00 HOUSE BILL NO. 156 01 "An Act relating to the taxation of income of individuals, partners, shareholders in S 02 corporations, trusts, and estates; repealing tax credits applied against the tax on 03 individuals under the Alaska Net Income Tax Act; and providing for an effective date." 04 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA: 05  * Section 1. AS 43.05.045(a) is amended to read: 06 (a) Except as provided in AS 43.22.075(h), or unless [UNLESS] an 07 exemption is granted under (b) of this section, a taxpayer required to submit a return 08 or report for a tax levied under this title or for any other tax administered by the 09 department shall submit the return or report electronically in a format prescribed by 10 the department. Failure to comply with this section may result in a civil penalty under 11 AS 43.05.220(f). If a law under this title requires a report or return or a portion of a 12 report or return to be in writing, an electronically filed report or return satisfies this 13 section. A taxpayer shall submit attachments to a report or return required under this 14 title electronically. 01  * Sec. 2. AS 43 is amended by adding a new chapter to read: 02 Chapter 22. Income Tax.  03 Sec. 43.22.010. Income tax on individuals. (a) Each calendar year or fraction 04 of a calendar year, an income tax is imposed on the income of a 05 (1) resident individual, trust, or estate; 06 (2) nonresident individual, trust, or estate that is derived from or 07 connected with a source in the state. 08 (b) The tax under this section for an individual or individuals filing jointly is 09 two percent of taxable income over $200,000. 10 (c) Two resident individuals who file a joint federal income tax return may 11 determine the tax imposed by this chapter jointly under this section. 12 (d) Two individuals who file a joint federal income tax return both or one of 13 whom is not a resident may elect to determine the tax imposed by this chapter either 14 (1) individually; or 15 (2) jointly as if both individuals were residents; the income of the 16 individuals filing jointly under this paragraph is not subject to the calculation under 17 AS 43.22.015. 18 (e) In addition to the tax under (a) - (d) of this section, each individual who 19 has wages, net earnings from self-employment, or combined wages and net earnings 20 from self-employment in the state shall pay an annual tax of $20. In this subsection, 21 "net earnings from self-employment" has the meaning given in 26 U.S.C. 1402. 22 Sec. 43.22.015. Calculation of tax on a nonresident individual. (a) Except as 23 otherwise provided in (b) of this section, the tax on a nonresident individual is the 24 product of 25 (1) the tax determined under AS 43.22.010(b) on the nonresident 26 individual's taxable income computed as if the nonresident individual were a resident 27 individual but taking a deduction under AS 43.22.030(b)(2); and 28 (2) a fraction, the 29 (A) numerator of which is the nonresident individual's income 30 taxable under AS 43.22.045; and 31 (B) denominator of which is the nonresident individual's 01 taxable income computed as if the nonresident individual were a resident 02 individual. 03 (b) If a nonresident individual's taxable income computed under (a)(2)(B) of 04 this section is less than the nonresident individual's income taxable under (a)(2)(A) of 05 this section, the tax imposed by this chapter is on the nonresident individual's taxable 06 income as computed under AS 43.22.045. 07 Sec. 43.22.020. Tax on trusts and estates. (a) A tax is imposed for each 08 taxable year or portion of a taxable year on the taxable income of a resident or 09 nonresident trust or estate. The tax under this section for a trust or estate is $20 plus 10 two percent of taxable income over $200,000. 11 (b) In this section, the taxable income of a nonresident trust or estate is the 12 income of the trust or estate that is derived from or connected with a source in the 13 state. 14 (c) A trust is not subject to tax under this chapter if 15 (1) all of the trustees of the trust are nonresidents; 16 (2) the entire corpus of the trust, including real, tangible, and 17 intangible property, is located outside the state; and 18 (3) no income or gains of the trust are derived from or connected with 19 a source in the state. 20 (d) For purposes of (c)(1) of this section, a trustee that is a nonresident 21 banking corporation at the time the banking corporation becomes a trustee is a 22 nonresident trustee even if the banking corporation later becomes a resident trustee 23 because it is acquired by or becomes an office or branch of a resident trustee. 24 (e) A trust that is exempt from federal income tax because of its purpose or 25 activities is not subject to tax under this chapter. 