHAIR KITO objected.
3:19:42 PM
REPRESENTATIVE JOSEPHSON described Amendment 4 as critical.
Qualifying that he is speaking from memory, he said no fewer
than 20 optometrists wrote him stating that HB 103 is not about
surgery, but rather about controlling their own destiny and
practice. He explained Amendment 4 provides eight non-invasive
items that can be done by optometrists with adequate training.
These would be eight things in the law that optometrists don't
expressly have now, he continued, which would seem like a good
thing if he were an optometrist.
REPRESENTATIVE JOSEPHSON said Amendment 4 also clarifies the
opinion of optometrists. He recounted that the committee heard
from a doctor of optometry in Juneau who wanted to do a large
number of surgeries. There is some confusion about the
motivation for the optometrists, he continued. In the original
bill, optometrists wanted to do ophthalmic surgery and while
that is not before the committee, it is important to ask what
the motivation or intent is. He said page 2, subsection (b),
comes from Washington state law and delineates the things that
optometrists are not trained to do. The difference in training
is enormous and that is why the delineation should be made, he
stated. The [State Medical Board] says an ophthalmologist needs
four years from an accredited medical school; needs to pass
steps one, two, and three of general medical boards; needs a
year of internship consisting of intensive care, emergency
medicine, surgery, internal medicine, often in 80-100 hour work
weeks, including the performance of thousands of surgical
procedures; needs a three-year ophthalmic residency, which would
include laser and ophthalmic surgeries under close supervision;
needs one to two years of surgical fellowship consisting of
intensive education; and that the total education comprises
22,000 hours of work and training. [Ophthalmologists] also need
to complete an American Board of Ophthalmology exam on a 10-year
renewable cycle; need to have mandatory 60 hours of class, one
continuing medical education; an annual review; and license
renewal by the [State Medical Board].
REPRESENTATIVE JOSEPHSON said he feels that if the state doesn't
tightly regulate surgical eye care there's really no need in
regulating anything with great vigor. While that may sound
alarmist, he continued, he feels that this subject, in
particular, needs that sort of scrutiny, and Amendment 4 would
essentially mirror current Washington state practice. If the
bill passes, he pointed out, the current law will say that the
only type of invasive surgery an optometrist can perform is
removal of a foreign body from the eye, yet the rest of the
bill, CSHB 103(HSS), opens the door for much more. So, he said,
the bill already creates some odd complications and he therefore
asks for support of Amendment 4.
3:24:05 PM
REPRESENTATIVE KNOPP offered his appreciation for Representative
Josephson's concerns, but said he has always advocated for
allowing the board to regulate its profession within the scope
of the license, education, training, and experience - that is
the key point. He said Amendment 4 would gut the intent of the
bill and therefore he is against it. According to the sectional
analysis, he continued, Section 5 provides that the board may
not authorize any procedure beyond the scope of the licensee's
education and experience. The whole intent of the bill is to
allow optometrists to practice their business in the manner that
they went to school and were taught and trained to do. He said
he cannot see them doing anything outside of that scope;
therefore, he is speaking against Amendment 4 and in support of
the bill.
3:25:18 PM
REPRESENTATIVE SULLIVAN-LEONARD recalled discussions within the
Health & Social Services Standing Committee regarding the
formation of the board and the work of the board. She said her
hope is that additional information could come back to
legislators in a year or two that provides more detail about the
type of non-invasive procedures that optometrists do. She asked
whether this is something the sponsor thinks would work better
than to try to amend the bill with this concept now.
REPRESENTATIVE SPOHNHOLZ answered that, if the bill passes, the
legislature's role is to ensure that the law is being
implemented in ways that the legislature thinks are consistent
with its original intent. She added that having the board
provide presentations on the evolution of the board process
seems like a reasonable thing to do. Regarding the amendment as
a whole, she said she agrees with Representative Knopp's
characterization that it takes away the guts of the bill. The
intent of the bill is to delegate the authority to manage
optometrists and the practice of optometry to the [Board of
Examiners in Optometry].
REPRESENTATIVE SPOHNHOLZ added that she doesn't disagree with
Representative Josephson's characterization of the extensive
education of ophthalmologists who are trained surgeons. Using
an analogy, she noted that the distinction between dentistry and
oral surgeons is fairly similar the amount of education that
dentists receive is fairly similar to the amount of education
that optometrists receive. Dentists oversee their own scope of
practice through their board and there are not huge problems and
conflicts between oral surgeons and dentists. The problem is
not the distinction between optometry and ophthalmology, she
continued, but rather that the legislature is overseeing it.
Taking politics out of good governance in health programs, and
health practice in particular, is the way get the best evidence-
based efforts and management and that is why HB 103 proposes to
delegate that authority as described specifically to the [Board
of Examiners in Optometry].
3:28:30 PM
REPRESENTATIVE WOOL stated he is not able to list the procedures
that would be performable by an optometrist and doesn't want to
limit an optometrist's practice just to that. He said the bill
would allow the [Board of Examiners in Optometry] to say what
optometrists can and cannot do within the scope of their
training and practice.
REPRESENTATIVE WOOL related that over the last week he called
some optometrists in his home community who hadn't called in and
were not following this in committee and asked them whether they
wanted to do surgery. He said their reply was absolutely not.
One optometrist, he continued, told him there is a procedure
that optometrists are trained to do, but it cannot be done in
Alaska and will not be something optometrists will do if HB 103
passes. While he respects the argument for 20,000 hours, he
said every medical doctor goes through medical school whether to
be an ophthalmologist, heart surgeon, or podiatrist, and much of
those 20,000 hours is studying cardiology and cancer and other
things, and all those hours are not applicable exactly to the
eye. Optometrists spend a lot of hours studying specifically
the eye, he continued, and they do not want to do surgery out of
this bill; they just want to have control of their professions.
3:30:47 PM
CHAIR KITO maintained his objection to Amendment 4.
A roll call vote was taken. Representative Josephson voted in
favor of Amendment 4. Representatives Wool, Birch, Knopp,
Sullivan-Leonard, and Kito voted against it. Therefore,
Amendment 4 failed to be adopted by a vote of 1-5.
3:31:18 PM
CHAIR KITO announced that HB 103, as amended, was now before the
committee.
