HB 118-RESEARCH AND DEVELOPMENT TAX CREDIT  4:49:23 PM CO-CHAIR WAGONER announced consideration of HB 118 [CSHB 118(FIN) was before the committee. WYNETTA AYERS, director, Division of Economic Development, Department of Commerce, Community and Economic Development (DCCED), Juneau, AK, explained that HB 118 establishes a research and development tax credit to incentivize innovation and economic activity in the state. She said the DCCED and the Department of Revenue (DOR) have provided a full presentation on the bill in their packets. It includes letters of support and additional documentation from the University of Alaska, a number of seafood industry businesses and organizations, small businesses, the financial services sector, entrepreneurs, the aerospace industry and the minerals industry. These show wide spread support for the creation of the research and development (R&D) tax credit in Alaska. 4:51:19 PM MS. AYERS said a tax credit can have far reaching benefits in not only the core industries but new industries that might be attracted to the state in the increasingly competitive global marketplace. It will also position Alaska for new business investment and take advantage of our climate, our global position, our natural resources and human capital to bring this new economic activity to our state. She said that 38 other states already have a R&D tax credit or some form of R&D incentive. By incentivizing the process and product innovation, the state can create a business climate that will help Alaska businesses grow and create well-paying jobs for Alaskans. HB 118 seeks to position Alaska's economy and business climate for diversification, growth and opportunity. 4:52:10 PM JOHANNA BALES, Deputy Director, Tax Division, Department of Revenue (DOR), explained the HB 118 allows each Alaska corporation a tax credit of 20 percent of qualified R&D expenses incurred in Alaska. It is only on an increased amount of R&D activity in the state. For instance, if a taxpayer had conducted research in Alaska in the past, the research activity they incur going forward they would be allowed a credit on would be above the average of the last three years. If they spent $1 million a year in the last three years, the average would be $1 million a year. If they spent only $900,000 in the next year, they wouldn't be allowed a credit, but if they spent $1.1 million, the credit would be 20 percent of the increased amount of $100,000. Any unused portion of the credit could be carried forward for seven years if they didn't have enough tax liability to write it off in a particular year. production from last year. MS. BALES said the research activities that would be allowed would be those in the federal code, so all of the federal tax structure would be in place allowing the state to "piggyback on" to ensure that taxpayers are conducting qualified R&D. The purpose would be discovering information that is technological in nature, the application of which is intended to be useful in the development of a new or improved component of the taxpayer, and substantially all of the activities constitute a process of experimentation. CO-CHAIR WAGONER asked about a company with less than three years of history. MS. BALES answered that the period is three years, because they are trying to entice companies to come up here. If they spent $100,000 in the preceding year, it would be divided by three (years). SENATOR FRENCH stated that you can get it after your first year, but it's based on a very small amount of money. MS. BALES agreed. SENATOR FRENCH said his packet has an amendment. 4:56:08 PM SENATOR WIELECHOWSKI said he had the amendment drafted relating to reporting and analysis of tax credits. This in an opportunity to get more information about where credit money is being spent. CO-CHAIR WAGONER held HB 118 in committee.