26 (f) A special needs trust or other trust established to provide solely for the 27 housing, living expenses, or medical care of a disabled beneficiary is not subject to tax 28 under this chapter. In this subsection, 29 (1) "disabled beneficiary" means an individual who has 30 (A) a physical or mental impairment that substantially limits 31 one or more major life activities; or 01 (B) a condition that may require the use of a prosthesis, special 02 equipment for mobility, or a service animal; 03 (2) "special needs trust" has the meaning given in AS 13.36.215(b). 04 Sec. 43.22.025. Credit for income taxes imposed by other jurisdictions. (a) 05 A resident individual, trust, or estate or part-year resident individual, trust, or estate is 06 allowed a credit against the tax due under this chapter for an income tax that was 07 imposed on the resident or part-year resident for the taxable year by another state or 08 the political subdivision of another state on income derived from or connected with 09 that state or political subdivision. 10 (b) A credit allowed under (a) of this section 11 (1) for a resident individual, trust, or estate may not exceed the 12 individual's, trust's, or estate's tax due under this chapter before credits are applied, 13 multiplied by a fraction, the numerator of which is the portion of the individual's, 14 trust's, or estate's taxable income that is derived from or connected with a source in 15 another state or the political subdivision of another state and the denominator of which 16 is the resident individual's, trust's, or estate's taxable income; 17 (2) for a part-year resident individual, trust, or estate may not exceed 18 the individual's, trust's, or estate's tax due for the period of state residency before 19 credits are applied, multiplied by a fraction, the numerator of which is the individual's, 20 trust's, or estate's taxable income derived from or connected with a source in another 21 state or the political subdivision of another state during the period of state residency 22 and the denominator of which is the part-year resident individual's, trust's, or estate's 23 taxable income during the period of state residency; 24 (3) may not reduce the tax due under this chapter to less than the tax 25 that would have been due if the income derived from or connected with a source in 26 another state or the political subdivision of another state and subject to taxation by the 27 other state or political subdivision had been excluded from the resident or part-year 28 resident individual's, trust's, or estate's taxable income during the calculation of tax 29 under this chapter before the application of credits. 30 (c) If the tax administration of another state or a political subdivision of 31 another state determines that a taxpayer has overpaid tax, affecting the computation of 01 the credit allowed under this section for any taxable year, the taxpayer shall file an 02 amended return with the department not later than 90 days after the final determination 03 by the state or political subdivision that the tax was overpaid. The department may 04 assess a taxpayer additional tax, proportional to the amount overpaid in the other state 05 or political subdivision. 06 (d) A taxpayer is not allowed a credit under this section for taxes paid to 07 another jurisdiction if the taxpayer claims a credit against the income tax imposed by 08 the other jurisdiction for the tax payable under this chapter. 09 (e) Income tax imposed on a partner or the shareholder of an S corporation on 10 the income of the partnership or S corporation, including tax paid by the partnership or 11 S corporation to satisfy the tax liability of the partner or shareholder, may be included 12 in the calculation of a credit under this section. Tax imposed on the partnership or S 13 corporation that is the direct liability of the partnership or S corporation and not that of 14 the partner or shareholder may not be included in the calculation of a credit under this 15 section. 16 Sec. 43.22.030. Taxable income; general rule. (a) In this chapter, taxable 17 income is the taxpayer's federal adjusted gross income for the taxable year 18 (1) plus, if not already included in federal adjusted gross income, 19 (A) interest on obligations of another state, a political 20 subdivision of another state, the public instrumentality of another state, or the 21 local authority of another state; 22 (B) a loss on the sale or exchange of an obligation issued by or 23 on behalf of 24 (i) the state; 25 (ii) a municipality of the state; or 26 (iii) a public instrumentality, public authority, or public 27 corporation created under state law; 28 (C) a loss from the sale or exchange of shares in a unit 29 investment trust if the loss is attributable to an obligation issued by or on 30 behalf of 31 (i) the state; 01 (ii) a municipality of the state; or 02 (iii) a public instrumentality, public authority, or public 03 corporation created under state law; 04 (D) interest or dividends on obligations or securities issued by 05 the United States, or an authority, commission, or instrumentality of the United 06 States, that the Internal Revenue Code exempts from federal income tax; 07 (E) income taxes under