3:31:31 PM
REPRESENTATIVE JOSEPHSON offered comments for the legislative
record. He recalled the sponsor and her aide as both stating
that the bill does not touch AS 08.72.273. The only way to read
that, he said, is to derive the conclusion that the only type of
invasive surgery that would be allowed if this bill became law
is removal of a foreign body. This section for removal of a
foreign body is not intended to permit a licensee to perform
invasive surgery. He noted that Section 72 of the
aforementioned statute covers the entire optometrists' code.
So, he continued, it is not just about foreign bodies, it is
about all types of surgeries. He stated that his previous
amendment would have helped optometrists by saying that without
question those eight things can be done, but now there could be
a debate about that.
REPRESENTATIVE JOSEPHSON added that this reminds him in some
ways about his response to SB 91, which he is mentioning because
he tends to be cautious about things that can hurt people and
things that can hurt the natural environment. He pointed out
that the concerns of the ophthalmologists are almost entirely
not economic. Ophthalmologists have spent their lives working
in eye care and care about the standard of practice, he
continued, and while that is not to say that optometrists don't,
the way the bill is written optometrists can do any manner of
things. He recollected that in a March 14 hearing before a
different committee, [Assistant Attorney General Harriet] Milks
had stated that the attorney general would not intervene on
matters of policy or comment on how the optometrists regulate
themselves; if they are promulgating regulations within this
bill, they can do it. In some respects, this is just being
moved to a different venue, he said, and people are going to
continue reading about this in the newspaper.
3:34:23 PM
CHAIR KITO drew attention to Section 5 of the bill, which
states, "A licensee may perform the services of optometry as
defined in AS 08.72.300 only if the services are within the
scope of the licensee's education, training, and experience as
established by regulations adopted by the board." He said he is
familiar with this type of thing because he is an engineer
regulated under the [State Board of Registration for Architects,
Engineers, & Land Surveyors]. As an engineer, he noted, he
could theoretically design a bridge, but without any experience
designing a bridge that bridge could collapse and hurt people.
With his experience, he continued, he could design a roadway,
breakwater, sewer, or outfall, all of which he has done and in
which he has education, training, and experience. He said it is
his responsibility within that license to perform those duties
that he has the training for and it is up to him with the
knowledge of his education to know when and how to apply that
experience. Optometrists have much more education and training
in their field than he does in engineering, he stated, and they
should be allowed to identify what the scope of practice is that
is consistent with their experience, education, and training,
and he believes that this bill goes there. He said he does not
believe that optometrists will be practicing outside their
knowledge and experience and offered his support for the passage
of HB 103.
3:36:21 PM
REPRESENTATIVE WOOL moved to report CSHB 103(HSS), as amended,
out of committee with individual recommendations and the
accompanying fiscal notes. There being no objection, CSHB
103(L&C) was reported from the House Labor and Commerce Standing
Committee.
3:36:41 PM
The committee took an at-ease from 3:36 PM to 3:38 PM.
HB 124-BENEFIT CORPORATIONS
3:38:48 PM
CHAIR KITO announced that the next order of business would be
HOUSE BILL NO. 124, "An Act relating to corporations, including
benefit corporations, and other entities; and providing for an
effective date."
CHAIR KITO, sponsor, stated that his interest in introducing
this bill is to modify Alaska's corporate structure to allow for
the ability of a corporation to establish itself with a
charitable component as opposed to being fiducially responsible
to shareholders. A corporation would be able to use some of its
profits, earnings, or other assets to benefit other or
charitable or nonprofit organizations. This would allow many
corporations that would like to provide some type of support
outside their primary business mode, or even within their
business mode, that is not reflective of expending profits, and
allow them to do that without violating their fiduciary
responsibility.
CHAIR KITO drew attention to the sponsor statement and noted
that the first paragraph might need to be amended because it
appears to be a carryover from another bill.
3:40:20 PM
BIANCA CARPENETI, Staff, Representative Sam Kito, Alaska State
Legislature, explained the purpose of HB 124 on behalf of
Representative Kito, sponsor. She spoke as follows:
The purpose of HB 124 is to expand the options for
Alaskan entrepreneurs and investors by placing a new
type of corporate entity - Benefit Corporation or B
Corp - in Alaska statute. A benefit corporation is a
for-profit corporation that includes public benefits
and community improvements into their business
practices, no matter the principal services or
products provided.
Corporate law generally requires corporations to
consider the financial impact to their shareholders as
the top priority when making decisions. Maximizing
corporate returns can interfere with other corporate
goals, such as electing to do something beneficial for
the community by enhancing social benefit. Some of
the defining characteristics of a benefit corporation
include expanded purpose beyond maximizing share value
to explicitly include general and specific public
benefit. A benefit corporation also considers and
balances the impacts of their decisions not only on
shareholders but also on their stakeholders. ? Benefit
corporations must make available to the public a
regular benefit report that assesses their overall
social and environmental performance against a third-
party standard.
Three arguments in support of laws establishing public
benefit corporations are: First, it creates legal
requirements that regulate corporations claiming to
work toward social good. Becoming a benefit
corporation as a legal entity means a business that
says it is dedicated to the public good will have to
substantiate this claim, similar to how qualifying as
tax-exempt helps define non-profits as charitable.
Moreover, benefit corporations' reporting requirements
to shareholders, the state, and the public provide a
degree of transparency the corporations could
otherwise refuse to provide. Second, these laws
promote societal benefits by clarifying fiduciary
duty. Entrepreneurs are more likely to pursue lines
of business in a socially beneficial way when the law
ensures that the pursuit of profit does not need to be
the highest priority. Likewise, investors concerned
with the public good are given an alternative. Third,
this provides legal protection for companies that seek
purpose-driven partnerships. Benefit corporation
legislation allows them to undertake beneficial
partnerships that conventional corporations might shun
out of fear that shareholders would not see it as a
venture likely to be profitable.
3:43:33 PM
MS. CARPENETI turned to a discussion of the bill itself. She
said Section 1 amends Alaska Statute (AS) 10.06.633(a),
regarding how corporations may be dissolved, to include benefit
corporations.
MS. CARPENETI stated that Section 2 adds to AS 10, Alaska's
corporation code, a new chapter, Chapter 60, establishing
benefit corporations. Article 1, she continued, establishes how
a new business corporation or existing entity may become a
benefit corporation, and it also declares that an amendment of
an existing corporation must be adopted by at least the minimum
two-thirds vote. She said Article 2 establishes seven factors
that the board of directors and individual directors of a
benefit corporation shall consider while discharging their
duties. She pointed out that directors of the benefit
corporation are not required to give priority to any of these
listed factors unless the intention to prioritize them has been
identified in the benefit corporation's articles of
incorporation.
