Legislature(2017 - 2018)SENATE FINANCE 532
04/30/2018 09:00 AM Senate FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| SB76 | |
| HB398 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 76 | TELECONFERENCED | |
| + | HB 398 | TELECONFERENCED | |
SENATE FINANCE COMMITTEE
April 30, 2018
9:15 a.m.
9:15:52 AM
CALL TO ORDER
Co-Chair MacKinnon called the Senate Finance Committee
meeting to order at 9:15 a.m.
MEMBERS PRESENT
Senator Lyman Hoffman, Co-Chair
Senator Anna MacKinnon, Co-Chair
Senator Click Bishop, Vice-Chair
Senator Peter Micciche
Senator Donny Olson
Senator Gary Stevens
Senator Natasha von Imhof
MEMBERS ABSENT
None
ALSO PRESENT
Representative Neal Foster, Sponsor; Brodie Anderson,
Staff, Representative Neal Foster.
PRESENT VIA TELECONFERENCE
Brandon Spanos, Deputy Director, Tax Division, Department
of Revenue.
SUMMARY
SB 76-ALCOHOLIC BEVERAGE CONTROL; ALCOHOL REG
CS SSSB 76(FIN) was REPORTED out of committee with a
"do pass" recommendation and with one new fiscal
impact note from the Department of Commerce, Community
and Economic Development, and one previously published
zero fiscal note: FN 2(DHS).
HB 398-CORP TAX:PUBLIC UTILITY INCOME ALLOCATION
HB 398 was HEARD and HELD in committee for further
consideration.
SENATE BILL NO. 76
"An Act relating to alcoholic beverages; relating to
the regulation of manufacturers, wholesalers,
retailers, and common carriers of alcoholic beverages;
relating to licenses, endorsements, and permits
involving alcoholic beverages; relating to the
Alcoholic Beverage Control Board; relating to offenses
involving alcoholic beverages; amending Rule 17,
Alaska Rules of Minor Offense Procedure; and providing
for an effective date."
9:16:38 AM
Co-Chair MacKinnon offered a brief history of the bill in
committee.
Senator Micciche informed that the bill modernized the
alcoholic beverage Title 4, changing some of the fees and
regulations. He said that the bill demonstrated the
expectation that licensees would perform at a level that
did not jeopardize the public.
Vice-Chair Bishop MOVED to report CS SSSB 76(FIN) out of
Committee with individual recommendations and the
accompanying fiscal notes. There being NO OBJECTION, it was
so ordered.
CS SSSB 76(FIN) was REPORTED out of committee with a "do
pass" recommendation and with one new fiscal impact note
from the Department of Commerce, Community and Economic
Development, and one previously published zero fiscal note:
FN 2(DHS).
9:18:40 AM
AT EASE
9:21:06 AM
RECONVENED
HOUSE BILL NO. 398
"An Act relating to the allocation and apportionment
of income of a public utility for purposes of the
Alaska Net Income Tax Act; and providing for an
effective date."
Vice-Chair Bishop MOVED to ADOPT proposed committee
substitute for HB 398, Work Draft 30-LS1231\O (4/30/18,
Nauman).
Co-Chair MacKinnon OBJECTED for discussion.
REPRESENTATIVE NEAL FOSTER, SPONSOR, explained that the
bill would repeal the specific exemption for multi-state
corporations operating public utilities in the state. He
relayed that the 2015 Indirect Expenditure report put out
by the Department of Revenue (DOR) had identified that the
exemption did not closely relate to the legislative intent
and could be considered a loophole that would allow certain
multi-state corporation to reduce their corporate tax
liability. The bill would repeal the exemption and require
multi-state public utility corporations to follow the
formula currently used by other non-oil and gas
corporations. He said that DOR had identified that passage
of the legislation would result in ne revenue for the
state.
9:23:42 AM
BRODIE ANDERSON, STAFF, REPRESENTATIVE NEAL FOSTER, stated
that the CS had two changes:
Page 1, line 7:
add: "and apportion"
Page 2, line 5:
Sec. 4. Section 3 of this Act takes effect immediately
under AS 01.10.070(c).
Mr. Anderson addressed the Sectional Analysis (copy on
file):
Section 1: adds new Section 43.20.146. This removes the
exemption of multistate public utilities from water's edge
reporting within the Multistate Tax Compact.
Section 2: adds new section: Applicability Language;
Section 1 does not take effect under AS 43.20 (Alaska Net
Income Tax Act) until the effective date.
Section 3: adds new section: Transition Language;
Regulations shall change to implement the legislation but
not be adopted before January 1, 2019.
Section 4: Effective date: Sections 1 and 2 take effect on
January 1, 2019.
Senator Micciche thought that the range on the
indeterminate fiscal note of $100 thousand and $5 million
was problematic. He wondered whether a description of the
factors between those amounts could be determined.
Mr. Anderson stated that the department was careful to keep
the information confidential. He said it was known that the
bill did not apply to corporations or utilities that were
100 percent Alaskan. He shared that in 2015 when the
indirect expenditure report originally came out, three
beneficiaries were identified, with the possibility of
five. Due to the small pool, a large span had been used
because of the size of the potential revenue.
9:27:25 AM
Senator Micciche assumed that there were no interstate
commerce or equal protection issues with the bill.
Mr. Anderson revealed that there had been legal discussions
about the use of the Multistate Compact Act. He relayed
when the compact was first written both financial
organizations and public utilities had been exempted, then
in the mid-80s regualtion had been changed to remove
financial organizations and at that point there were no
utilities utilizing the act. Now that taxpayers were
utilizing the act it was felt that authority should be
given.