this chapter; 08 (F) a gain realized but not recognized under 26 U.S.C. 1031 09 (Internal Revenue Code); 10 (G) a deduction allowed in the determination of federal 11 adjusted gross income that is directly or indirectly related to income that is not 12 taxable under this chapter; and 13 (H) income of an incomplete gift nongrantor trust to which a 14 taxpayer transferred property, less deductions of the trust, if 15 (i) the income and deductions of the trust would be 16 taken into account in computing the taxpayer's federal taxable income 17 if the trust in its entirety was treated as a grantor trust under the Internal 18 Revenue Code; 19 (ii) the trust is a resident trust; 20 (iii) the trust does not qualify as a grantor trust under 26 21 U.S.C. 671 - 679 (Internal Revenue Code); and 22 (iv) the grantor's transfer of assets to the trust is treated 23 as an incomplete gift under 26 U.S.C. 2511 (Internal Revenue Code); 24 (2) minus, if included in federal adjusted gross income, 25 (A) interest income or a dividend from an obligation that is 26 exempt from taxation by a state under federal law; 27 (B) a refund or credit for the overpayment of an income tax; 28 (C) an ordinary and necessary expense, including an interest 29 expense, paid or incurred during the taxable year, that is directly or indirectly 30 related to income exempt under the Internal Revenue Code but taxable by the 31 state; 01 (D) a gain recognized under 26 U.S.C. 1031 (Internal Revenue 02 Code) that was included in federal adjusted gross income under (1) of this 03 subsection; 04 (E) income exempt under 4 U.S.C. 114; 05 (F) compensation prohibited from state taxation by 50 U.S.C. 06 3901 - 4043 (Servicemembers Civil Relief Act); 07 (G) a gain from the sale or exchange of an obligation issued by 08 or on behalf of 09 (i) the state; 10 (ii) a municipality of the state; or 11 (iii) a public instrumentality, public authority, or public 12 corporation created under state law; 13 (H) a permanent fund dividend received by the taxpayer or the 14 taxpayer's dependent under AS 43.23. 15 (b) In addition to the adjustments made to taxable income under (a) of this 16 section, a taxpayer may receive a standard deduction. Subject to adjustment under (d) 17 of this section, the deduction under this subsection for 18 (1) an individual resident taxpayer is $12,950; 19 (2) an individual resident who files federal income taxes as a head of 20 household is $19,400; 21 (3) two resident taxpayers filing jointly is $25,900; 22 (4) an individual nonresident is the product of $12,950 and a fraction, 23 the numerator of which is the nonresident individual's income taxable under 24 AS 43.22.045, computed without the deduction under this subsection, and the 25 denominator of which is the nonresident individual's taxable income computed as if 26 the nonresident individual were a resident individual and without the deduction under 27 this subsection; the deduction under this paragraph may not exceed $12,950 for each 28 exemption claimed; 29 (5) an individual nonresident who files federal income taxes as a head 30 of household is the product of $19,400 and a fraction, the numerator of which is the 31 nonresident individual's income taxable under AS 43.22.045, computed without the 01 deduction under this subsection, and the denominator of which is the nonresident 02 individual's taxable income computed as if the nonresident individual were a resident 03 individual and without the deduction under this subsection; the deduction under this 04 paragraph may not exceed $19,400 for each exemption claimed; 05 (6) two nonresident individuals filing jointly is the product of $25,900 06 and a fraction, the numerator of which is the nonresident individuals' income taxable 07 under AS 43.22.045, computed without the deduction under this subsection, and the 08 denominator of which is the nonresident individuals' taxable income computed as if 09 the nonresident individuals were resident individuals and without the deduction under 10 this subsection; the deduction under this paragraph may not exceed $25,900 for each 11 exemption claimed. 12 (c) The deduction under (b) of this section may not 13 (1) be claimed by a trust; 14 (2) reduce a taxpayer's tax liability under this chapter to below zero. 15 (d) Each year, the department shall adjust the amounts of the standard 16 deduction under (b) of this section for inflation. The adjustment for inflation is equal 17 to the adjustment for inflation calculated for the standard deduction against the federal 18 income tax as set out in 26 U.S.C. 63. 19 (e) When calculating taxable income, a taxpayer 20 (1) may not carry back a net operating loss under 26 U.S.C. 21 172(b)(1)(A)(i) (Internal Revenue Code); 22 (2) may carry over a net operating loss under 26 U.S.C. 23 172(b)(1)(A)(ii) (Internal Revenue Code), except that a loss may not be carried over 24 for more than five years; for a taxpayer subject to AS 43.19 (Multistate Tax Compact), 25 the amount of a net operating loss allowed to be carried over is limited to the amount 26 apportioned to the state in the taxable year in which the loss was generated under 27 AS 43.19 (Multistate Tax Compact); 28 (3) shall include the modifications required by AS 43.20.144(b)(2), 29 concerning intangible drilling and development costs, AS 43.20.144(b)(3), concerning 30 percentage depletion, and AS 43.20.144(b)(4), concerning depreciation. 