MS. CAPENETI continued to address Section 2 and said Article 3
allows the board to include a benefit director who is not
financially liable if acting in good faith. She explained that
Article 4 directs an officer of a benefit corporation to
consider the factors enumerated by the board of directors.
Article 4 also states that an officer of the benefit corporation
is not personally liable for monetary damages if the officer's
duties are performed in compliance with Alaska statute. She
said Article 5 identifies who may bring action or claims against
a benefit corporation for a failure to pursue general or
specific public benefit.
MS. CARPENETI stated that Article 6 of Section 2 requires a
benefit corporation to file a biennial benefit report in
addition to the biennial report, and it also provides details of
what must be in that report. She related that Article 7
establishes a status change for a merger or amendment for a
benefit corporation or a domestic entity other than a business
corporation, which must be approved by at least two-thirds the
vote of all shareholders entitled to vote. Article 7 also
establishes statutory guidelines for third-party standards used
as an assessment tool in the required benefit report to ensure
that the general or specific public benefits are being done.
She said Article 8 provides for general provisions, including
regulations, definitions, and applicability.
MS. CARPENETI advised that the remaining sections of the bill
deal with regulations and effective date.
3:45:47 PM
MS. CARPENETI added that it is important to note the following:
First, that benefit corporations are voluntarily formed.
Second, that benefit corporations have the same tax status as
for-profit corporations. Third, that benefit corporation is a
legal designation, not a marketing label. Fourth, this
legislation specifies the requirements for the biennial benefit
report, which does two things: 1) It provides accountability to
the shareholders who will be able to track and direct benefit,
and 2) it provides transparency to investors who will know what
the benefits are.
MS. CARPENETI concluded by stating that HB 124 establishes a
solid foundation for long-term mission alignment and value
creation. It protects mission through capital raises and
leadership changes and creates more flexibility when evaluating
potential sale and liquidity options. Further, she said, it
prepares businesses to lead a mission-driven life.
3:46:54 PM
REPRESENTATIVE JOSEPHSON brought attention to page 3 where the
types of benefits that could be provided are laid out. He asked
what would constrain the legislation from becoming politicized;
for example, a debate about what a public benefit was.
MS. CARPENETI replied that a benefit corporation is responsive
to its shareholders. She inquired whether the question is about
abuse of this system or what might happen in that event.
REPRESENTATIVE JOSEPHSON said he assumes shareholders would know
that if they have invested in Ben and Jerry's they are going to
get a certain benefit corporation investment, and if they
invested in Dow Chemical, they might get a different one.
MS. CARPENETI responded that that is the point of the benefit
report it outlines what the company is doing. In its articles
of incorporation, a corporation outlines any potential
priorities that it might have for the corporation. Those are
publically available, so as informed consumers [people] can
decide if that is the company they want to invest in. In terms
of holding the company accountable, she said she would point to
the biennial report as being the mechanism by which shareholders
would be able to track what the corporation is doing and if a
shareholder has concerns about the action, or concerns that the
corporation is not conforming to its previously stated benefits
or mission, then a shareholder would potentially have grounds
for bringing claim against the directors or the board.
3:48:45 PM
REPRESENTATIVE JOSEPHSON related that he once invested in
Calvert Investment Funds, an ethics fund that was supposed to
have a benign impact on the world, at least as perceived by
Calvert Investments. He said he is mentioning that because he
knew going in with his small investment that the return might be
6 percent instead of 10 percent. He inquired whether that is
something [benefit corporation] shareholders would understand.
MS. CARPENETI answered that the way it is set up it is often
called the double bottom line. So, instead of the board of
directors being responsible for only making decisions based on
the financial impact, the board could also base its decisions on
other factors, including social good.
3:49:52 PM
REPRESENTATIVE KNOPP asked whether public benefit corporations
exist today.
MS. CARPENETI replied that Alaska is not groundbreaking with
this legislation. Thirty-one other states have adopted similar
legislation and other states are considering it.
REPRESENTATIVE KNOPP requested Ms. Carpeneti to provide examples
of benefit corporations.
MS. CARPENETI responded by first clarifying that Ben and Jerry's
is not technically a benefit corporation, but rather a Certified
B Corp, which means the company has gone through third party
analysis that says the company provides this good. Examples of
current benefit corporations include Patagonia and King Arthur
Flour, the oldest flour producer in America.
REPRESENTATIVE KNOPP asked what public benefit services are
provided by the aforementioned corporations.
MS. CARPENETI answered that she would get back to the committee
with a list of all the public benefits that Patagonia provides,
but that Patagonia is dedicated to outdoor recreation.
REPRESENTATIVE KNOPP inquired whether this is talking about only
publicly traded corporations, given not all corporations are
publicly traded. He further inquired whether there is a tax
benefit to the corporation to do this. Lastly, he inquired why
any publicly traded corporation could not in its articles of
incorporation or in its prospectus to shareholders list itself
as public benefit.
MS. CARPENETI replied that corporate law says a corporation
could become liable if its shareholders disagree with doing this
and bring suit against the corporation for not deciding based on
the financial impact of its decisions in expanding to a public
benefit good. The bill would provide legal protection for the
corporation to include those benefits into its decision-making
process.
REPRESENTATIVE KNOPP reiterated his question about whether this
is talking only about publicly traded corporations that trade
stock on an exchange.
MS. CARPENETI offered her belief that the answer is yes.
CHAIR KITO interjected that he would get this clarified and
provide the information to the committee. He said it is in the
corporation statutes and offered his belief that any company
filing an incorporation notice with the state could become a
benefit corporation. The corporation would still be required to
file its articles of incorporation, but the articles of
incorporation may provide a public benefit as opposed to just a
fiduciary responsibility.
3:52:54 PM
REPRESENTATIVE BIRCH asked what the genesis is for the proposal
and whether someone requested that it be done.
CHAIR KITO replied it was a proposal put forth by Representative
Seaton in a past session. He said he thought the bill a great
idea and so took it forward with the idea that a Native for-
profit corporation might want to try doing something that
benefits heritage. Right now, many corporations have a for-
profit as well as a non-profit heritage group, which sometimes
share boards of directors. However, he continued, the for-
profit has to make its decisions in supporting some of those
other organizations based on what is a responsible fiduciary
manner as opposed to, say, what might be culturally desirable
for a Native corporation. Whether or not it gets used that way,
he said, he saw the opportunity to strongly link, or more
strongly link, the for-profit motive of a Native corporation or
any other corporation to the values of the shareholders and
allow a corporation to provide opportunities and benefits to a
cultural group or charity. It is a voluntary choice, he pointed
out, but if it is chosen then the corporation has to outline
everything it is going to be doing in its articles, which
thereby allows the corporation to not have to make all of its
goals fiduciary goals.