Co-Chair MacKinnon asked when the tax credit was put into
effect, and whether it showed up in the indirect expense
report.
Mr. Anderson stated that the credit was enacted in 1970,
when the state had first adopted the multistate compact. In
1985, the department had changed regulation and the issue
had bot been addressed until the 2015 Indirect Expenditure
Report.
9:29:55 AM
Vice-Chair Bishop asked about the impact of the bill
considering the federal government had recently passed
sweeping tax overhaul. He wondered whether the bill was a
job-creator or job-killer for the businesses that would be
impacted.
Mr. Anderson stated that all other non-oil and gas
currently followed the three-factor apportionment for
calculating tax liability. The bill put all multi-state
corporations (non-oil and gas) on equal footing; they would
all be treated the same way in how they calculated their
tax liability for Alaska. He deferred further explanation
to DOR.
9:31:47 AM
BRANDON SPANOS, DEPUTY DIRECTOR, TAX DIVISION, DEPARTMENT
OF REVENUE (via teleconference), explained that the bill
was not a tax exemption. He shared that the compact had
exempted public utilities and financial institutions from
the three-factor formula; they were not exempt from
corporate income tax, but they could choose their own
method of allocating their income to Alaska. The three-
factor formula used in the compact applied to all non-oil
and gas corporations. He discussed the distribution of
income for public utilities and financial institutions to
the state. He said that the department had determined that
all corporations should file with the same three-factor
formula; multistate public utilities operated similar to
other multistate corporations and should use the three-
factor formula. He asserted that the state was not
beginning to tax a corporation that had not been taxed
before, the method for distribution of income would be
regulated, rather than letting corporations determine their
own method.
9:34:55 AM
Vice-Chair Bishop asked Mr. Spanos whether the bill would
affect employment for the companies involved.
Mr. Spanos was unable to determine whether the bill would
affect employment. He noted that the fiscal note reflected
a positive impact for the state, which would negatively
affect a utility filing under the different method.
Vice-Chair Bishop qualified that he thought it was
important to understand how the bill would affect jobs.
Senator von Imhof asked whether the words "apportionment"
and "appropriated" had been used purposefully in the
original writing of the compact.
Mr. Spanos replied that when the Multistate Tax Compact was
formed, public utilities were usually highly regulated by
states, who often ran them. At that time most public
utilities were 100 percent within the state, which made
apportionment unnecessary. He said that in trying to
predict what public utilities would look like in the
future, assuming that they would cross state lines, a
method of allocation was determined. He stated that since
multistate utilities operated similarly to all other
corporations, most other states had adopted the three-
faction formula to apportion and allocate their income.
9:38:14 AM
Senator von Imhof understood that as utilities had gone
multistate, other states had moved to the three-factor
formula. She asked if he could tell her three states that
had made the change.
Mr. Spanos clarified that not all states used the three-
factor formula any longer, many used a single sales or
double weighted sales factor in an attempt to encourage
manufacturing in their states. He said that public
utilities in other states did tax public utilities in the
same method that they taxed all other corporations.
Senator Micciche asked how many multi-state public
utilities were currently operating in the state.
Mr. Spanos stated that there was more than a dozen.
Vice-Chair Bishop referenced a letter from Mr. Spanos (copy
on file):
Currently, there are 3 public utilities utilizing a
method other than the standard three-factor
apportionment formula to apportion or allocate income
to Alaska.
Vice-Chair Bishop understood that the other utilities
operating in the state were using the formula referenced on
page 1 or the letter, Sec. 2, Art. IV of AS 43.19.
Mr. Spanos replied in the affirmative.
9:40:49 AM
Senator Olson asked what affect the bill would have on the
end user.
Mr. Spanos replied that the tax was a net income tax and
was on the corporations total U.S. income and depended on
many factors. He
9:41:59 AM
Senator Olson wondered whether the bill would affect
international corporations with operations in Alaska.
Mr. Spanos responded that if the corporation had other U.S.
operations, they would be affected but if the company had
only operations in Alaska it would have no effect. He
clarified that non-oil and gas companies did not consider
non-U.S. income.
9:43:03 AM
Co-Chair MacKinnon WITHDREW her OBJECTION. There being NO
OBJECTION, it was so ordered. SCS HB 398(FIN) was ADOPTED.
Co-Chair MacKinnon OPENED public testimony.
Co-Chair MacKinnon CLOSED public testimony.
9:44:24 AM
Vice-Chair Bishop discussed FN 1(REV), which was
indeterminate. He read from the note's analysis on page 2:
Currently there are a small number of public utilities
utilizing a method other than the standard three-
factor apportionment formula to apportion or allocate
income to Alaska. Because of the limited number of
impacted taxpayers, including one taxpayer who could
generate over 80% of potential revenue, we are unable
to provide an estimate of the additional potential
revenue due to confidentiality concerns. However, we
estimate that there will be a material amount of
additional revenue collected, between $100,000 and
$5,000,000, if this legislation were to pass.
This legislation would not require the Department of
Revenue to update its Tax Revenue Management System
(TRMS). There would also be no needed changes to
forms. The only anticipated change would be to draft
transition regulations. We would be able to draft
transition language with current resources.
9:45:35 AM
HB 398 was HEARD and HELD in committee for further
consideration.
Co-Chair MacKinnon discussed housekeeping.
ADJOURNMENT
9:46:28 AM
The meeting was adjourned at 9:46 a.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 398 SCS HB 398 work draft version O.pdf |
SFIN 4/30/2018 9:00:00 AM |
HB 398 |
| HB 398 legal memo RE.v.J.pdf |
SFIN 4/30/2018 9:00:00 AM |
HB 398 |