31 Sec. 43.22.035. Taxable income from partnerships and S corporations. (a) 01 A partner or shareholder shall make an adjustment described in AS 43.22.030 to 02 income or a gain, loss, or deduction from a partnership or S corporation in proportion 03 to a partner's distributive share of a partnership or a shareholder's pro rata share of an 04 S corporation. If a partner's distributive share or a shareholder's pro rata share of an 05 adjustment is not required to be accounted for separately for federal income tax 06 purposes, the partner's or shareholder's share of the adjustment must be determined in 07 proportion to the partner's or shareholder's share of partnership or S corporation 08 income or losses for federal income tax purposes. 09 (b) In determining taxable income, a partner or shareholder shall treat income 10 or a gain, loss, or deduction from a partnership or S corporation as if it has the same 11 character as it does for federal income tax purposes. If income or a gain, loss, or 12 deduction from a partnership or S corporation is not accounted for separately for 13 federal income tax purposes, a partner or shareholder shall treat the income, gain, loss, 14 or deduction as if it were realized directly from the source from which it was realized 15 by the partnership or S corporation or incurred in the same manner it was incurred by 16 the partnership or S corporation. 17 (c) If the principal purpose of a special allocation of partnership income or a 18 gain, loss, or deduction is the evasion of tax under this chapter, the partner's 19 distributive share is determined as if the partnership agreement did not have the 20 special allocation. In this subsection, "special allocation" means an allocation of the 21 distributive share of partnership income or a gain, loss, or deduction made under the 22 partnership agreement to a partner in a proportion different than the partner's 23 partnership interest. 24 Sec. 43.22.040. Taxable income of an estate, trust, or beneficiary. (a) The 25 taxable income of an estate or trust is determined as if the estate or trust were an 26 individual and is subject to adjustments under AS 43.22.030 and reduction under 26 27 U.S.C. 661 (Internal Revenue Code). The department may establish in regulation the 28 method for determining the taxable income of an estate or trust, including the manner 29 in which the adjustments under AS 43.22.030 will be allocated between the estate's or 30 trust's taxable share and a beneficiary's distributive share. Unless otherwise provided 31 by the department in regulation, an allocation must be made in proportion to the 01 estate's or trust's taxable share or the beneficiary's distributive share of the trust or 02 estate for federal income tax purposes. 03 (b) If the principal purpose of a provision of an instrument directing the 04 distribution of income or a gain, loss, or deduction of an estate or trust is the evasion 05 of tax under this chapter, the taxable income of the estate, trust, or beneficiary will be 06 determined as if the instrument did not contain the provision. 07 Sec. 43.22.045. Nonresident individuals; income derived from or  08 connected with a source in the state. (a) The taxable income of a nonresident 09 individual is the nonresident individual's income derived from or connected with a 10 source in the state, as adjusted under AS 43.22.030. The taxable income of a 11 nonresident individual includes 12 (1) a partner's distributive share of income or a gain, loss, or deduction 13 of the partnership, as determined under AS 43.22.050; 14 (2) a shareholder's pro rata share of an S corporation's income or loss, 15 increased by the reductions for taxes described in 26 U.S.C. 1366(f)(2) and (3) 16 (Internal Revenue Code), as determined under AS 43.22.050; 17 (3) income or loss of a business conducted by a nonresident individual, 18 nonresident estate, or nonresident trust, other than income or loss from a partnership or 19 S corporation, as determined under AS 43.22.050; 20 (4) estate or trust income or a gain, loss, or deduction of the estate or 21 trust, as determined under AS 43.22.055; 22 (5) income or a gain, loss, or deduction from the sale or assignment of 23 a beneficial interest, or other disposition of an interest in tangible personal property in 24 the state, or rental income or loss from the use of tangible personal property in the 25 state; if the income, gain, loss, or deduction is from tangible personal property used or 26 employed both in and outside the state, the amount included in taxable income is 27 determined by multiplying the income, gain, loss, or