REPRESENTATIVE BIRCH reiterated his question as to whether
someone specifically came to Chair Kito.
CHAIR KITO answered that nobody came to him specifically. He
further offered his belief that nobody went to Representative
Seaton specifically.
REPRESENTATIVE BIRCH said he is familiar with non-profits that
are set up with public charitable purpose and while he is not
opposed to the bill, he doesn't fully understand the need for
it.
CHAIR KITO responded that the purpose is to get the information
out and discover who might be interested in utilizing it.
REPRESENTATIVE BIRCH stated he is more used to someone coming to
a legislator with a problem that needs solving, rather than
throwing something out there and asking whether anyone has a
problem with it.
MS. CARPENETI noted that there is correspondence accompanying
Representative Seaton's previous iteration of the bill from an
individual with the business Earth Friendly Coffees who had
expressed interest. Additionally, she advised, Stephen Trimble
of Anchorage will be testifying today that he is interested in
gaining benefit corporation status for his business.
3:56:27 PM
REPRESENTATIVE WOOL offered his understanding that the proposed
concept would allow a corporation to make a decision that isn't
totally financial as a benefit for something else, rather than
being required to give top priority to financial. He surmised
that this concept changes how a corporation would practice its
business as opposed to what it does with its profits.
MS. CARPENETI replied yes, this establishes a legal designation
for a corporation that wants to be recognized as a benefit
corporation. It doesn't change how traditional corporations
operate; it just sets up the standards for benefit corporations.
She added that it allows a great deal of latitude to the board
of directors of the company to decide what that balance is. It
doesn't provide any sort of table or schedule saying this is how
the company must allocate its profits or this is how the company
must act as a benefit corporation. It just allows the
flexibility for a corporation to decide how to operate as best
suits its mission and what it is trying to do.
REPRESENTATIVE WOOL offered his understanding that all Newman's
Own profits go to charity. He surmised this is what Newman's
Own does with its profit and is not necessarily how it operates
its business. He asked whether Newman's Own is a benefit
corporation or whether it is more a corporate decision as to
what Newman's Own does with its profits.
MS. CARPENETI responded that she would look at Newman's Own to
see whether it is established as a benefit corporation and will
get back to the committee with an answer.
CHAIR KITO pointed out that his intent is not to change the way
the corporation would operate, but just to allow the corporation
to have more flexibility with what it does with its profits.
3:58:50 PM
REPRESENTATIVE BIRCH inquired whether a traditional corporation
could transition to a benefit corporation and whether it would
take a shareholder vote.
MS. CARPENETI answered yes, a corporation can start as a regular
corporation and then if HB 124 became law the corporation could
opt to change through a two-thirds vote of its shareholders.
3:59:32 PM
REPRESENTATIVE KNOPP asked whether there is anything in the
Internal Revenue Service (IRS) code as far as tax structures, or
in states that have benefit corporations, that allow benefit.
For example, he asked, whether the benefits that are expended
are taxable benefits to the corporation.
MS. CARPENETI replied that benefit corporations do not enjoy any
special tax status, they are taxed the same as corporations.
4:00:16 PM
REPRESENTATIVE WOOL offered his understanding that a benefit
corporation would not get any special tax status. He observed
that next on the committee's calendar is a bill related to
taxing [non-C corporations]. He asked whether benefit
corporations could in theory avoid a tax given that they would
have a different designation than other types of corporations.
MS. CARPENETI responded she is hesitant to comment on
legislation she hasn't seen and how it would impact benefit
corporations. She deferred an answer to someone with legal
expertise and tax expertise.
REPRESENTATIVE WOOL surmised that if there are certain tax laws
that affect certain types of corporations and this is yet
another type of corporation, then he would expect that the law
would have to address that type of corporation, which hasn't yet
happened.
MS. CARPENETI replied that that is a reasonable expectation.
4:01:53 PM
CHAIR KITO opened public testimony on HB 124.
4:02:14 PM
STEPHEN TRIMBLE, Founder and Chief Executive Officer, Arctic
Solar Ventures, speaking on behalf of his company, testified in
support of HB 124, which would authorize the creation of benefit
corporations in Alaska law. He said Arctic Solar Ventures is a
residential and commercial solar design and installation company
that operates statewide. He noted that his company is the
second Certified B Corp in the history of Alaska.
MR. TRIMBLE explained that the difference between a Certified B
Corp and benefit corporation is that a certified B Corp is a
third-party global standardized certification that is sort of
like a fair-trade certification for coffee for businesses that
incorporate social and environmental benefit into their mission.
He said benefit corporation legislation is a compendium piece to
certified B Corp status that allows companies like his to be
able to also acknowledge that commitment to society and the
environment within the structure of state law.
MR. TRIMBLE advised that his company, a leading socially
responsible business in Alaska, plans on becoming Alaska's first
benefit corporation after the passage of HB 124 and has been
actively working on it. During the previous iteration of the
bill by Representative Seaton, he continued, he called and
expressed interest in the bill and urged it be passed. His
company has been following this for the past two to three years
and has been pressing for its adoption because the entire
company believes this is an incredibly valuable tool for Alaska
businesses to be able to differentiate themselves.
MR. TRIMBLE stated that this is uniquely critical to the "DNA"
of his business and it will also present many other businesses
the opportunity to codify their commitment to society and the
environment within their bylaws. Differentiating businesses
within their communities and within the global community at
large sends a clear message that Alaska is a leading place for
socially responsible businesses to form and thrive, he said.
Profit, societal benefit, and environmental stewardship can
powerfully coexist within business. He urged that the full
legislature support the enabling of Alaska businesses to fully
commit themselves to making the world a better place through
their practices and policies.
4:06:03 PM
REPRESENTATIVE KNOPP asked whether Mr. Trimble's company is
publicly traded on an exchange and whether it issues shares.
MR. TRIMBLE responded that his is a privately held corporation.
He advised it is not required that a benefit corporation be
publicly traded.
REPRESENTATIVE KNOPP inquired as to the number of board members
for Mr. Trimble's company.
MR. TRIMBLE replied that his corporation has five board members.
