HB 252-SMALL BUSINESS INCOME TAX EXEMPTION  1:33:38 PM VICE CHAIR PASKVAN announced consideration of HB 252 [CSHB 252(FIN), version 27-LS1085\D, was before the committee]. 1:33:46 PM REPRESENTATIVE MIA COSTELLO, sponsor of HB 252, explained that the premise behind this bill is to diversify the state's economy. The state depends on the federal government, the oil industry and then everything else, she said, but it can expect a decrease in federal spending, and this bill focuses on the "everything else" aspect of the economy by encouraging fast growing businesses to come to Alaska and become corporate income taxpayers. She said that right now the state of Alaska has about 16,000 corporate income tax returns coming in; about half of those pay no corporate income tax, and of the remaining 3,100, only about 900 companies pay more than $1,000 in corporate income tax annually. HB 252 would exempt qualifying industries from the state's corporate income tax until they reach $50 million in gross aggregate assets. This bill dovetails with federal law that exempts people from capital gains tax if they invest in an initial public offering (IPO) and keep their money in it for five years. In order for a company to be considered a 1202 C corporation, it has to have $50 million gross aggregate assets or less, cannot be in an exempted industry and 80 percent of its assets have to be used in the daily conduct of its business. That portion of the federal definition really makes it apply to a small slice of industries, but this bill exempts additional industries to those in the federal law. 1:37:04 PM REPRESENTATIVE COSTELLO said she was trying to attract software development, biotech, pharmaceutical, telecommunications, superconductors, business technologies and solutions, media storage servers, video games, mobile apps and industries that deal primarily with intellectual property and that don't typically have many physical assets. 1:38:10 PM VICE CHAIR PASKVAN asked how long these tax provisions apply to a company. 1:38:27 PM JOSHUA WALTON, staff to Representative Mia Costello, replied that neither the federal version nor the state version of this exemption has a time limit, but the time limitation for how long a company can qualify comes through the asset cap. He explained that when companies are starting up they are looking for fast growth; as they grow they either become profitable or not. If they are not profitable, they go away. If they are, they wind up accumulating assets which count towards the $50 million cap. At least 80 percent of those assets have to be rolled into the active conduct of their business: things like paying the costs, increasing their production or additional research and development. VICE CHAIR PASKVAN asked if a company stays under $50 million in assets, would the exemption continue to apply. MR. WALTON said that was correct. REPRESENTATIVE COSTELLO added if this bill becomes law, Alaska would be the first state to piggyback on federal 1202 C corporation law. SENATOR PASKVAN opened public testimony. 1:40:54 PM JON BITTNER, Vice President, Anchorage Economic Development Corporation (AEDC), said they strongly supported HB 252. These incentives are extremely important to generating a stronger economy in Alaska as well as generating interest in relocating here from outside. This measure also dovetails nicely with several federal and municipal opportunities that are coming down the pike over the next year. On the federal level, the Jobs Act changes several regulations in the SEC code that hasn't been changed since 1933; these changes will generate a lot of interest and new business that could take advantage of this kind of incentive. In Anchorage, it could dovetail with the Municipal Angel Fund that is coming on line soon. There has never been a better time than right now for businesses to come to Alaska. VICE CHAIR PASKVAN asked his thoughts on a time limitation. MR. BITTNER replied that they would leave the details up to the legislature. VICE CHAIR PASKVAN said he supported the bill, but was trying to figure out some sideboards for it. 1:43:59 PM SENATOR DAVIS said she was looking at letters of support and was impressed with someone who was born and raised in Alaska and started his business at age 16. He is now 19. He was born and raised in Alaska and is now in Europe. He is quite an entrepreneur. VICE CHAIR PASKVAN said that the man she was referring to, Tyler Arnold, had provided written testimony. 1:45:00 PM ALLEN JOHNSTON, representing himself, said he had been with an investment company for the last 35 years and strongly supported HB 252. This is the best bill he had seen for the least cost, the most leverage for changing the psychology in Alaska as far as getting people to think "can do" in identifying local problems and becoming involved in their solutions and creating different types of companies that don't make any sense to do here right now. He remarked that this exemption could work as a catalyst for a lot wonderful initiatives that are happening now. VICE CHAIR PASKVAN remarked that he remembered meeting Mr. Johnston in Fairbanks about 25 years ago. 1:47:03 PM REPRESENTATIVE COSTELLO presented video testimony from Tyler Arnold in which he explained that his current start up, "Simply Social," is a 1202 C corporation based in Alaska. He said he may be global, but he acts local and unfortunately, Alaska has one of the highest state corporate income tax rates in the country. HB 252 would not only remove this burden but would strengthen the state's global competitiveness by waiving the state tax rate for like-minded tech startups and high growth companies. He said he chose to incorporate in Alaska partly because it's his home, but also because he was able to attracted nine local accredited angel investors who chose a path forward in mentoring and funding him. He hoped lawmakers would be equally supportive. 1:50:30 PM The video with Mr. Arnold's testimony ran from 1:48 to 1:50 p.m. MR. WALTON said there was an 11 hour time difference in Romania and Mr. Arnold had a sore throat, so he wasn't available for questions right now and offered to provide contact information. SENATOR PASKVAN found no questions from committee members and asked if this tax had any appropriate sideboards. 1:51:44 PM JOHANNA BALES, Deputy Director, Department of Revenue (DOR), said this version of HB 252 has a 10-year sunset provision on page 2, line 22. She said the department had no issues with version D of HB 252, but didn't have an official position on it. VICE CHAIR PASKVAN, finding no further comments, closed public testimony and held HB 252 in committee.