deduction by a fraction, the 28 numerator of which is the number of days during which the property was used or 29 employed to earn, accrue, or incur the income, gain, loss, or deduction in the state and 30 the denominator of which is the total number of days during the taxable year that the 31 property was used or employed to earn, accrue, or incur the income, gain, loss, or 01 deduction; 02 (6) income or a gain, loss, or deduction from the sale, assignment, or 03 other disposition of an interest in real property in the state, or rental income or loss 04 from the use of real property in the state, including the percentage of ordinary and 05 capital gains received from a real estate investment trust, as defined in 26 U.S.C. 856 06 (Internal Revenue Code), that is attributable to rents from or sale or other disposition 07 of real property located in the state; in this paragraph, income or a gain, loss, or 08 deduction from the sale, assignment of a beneficial interest, or other disposition of real 09 property in the state includes income or a gain, loss, or deduction derived from the sale 10 or assignment of a beneficial interest in a partnership, S corporation, nonpublicly 11 traded C corporation with 100 or fewer shareholders, estate, or trust, if the entity owns 12 real property in the state that has a fair market value equal to or exceeding 50 percent 13 of all assets of the entity on the date of sale, assignment, or other disposition of the 14 taxpayer's interest in the entity; for purposes of this paragraph, 15 (A) only assets owned for at least two years before the date of 16 the sale, assignment, or other disposition of an interest in the entity shall be 17 used to determine the fair market value of all of the assets of the entity on the 18 date of sale, assignment, or other disposition; and 19 (B) the amount of income or a gain, loss, or deduction derived 20 from or connected with a source in the state from the sale, assignment, or other 21 disposition of an interest in an entity that is subject to the provisions of this 22 paragraph is the amount recognized for federal income tax purposes related to 23 the sale, assignment, or disposition, multiplied by a fraction, the numerator of 24 which is the fair market value of the real property located in the state on the 25 date of sale, assignment, or disposition and the denominator of which is the fair 26 market value of all of the assets of the entity on the date of the sale, 27 assignment, or disposition; 28 (7) compensation, salary, or wages for personal services rendered or 29 performed in the state that are derived from a business, trade, profession, occupation, 30 or employment carried on in the state; for purposes of this paragraph, personal 31 services 01 (A) except as otherwise provided in (B) of this paragraph, 02 include services performed 03 (i) in connection with presenting or receiving 04 employment-related training or education in the state; 05 (ii) in connection with a site inspection, review, 06 analysis, or management or any other supervision of a facility located 07 in the state; 08 (iii) in connection with research and development at a 09 facility located in the state or in connection with the installation of new 10 or upgraded equipment or systems at that facility; 11 (iv) as part of a project team working on the attraction 12 or implementation of new investment in a facility located or planned to 13 be located in the state; 14 (v) in connection with fishing, farming, or agriculture in 15 the state; or 16 (vi) for the federal government; 17 (B) do not include services that are casual, isolated, 18 inconsequential, or ancillary to out-of-state services; 19 (8) income derived from a business, trade, profession, occupation, or 20 employment carried on in the state, including income 21 (A) received under a covenant not to compete, a severance 22 agreement, a termination agreement, or unemployment compensation 23 insurance attributable to a business, trade, profession, occupation, or 24 employment previously carried on in the state, regardless of when received; 25 (B) derived from a business, trade, profession, occupation, or 26 employment carried on in the state by an individual who maintains or operates 27 an office, shop, store, warehouse, boat, plane, factory, agency, or other place 28 where the individual's affairs are systematically and regularly carried on, 29 regardless of other transactions carried on outside the state; this subparagraph 30 does not include income from an activity of an individual whose presence in 31 the state is casual, isolated, inconsequential, or ancillary to out-of-state 01 activities, except that, if a business, trade, profession, occupation, or 02 employment is carried on partly in and partly outside the state, other than for 03 the rendering of purely personal services by the individual, the taxable income 04 derived from or connected with a source in the state is determined under 05 AS 43.19 (Multistate Tax Compact) and AS 