REPRESENTATIVE KNOPP asked why Mr. Trimble's corporation would
need to be a benefit corporation if the purpose is to
disseminate information about the purpose of the corporation and
the company only has board members and no shareholders.
MR. TRIMBLE answered that this legislation would enable his
corporation to consider, as a company, other aspects of societal
and environmental benefit as opposed to merely profit as its
predominant driver and measure of business success. This is an
incredibly powerful tool for businesses to be able to
differentiate themselves within the local community, he
reiterated, because making those commitments public and being
upheld to those commitments in the form of reporting is very
powerful. It goes far above and beyond just saying a company
does good the company has to actually show it does good. That
is also the reason why his corporation has already pursued the
extremely stringent third-party B Corp certification. It's
different than simply just being able to report to the company's
shareholders or board.
4:08:43 PM
REPRESENTATIVE BIRCH inquired as to what the distinction is that
[HB 124] would offer Mr. Trimble and his business aspirations
versus a conventional configuration.
MR. TRIMBLE replied that this would allow his corporation to
volunteer to a higher level of scrutiny and obligation to do
good in its business practices. It is a voluntary thing, but to
be able to offer yourself to be held up to the reporting
requirements to a broader mission beyond profit is something
that every Alaskan company should want to do because businesses
are here to make Alaska a better place. As founder of Arctic
Solar Ventures, he said, this is his company's DNA. To have the
state acknowledge that and join his company in its voluntary
reporting of that is hugely important.
4:10:28 PM
REPRESENTATIVE WOOL asked whether Mr. Trimble's business could
still operate the same way it does and make the same decisions
without the benefit corporation designation other than the
recognition of it.
MR. TRIMBLE responded that his business, through its internal
practices, does that now, but he can't guarantee that other
companies will do the same. If a company is volunteering to be
held to that standard and wanting to receive the public relation
benefits that are associated with being in a business that has
considerations above and outside of pure profit, he said, then
the company needs to be held to a standard. This structure has
been designed and implemented by other states so that businesses
can't claim societal benefit without a standard and proof under
the state's corporate structure.
MR. TRIMBLE addressed the committee's earlier discussion about
the use of profits and how that plays in. He pointed out that
there is no requirement under HB 124 that profits be donated to
a non-profit or used for a non-profit, which is the case for
benefit corporation structure anywhere. It has nothing to do
with how profits are dispersed or where they should go, he
advised, rather it has to do with internal practices and
policies of the business. For example, his company firmly
believes that one of its public benefits is that it deploys
clean energy and the deployment of clean energy has many
societal benefits. His company is creating local jobs and
stimulating the local economy, as well as reducing carbon
footprints of people and cleaning the air. It's not only about
being able to be acknowledged for being held to a higher
standard, he reiterated, but that the company is volunteering to
be held to that standard, and that is why HB 124 is important.
4:14:02 PM
REPRESENTATIVE WOOL offered his understanding that it is a
standard of corporate behavior that a company would be adhering
to, as well as the public recognition and benefit that the
company would get from being identified as that type of
corporation.
MR. TRIMBLE confirmed that that is a very fair assessment.
4:14:26 PM
REPRESENTATIVE KNOPP inquired whether B Corp Certification is a
federal certification.
MR. TRIMBLE answered that it is an international certification
with over 4,000 corporations now certified throughout the world,
and that this certification is administered by the organization,
B Lab, LLC. He explained that B Lab is the organization that
helped states develop the first benefit corporation legislation.
The idea behind B Corp Certification and the B Lab organization
was to create a global framework where businesses can volunteer
to be a part of this very rigorous assessment and to work with
states to then develop the benefit corporation designation
within their corporate state structure, so it completes the
puzzle. The benefit corporation piece is a U.S. specific piece,
he said, but the B Corp Certification is a global certification.
4:15:49 PM
CHAIR KITO held over HB 124.
HB 36-TAX: INCOME FROM NON C CORP ENTITIES
4:16:03 PM
CHAIR KITO announced that the final order of business would be
SPONSOR SUBSTITUTE FOR HOUSE BILL NO. 36, "An Act bearing the
short title of the 'Fair Contribution by High Profit Businesses
Act'; requiring certain persons in the business of oil and gas
production or transportation to pay income tax; establishing a
tax on the income of a sole proprietorship, partnership, limited
liability company, or an S corporation; relating to exemptions
from the tax on corporations; and providing for an effective
date."
4:16:24 PM
REPRESENTATIVE WOOL moved to adopt the proposed committee
substitute (CS) for SSHB 36, Version 30-LS0148\E, Nauman,
3/29/17, as the working document. There being no objection,
Version E was before the committee.
4:16:50 PM
REPRESENTATIVE LES GARA, Alaska State Legislature, as the
sponsor introduced SSHB 36 via a PowerPoint presentation
entitled, "HB 36: Fair Contribution by High Profit Businesses
Act." He explained SSHB 36 tries to close a number of
exemptions that Alaska has [slides 1-3]. Until 1980 when Alaska
had an income tax, every business in the state contributed
towards the state's public services and roads - the business
owners paid an income tax. He said the profits that the owners
owned through their business, whether lawyers, doctors,
engineers, architects, oil field service companies, or any
business of which the state has 40,000, paid a portion of the
business's profits to the state to help support public services.
REPRESENTATIVE GARA said SSHB 36 tries to solve the state's
current problem, which is that the 9,000 C corporations in
Alaska are subject to the state's corporate business tax while
most other businesses are not. Most people see C corporations
as publicly traded corporations, he noted, but they are more
than that. Although some businesses are subject to a fisheries
tax or a mining tax, most other businesses lawyers, doctors,
architects pay no tax to the state other than a $50 license
fee per business. So, a company making $10 million in profits
contributes $50 to the state. He advised that SSHB 36 tries to
recognize that struggling businesses cannot afford to pay a tax,
but that those who are doing much better in terms of profits can
afford to contribute to the state's schools and infrastructure.
People who are successful benefit from the things the state pays
for, such as roads and infrastructure, energy projects, and the
public schools that produce the employees who work for the
business. Members of society want to support the next
generation that benefits from those things, which is the point
of contributing back.
4:20:00 PM
REPRESENTATIVE GARA pointed out that 9,000 S corporations in
Alaska pay no corporate tax [slide 4]. Regardless of whether
these S corporations make $10 million or $500,000 in profits,
their tax is only the $50 in license fees paid per business.
