HOUSE BILL NO. 252 "An Act exempting certain small businesses from the corporate income tax; and providing for an effective date." 8:34:51 AM REPRESENTATIVE MIA COSTELLO, SPONSOR, introduced the legislation. Representative Gara expressed concern that small businesses could retain the exemption after making large amounts of money. He proposed that only the first $10 million remain tax free on profits, and he queried the duration of the tax-free status. Representative Costello replied that the tax would be applicable until a business reached $50 million in gross aggregate assets. Representative Gara wondered whether a tax break, but not a full tax break should be offered as business became more successful. He wondered about limiting the full tax break to the first $10 million tax in profits. JOSH WALTON, STAFF, REPRESENTATIVE MIA COSTELLO, responded that the $50 million cap was written into the federal code. He noted that other requirements were written into the code as well, such as how the assets would be used in expansion into other businesses or areas not included in the federal definition. He stated that the change was not out of the question; however, the legislation was intended to make Alaska as competitive as possible for small businesses. He thought that the idea could be revisited in the future once the effect of the bill could be gauged. Representative Wilson asked if the intention was to remain consistent with the federal government. Representative Costello responded in the affirmative. 8:39:22 AM Representative Doogan pointed to page 2, line 10. He requested an explanation for the words "authorized to do business in the state." He wondered how the language was distinct from "incorporated in the state." Mr. Walton responded that there was not much of a distinction. He elaborated that originally the term "Alaska Corporation," had been defined explicitly because of the requirement that the businesses be headquartered in the state, but that The Department of Law had believed that that would be a violation on inter-state commerce. The Alaska Corporation was then defined as a corporation that was authorized to do business within the state. Representative Doogan surmised that the language indicated Alaska Airlines or other companies that were not headquartered here, but that did business in the state Mr. Walton replied that that was generally correct. He noted that Alaska Airlines was a transportation company and would not qualify for the tax breaks discussed in the legislation. Representative Neuman referred to the sponsor statement. He read that the types of businesses that would be affected were highly mobile and had many options regarding where they could locate their business. Such companies consequently tended to locate elsewhere, even when founded by Alaskan's. He asked if the bill contained sideboards that stipulated that if the companies were going to receive credits from the state that they must also be located in the state. 8:42:16 AM Mr. Walton explained that the bill provided an exemption from state corporate income tax and only incurred corporate income tax liabilities for the activities carried out in the state. Out-of-state activities would be subject under the laws of the respective states. Representative Neuman understood that in order to receive the credits the work had to be done in Alaska. Mr. Walton responded in the affirmative. Vice-chair Fairclough discussed the new fiscal note from the Department of Revenue. Co-Chair Stoltze solicited amendments. Representative Doogan wondered whether fiscal note number 1 was still applicable. Co-Chair Stoltze replied that fiscal note 1 had been attached to a previous version of the bill. Co-Chair Thomas MOVED to report CS HB 252(FIN) out of committee with individual recommendations and the accompanying fiscal note. There being NO OBJECTION, it was so ordered. CS HB 252(FIN) was REPORTED out of committee with a "do pass" recommendation and with a new indeterminate fiscal note from the Department of Revenue. 8:45:26 AM AT EASE 8:47:19 AM RECONVENED