43.22.030; 06 (9) income from the management or investment function or activities 07 conducted in the state from intangible property; 08 (10) dividends, interest, payments received under an annuity, gains, or 09 other intangible income received from, or attributable to, intangible personal property, 10 including stock, bonds, notes, bank deposits, or annuities, if the intangible personal 11 property is employed in a business, trade, profession, occupation, or employment 12 carried on in the state; 13 (11) a gain derived from a statutory stock option, restricted stock, 14 nonstatutory stock option, or stock appreciation right by a nonresident individual who, 15 at the time the gain is received, performs services in the state for or is employed in the 16 state by the corporation granting the option, stock, or right, as determined in 17 regulations adopted by the department; 18 (12) income from nonqualified deferred compensation plans 19 attributable to services performed in the state, including compensation included in 20 federal gross income under 26 U.S.C. 457A (Internal Revenue Code); 21 (13) proceeds from a gambling activity conducted in the state or lottery 22 tickets purchased in the state, including payments received from a third party for the 23 transfer of the rights to future proceeds related to a gambling activity in the state or 24 lottery tickets purchased in the state; 25 (14) for an S corporation that terminates its taxable status in the state 26 during the tax year, income or a gain recognized on the receipt of payments from an 27 installment sale contract entered into at the time the S corporation was subject to tax in 28 the state, allocated in a manner consistent with the applicable methods and rules under 29 this chapter; 30 (15) royalties or other compensation received for the use of a patent, 31 copyright, secret process or formula, good will, mark, trade brand, franchise, or other 01 property having a taxable or business situs in the state; 02 (16) royalties or other compensation received for the use of a patent if 03 the patent is employed in production, fabrication, manufacturing, or other process in 04 the state; 05 (17) income or a gain from the disposition of an asset if the 06 acquisition, management, or disposition of the asset constitutes an integral part of the 07 nonresident individual's regular trade or business operation; 08 (18) income from the transmission, broadcast, distribution, or 09 dissemination of a service directly or indirectly attributable to the performance in the 10 state of an athlete, entertainer, singer, musician, dancer, comedian, magician, 11 performing artist, actor, actress, or similar person, including syndication fees. 12 (b) A deduction included in taxable income that results from a capital loss, 13 passive activity loss, or net operating loss must be based solely on income or a gain, 14 loss, or deduction derived from or connected with a source in the state. A nonresident 15 individual shall treat a deduction under this subsection in the same manner as the 16 corresponding federal deduction, unless the department requires otherwise in 17 regulation. 18 Sec. 43.22.050. Business conducted by a nonresident individual, trust, or  19 estate; income derived from or connected with a source in the state. (a) The 20 department shall adopt regulations governing the amount of income or the amount of a 21 gain, loss, or deduction from a business conducted by a nonresident individual, trust, 22 or estate that is derived from or connected with a source in the state for purposes of 23 determining taxable income. Regulations adopted under this subsection must be 24 consistent with AS 43.19 (Multistate Tax Compact) and AS 43.22.045 and include 25 adjustments under AS 43.22.030. 26 (b) The department shall adopt regulations governing the amount of income or 27 the amount of a gain, loss, or deduction that is derived from or connected with a 28 source in the state and is included in a nonresident 29 (1) partner's distributive share for purposes of taxation under this 30 chapter; 31 (2) shareholder's pro-rata share of an S corporation for purposes of 01 taxation under this chapter. 02 (c) The department may by regulation require a taxpayer to allocate rather 03 than apportion income or a gain, loss, or deduction under this section. 04 Sec. 43.22.055. Nonresident trust, estate, or beneficiary; income derived  05 from or connected with a source in the state. (a) The department shall adopt 06 regulations governing whether income or a gain, loss, or deduction of a nonresident 07 estate or nonresident trust is included in taxable income derived from or connected 08 with a source in the state. Regulations adopted under this subsection must be 09 consistent with the remainder of this section and AS 43.22.045. 