Obviously, jobs in this economy are important, he continued, but
in some sense for the state treasury every business right now
actually costs the state money for roads, schools, and the
other infrastructure that is provided by the state. From a
budget standpoint, one would hate to have businesses be a money
drain, but that is the way things are set up in Alaska.
Businesses certainly help with local property taxes, but for the
state budget businesses cost more money than the state gets
back. He noted that there are 45,000 businesses in the state
that are not S corporations, and related that when he was a
salaried attorney at a law firm, the firm took in $10-15 million
in profits and paid $100 to the state with two lines of business
license fees. This is the same for doctors' offices and many
other businesses, he continued. He said he didn't feel that the
law firm contributed back and when he became a partner at that
firm, he felt the firm should contribute back more than the
license fee that it paid.
REPRESENTATIVE GARA advised that the number of non-corporate
businesses that pay tax in Alaska is zero, regardless of the
amount of their profits [slide 5]. He said the corporations
that do pay tax are the roughly 9,000 C corporations in the
state as there is a tax structure for C corporations. The types
of business not currently paying tax in Alaska include S
corporations, limited liability companies (LLCs), partnerships,
and sole proprietorships. Those are the classes of the [45,000]
businesses that don't pay a tax in Alaska.
4:22:27 PM
REPRESENTATIVE GARA stated that the matter of fairness is one
reason why he introduced SSHB 36 [slides 8-9]. He offered his
belief that people who are successful in society should chip in
to help society run. The state's current exemption, which is
every business that is not a C corporation, does not help close
the state's deficit.
REPRESENTATIVE GARA pointed out that Alaska law has a
confidentiality provision and every business that does not pay a
tax is considered a taxpayer under Alaska law because that is
how the law is written [slides 10-11]. That confidentiality
provision for taxpayers, even taxpayers that pay no tax,
requires that the Department of Revenue not reveal the name of
any business that does not pay a tax. In some sense, he said,
it is almost good not to know the names of the businesses that
don't pay taxes. The purpose of the bill is not to target any
business. It is to say that if a business makes a certain
amount of income it should chip in toward the ability for the
state to provide public services.
REPRESENTATIVE GARA stated that SSHB 36 tries to draw a line
between those businesses that are successful and those that are
struggling because it is not wanted to tax a business out of
business [slide 12]. He said he drew a line that says the first
$200,000 of profit/net income is nontaxable under the bill,
which he thinks is generous. The bill does not change the
current corporate tax on C corporations, he explained, and less
profitable businesses will remain fully exempted from any
business tax under SSHB 36. He allowed there could be differing
views on whether the $200,000 mark is the right mark.
4:24:58 PM
REPRESENTATIVE GARA advised that SSHB 36 would not tax Alaska
Native corporations specifically, which the bill states [slides
13-14]. Most, if not all, Native corporations are covered as C
corporations given the number of shareholders that they have,
and if they make a profit, they probably pay a tax to the state
under the C corporation tax. He said it is the same with
village corporations and that the village corporations often
don't make a profit.
REPRESENTATIVE GARA pointed out that the tax schedule set under
SSHB 36 is lower than the schedule under the current corporate
tax, mostly because the first $200,000 of income is exempt
[slide 15]. He noted that the top tax rate under the current
corporate tax for C corporations is 9.4 percent of income above
$222,000 a year, and that there is a smaller tax on lower levels
of income. He explained that by exempting the first $200,000 of
income the proposed tax is a lower tax and the proposed tax
gradually moves the tax from 5 percent to 9.4 percent at
$1,000,000. He allowed it is for the committee to decide
whether those are the right graduations, but that the exemption
under the current C corporation statute only excludes the first
$25,000 of income. One reason a less aggressive tax than the
corporate tax is sought is that many larger companies and
publicly traded companies are going to be under the C
corporation tax. A larger company probably has a greater
ability to weather the storm in down years with a tax than
would a much smaller company.
REPRESENTATIVE GARA reiterated that the first $200,000 is tax-
free and then the tax starts at 5 percent for income over
$200,000. At $500,000 the tax goes to 7.5 percent and at income
above $1 million it caps out at the current corporate tax rate
of 9.4 percent, whereas the current corporate tax rate is 9.4
percent at income above $222,000. He noted that the bill's
effective tax rate is even lower because, like the corporate
tax, it is deductible from federal income tax. Thus, under this
bill the effective payment may possibly be 20-39 percent lower.
For example, a 9.4 percent tax would be closer in effect to
about 6 percent tax because it is deductible from federal tax.
4:29:10 PM
REPRESENTATIVE GARA pointed out that there is one exception to
what he has said so far - Alaska has a separate corporate tax
for oil and gas producers and pipeline owners [slide 17]. If it
is a C corporation it pays the 9.4 percent tax at $222,000.
Under current law, an oil and gas producer or a pipeline owner
that is formed as an S corporation or as an LLC avoids the
corporate tax. He said SSHB 36 would put all companies that are
inside the state's oil and gas corporate tax into the existing
corporate tax structure - an oil and gas producer formed as an S
corporation would be treated as a C corporation. That tax has a
different definition on income than the corporate tax for all
non-oil and gas companies. He noted that under the bill, if
[Hilcorp Alaska, LLC], the fourth largest oil and gas producer
in the state, made profits it would be subject to the existing
oil and gas corporate tax, while currently it is not.
REPRESENTATIVE GARA said SSHB 36 uses the same definition of
taxable income as existing law because he didn't want to create
a new definition. He stated: "There is one definition of income
for non-oil and gas companies that's based on a multi-state tax
compact that's designed so many states don't tax the same
income. Income for oil and gas companies will be defined the
way it's defined for oil and gas companies; it's a complex
formula that is ? referred to as worldwide apportionment."
4:31:29 PM
REPRESENTATIVE GARA continued his discussion of how taxable
income is defined (slide 19). A few policy calls were made in
the bill, he said, and one was whether to tax the business or
the individual shareholders. It was decided to levy the tax on
the business to minimize the cost of administration for both the
business and the state, but primarily to minimize the costs for
the businesses and their shareholders. Rather than make each
shareholder or each partner pay tax separately, SSHB 36 provides
that the business pay the tax on the business's net income. The
business can then apportion its net income and the tax paid
between its shareholders.
REPRESENTATIVE GARA reported that the corporate income tax
produces roughly $100 million annually (slide 20), but that the
amount of oil and gas corporate income tax produced each year
depends very much on oil prices. For example, in 2016 there was
a negative amount. It was negative, he explained, because
companies pay estimated taxes and by the end of the year the
Department of Revenue (DOR) owed money back. The current
projections for 2017 and 2018 are about $100 million and $200
million, respectively, as oil prices are projected to rise.
4:33:23 PM
REPRESENTATIVE GARA stated that originally the thought was to
only cover those corporations that are not covered (slide 21).
So, he continued, why does this bill go beyond corporations?
Why does it add partnerships? Why does it add general
businesses? He explained that as an attorney he could form a
law firm as a corporation, which many law firms do. Or, he
could form a law firm as a partnership. Or, he could form as a
sole proprietorship and hire a number of lawyers. He said that
if a law firm took in $10 million in profits, he could not find
an answer as to why he should pay a tax if he files as an S
corporation but not if he files as a sole proprietorship. It's
the same business activity, the same benefits from the state,
and the same cost to the state (for example, the court system).
He said he therefore doesn't think the form that someone creates
a corporation under should determine whether or not that person
pays a tax; rather, the activity and the level of profit should
determine whether or not someone pays a tax. He added that he
cannot come up with a logical reason why he would tax the same
business that forms as an LLC differently than a business that
does the same exact thing and makes the same exact money as a
sole proprietorship, for example.
REPRESENTATIVE GARA said much time was spent on ensuring that
there would be no double taxation under the bill (slides 22-23).
Any income taxed under SSHB 36 would be exempted from a personal
income tax if one were adopted in Alaska. The bill is modeled
as much as possible under existing law - the definitions of
income used in the bill are the same as under existing law.
Also, he continued, the bill avoids double taxation in cases
where one business owns another business. There would not be a
tax on the owner business as well as a tax on the business that
it owns. The owning business is already going to be paying
taxes on the business that it owns. Additionally, he said,
current C corporation law says that if a corporation pays
another tax, such as a fishing or mining tax, those taxes are
deducted from the company's corporate tax, and this same rule is
followed in SSHB 36.
REPRESENTATIVE GARA stated that the bill's biggest goal is to
make sure everyone is chipping in together (slide 24). The
bill is one way to help address the state's $2.8 billion
deficit. In looking at the various plans out there, he
continued, there are none on the table that would allow
legislators to both fill the deficit and return to having a
capital budget. A number of different approaches are needed, he
said, and it is his hope that as many good ideas as possible
will advance forward and people will decide which ones are
needed as a fiscal plan.
4:38:38 PM
REPRESENTATIVE JOSEPHSON observed that the first bullet on slide
19 states, "To minimize the costs of administration, tax is
placed on the business and the individual owners". He further
observed that the second bullet on slide 19 states, "Business
will apportion taxes based on ownership shares, so that each
owner does not have to hire their own accountant". He said the
second bullet seems to be the opposite of the first bullet.
REPRESENTATIVE GARA replied that the tax would be placed on the
business so only one filing would have to be made. If a
business had 20 shareholders and the individual was taxed, then
20 filings would have to be made and those 20 different people
might have to hire 20 different accountants. When the tax is
placed on the business, then the business will apportion taxes
based on a person's shares for what the person's net income was
and what the taxable portion attributed to that was. Then, each
person can figure out his or her federal taxes.
4:39:37 PM
REPRESENTATIVE JOSEPHSON said it appears to be in the Gardner
memo that Alaska is one of only two states that fully exempt
this sort of income. He inquired whether this is correct.
REPRESENTATIVE GARA offered his belief that that is correct. He
further offered his belief that 41 states have an income tax and
business owners pay their share of the income they get from
their law firm, oil field services company, or store as an
income tax. Some states have both an income tax and a business
tax, he advised, and most states that don't have an income tax
have some sort of law like SSHB 36 that taxes non-C
corporations; they may just tax S corporations and LLCs. He
reiterated his earlier statement that he doesn't understand why
a state would tax the same business as an LLC but let them avoid
taxation if they formed under some other form. He added that he
thinks some states go beyond LLCs.
4:40:44 PM
REPRESENTATIVE BIRCH expressed his concern that the bill would
[create double taxation] and that, in the absence of imposing a
statewide personal income tax, an entry-level tax on pass-
through businesses would in fact double up. He said the bill
needs a lot more work because he is very concerned about
cranking up the taxes when [the legislature] is not making the
budget reduction that needs to be done.
REPRESENTATIVE GARA answered that much care and work has been
taken to ensure there will be no double tax under the bill. "If
an income tax were to be adopted," he explained, "the income
that you pay under this tax would not be subject ? to the income
tax." He pointed out that this provision is on page 2, starting
on line 5. He added that SSHB 36 also avoids the other possible
double taxation issue of an entity that owns another entity that
would be taxed under this bill. He said he understands the
concern of whether members believe people should be paying
taxes, but that there is no double taxation under SSHB 36.
4:42:29 PM
CHAIR KITO turned to invited testimony.
4:42:56 PM
JOHN LETOURNEAU, Certified Public Accountant, Thomas, Head &
Greisen, PC, stated he doesn't have prepared testimony, but, per
the sponsor's invitation, he is before the committee to answer
questions on SSHB 36 as a person who is a practicing certified
public accountant (CPA) and involved in preparing income tax
returns for C corporations, S corporations, LLCs, and sole
proprietorships.
4:43:32 PM
REPRESENTATIVE BIRCH posed a scenario of a group of attorneys
that have an S corporation. He asked whether the tax return
would roll down to where it would be individually accountable to
each partner.
MR. LETOURNEAU replied yes. He posed a scenario of a group of
attorneys that choose to form a corporation and do business as
an Alaska for-profit corporation that elects to be taxed as an S
corporation. The attorneys as shareholders would be allocated a
share of the taxable income of the S corporation, he said, and
they would report that on their federal income tax return. If
the attorneys were residents of the state of California, they
would also pay tax on their share of the income to the State of
California. If the attorneys were residents of Alaska and all
the operations of the law firm were in the state of Alaska,
there would be no income tax on the profits of the law firm.
4:44:50 PM
REPRESENTATIVE KNOPP surmised that the focus is really on taxing
S corporations. He asked whether the multi-national companies
operating in Alaska, such as Tesoro, Walmart, or Fred Meyer's
would be C corporations subject to taxation under the structure
currently in place.
MR. LETOURNEAU responded yes and offered his belief that the
most common form of business organization for a large multi-
national entity is to be taxed in the U.S. as a C corporation.
However, he pointed out, certain transportation companies in the
oil and gas industry public pipelines have elected to be
organized as limited liability companies (LLCs). They would not
be taxed under the C corporation rules for income tax, but they
might be taxed under the special oil and gas rules.
REPRESENTATIVE KNOPP posed a scenario of an oil and gas company
doing business in Alaska as an S corporation that the state does
not tax. He inquired whether an S corporation or an LLC might
consider changing to a C corporation should SSHB 36 pass.
MR. LETOURNEAU answered that it is possible for an organization
to make different tax elections. However, in his experience, an
organization that would consider that would be driven largely by
the federal tax implications first and foremost and then they
would consider the state tax implications. So, he continued, it
would be unusual for an entity that had elected to be an S
corporation for federal income tax purposes to elect to change
to a C corporation simply as a result of this proposed statute.
But, he added, any analysis would be very company specific.
4:47:40 PM
REPRESENTATIVE WOOL recalled [slide 6] says 9,000 C corporations
[do pay tax] and [slide 4] says 9,000 S Corporations [do not pay
tax]. He asked whether those numbers are a typographical error
or a coincidence.
LAURA CHARTIER, Staff, Representative Les Gara, Alaska State
Legislature, confirmed the numbers are correct. She pointed out
that the fiscal note repeats those same data points. Out of the
18,000 corporations, roughly half are C corporations and roughly
half are S corporations, which is the federal designation.
REPRESENTATIVE WOOL remarked that it is a funny coincidence and
seems like a lot of corporations for a state with less than a
million people. He recalled that Alaska had an income tax prior
to 1980 and inquired whether it is correct that all these
entities would have paid state tax through their income tax and
so this corporate tax was not necessary.
REPRESENTATIVE GARA replied that this exemption didn't exist
before 1980 because all the non-C corporations distributed their
profits to their owners and then their owners would pay the
income tax on that share of their profits. When the income tax
was eliminated in 1980, he continued, the state did not impose a
business tax and so that left C corporations taxed and all other
business and corporate forms untaxed other than the $50 license
fee. He asked Mr. Letourneau whether this is something that an
accountant could do for a business if SSHB 36 were to pass as
currently written.
MR. LETOURNEAU offered his belief that, yes, an accountant could
file the tax return based on this bill. Based on how it is set
forth in the bill, he said he would anticipate that the
Department of Revenue (DOR) would issue regulations and forms,
which he doesn't think would be tremendously different than the
forms and regulations governing C corporations. He stated that
accountants already deal with taxation of C corporations, LLCs,
S corporations, and sole proprietorships, and therefore he
doesn't think this is something an accountant would have a hard
time helping clients and taxpayers comply with.
4:50:54 PM
REPRESENTATIVE GARA said his concern is that a C corporation
might say the tax is lower under this new bill and might decide
to become an S corporation but recalled that Mr. Letourneau had
responded that that would be difficult. He asked Mr. Letourneau
to address C corporations becoming S corporations.
MR. LETOURNEAU answered that the Alaska state corporate income
tax is adopted by reference to the Internal Revenue Code (IRC).
There is a provision that if a C corporation elects to become an
S corporation it is considered a prospective election with the
possibility that the C corporation could pay a toll charge. It
is referred to as a toll charge in the applicable Alaska
statute. It's called a built-in gains tax, he continued, and is
a tax that Congress has chosen to levy when a C corporation
chooses to change its form of organization. This would present
a substantial issue for any C corporation thinking that it could
change to an S corporation. He further pointed out that S
corporations are much more restricted than C corporations in
terms of their allowable shareholders, so not all C corporations
would have the opportunity to convert to S corporations.
4:53:14 PM
MATTHEW GARDNER, Senior Fellow, Institute on Taxation and
Economic Policy, provided invited testimony on SSHB 36. He said
that most states currently tax the income of both of the broad
types of businesses that have been discussed C corporations
through the corporate income tax and pass-through corporations
through the personal income tax. Nine states depart
meaningfully from this, he continued, and within that there are
two states that exempt all the income of pass-through entities
while fully taxing the income of C corporations. Those two
states are Alaska and Florida.
MR. GARDNER explained that in the 42 states with both types of
taxes, the main concern of policymakers about the relationship
between these two types of business taxes is whether the tax
system is prompting businesses to make their entity choices
based on the tax rules. If there is a big gap between the
personal corporate income tax rate and the corporate income tax
rate, are companies, going to change their entity form based
only on tax reasons? In most states and at the federal level
this isn't really a concern, he said. Where this concern crops
up most is in exactly the situation that Alaska finds itself in
now and has found itself in for the last 30 years, which is that
Alaska has a corporate tax rate that tops out around 9 percent
and a pass-through business tax rate of 0 percent.
MR. GARDNER recounted that 15 years ago a deputy revenue
commissioner argued that in a place with no state income tax a
person would be an idiot to start up a C corporation. He said
he thinks that is overstating things because there are non-tax
reasons, regulatory reasons in particular, why businesses choose
the entity that they choose. The federal tax system is a much
bigger driver to the extent tax rates matter at all.
MR. GARDNER noted, however, that other things equal there is
still a clear incentive in place in Alaska for companies to
shift toward the pass-through form. He said SSHB 36 would
reduce that incentive by narrowing the gap between the 0 percent
rate that currently exists on pass-through businesses and the
9.4 percent top marginal rate that currently exists on C
corporations. The proposed bill wouldn't end that incentive
because the rates aren't exactly equal between the two, but it
would sharply reduce that incentive. The main benefit of the
proposal, he continued, is that it would get the state of Alaska
closer to the principle of tax neutrality where individuals and
businesses make their investment decisions based on the economic
merits of those choices rather than making those decisions
purely or even primarily for tax reasons, which is the main
point that he wanted to add to the discussion.
4:57:11 PM
REPRESENTATIVE JOSEPHSON inquired whether a corporation, such as
Coca Cola, that is nationally a C corporation could pursue a
different structure within Alaska.
MR. GARDNER replied that such a corporation could not. The
choice of entity for a multi-national company like Coca Cola is
a monolithic choice and it is going to be made primarily for
reasons having to do with the federal tax laws and with the
other regulatory framework within which these companies operate.
4:58:04 PM
CHAIR KITO stated that public testimony on SSHB 36 would be
taken on [April 3, 2017]. He noted that the public can also
provide written comments via email, letter, or other means to
his office and those would be included in the committee packet.
4:58:47 PM
ADJOURNMENT
There being no further business before the committee, the House
Labor and Commerce Standing Committee meeting was adjourned at
4:59 p.m.