10 (b) A nonresident beneficiary shall include in taxable income derived from or 11 connected with a source in the state a distribution from an estate or trust as if the 12 nonresident beneficiary earned or incurred the income or a gain, loss, or deduction 13 attributable to the distribution directly from the source. For purposes of this 14 subsection, the department may establish one or more methods for a nonresident 15 beneficiary to determine whether income or a gain, loss, or deduction is attributable to 16 a distribution. The department shall consistently apply a method from year to year and 17 apply the same method to other nonresident beneficiaries of the same trust or estate. 18 Nothing in this subsection requires the department to give effect to a provision of an 19 instrument creating an estate or trust if the department reasonably believes that the 20 principal purpose of the provision is to evade the tax imposed under this chapter. 21 Sec. 43.22.060. Part-year resident individual, trust, or estate; residency  22 income; income derived from or connected with a source in the state. (a) Except as 23 otherwise provided in this section, the taxable income of a part-year resident 24 individual, trust, or estate is the sum of 25 (1) the taxable income of the part-year resident individual, trust, or 26 estate during the period of residency; and 27 (2) the taxable income derived from or connected with a source in the 28 state for the period of nonresidency of the individual, trust, or estate. 29 (b) The department shall adopt regulations to determine the taxable income of 30 a part-year resident taxpayer who is granted a statutory stock option, restricted stock, 31 nonstatutory stock option, or a stock appreciation right and who, during the grant 01 period, performs services in the state for, or is employed in the state by, the 02 corporation granting the option, stock, or right. 03 Sec. 43.22.065. Personal service corporations and S corporations formed  04 or used to evade income tax. (a) The department may allocate all income, 05 deductions, credits, exclusions, and other allowances between a personal service 06 corporation or S corporation and its employee-owners if the 07 (1) personal service corporation or S corporation performs 08 substantially all of its services for or on behalf of another corporation, partnership, or 09 other entity and the effect is the evasion of income tax; and 10 (2) allocation is necessary to reflect the source and amount of the 11 income, regardless of whether the corporation is otherwise taxable. 12 (b) For purposes of this section, evasion of income tax occurs when a personal 13 service corporation or S corporation is used to 14 (1) reduce the taxable income of a resident or the taxable income of a 15 nonresident derived from or connected with a source in the state; or 16 (2) secure the benefit of an expense, deduction, credit, exclusion, or 17 other allowance for any employee-owner that would not otherwise apply under this 18 chapter. 19 (c) The constructive ownership of stock rules under 26 U.S.C. 318 (Internal 20 Revenue Code) apply to this section, except that "5 percent" shall be substituted for 21 "50 percent" in 26 U.S.C. 318(a)(2)(C) (Internal Revenue Code). 22 (d) In this section, all persons specified in 26 U.S.C. 267(b) (Internal Revenue 23 Code) shall be treated as one entity. 24 (e) In this section, 25 (1) "employee-owner" means any employee who owns, on any day 26 during the taxable year, more than 10 percent of the outstanding stock of a personal 27 service corporation or S corporation; 28 (2) "personal service corporation" means a corporation whose principal 29 activity is the performance of personal services that are substantially performed by the 30 employee-owners of the corporation.  31 Sec. 43.22.070. Determination of taxable year and method of accounting. 01 (a) For purposes of the tax imposed under this chapter, a taxpayer's 02 (1) taxable year is the same as the taxpayer's taxable year for federal 03 income tax purposes; and 04 (2) method of accounting is the same as the taxpayer's method of 05 accounting for federal income tax purposes. 06 (b) The department shall adopt regulations to determine the taxable income of 07 a taxpayer whose method of accounting changes during a taxable year or between 08 taxable years. 09 Sec. 43.22.075. Returns and payment of taxes. (a) A taxpayer shall file with 10 the department a return setting out 11 (1) the amount of tax due under this chapter; and 12 (2) other information necessary to carry out this chapter, as required by 13 the department in regulation. 14 (b) A person required to file a return under this chapter shall file the return on 15 a form or in a format prescribed by the department. The return is due to the department 16 at the same time and in the same manner, including extensions, as the taxpayer's 17 federal income tax return to the United States Internal Revenue Service. A return filed 18 under this chapter must be made under oath and on penalty of perjury. 19 (c) The total amount of tax imposed by this chapter is due and payable to the 20 department at the same time and in the same manner as the federal individual income 21 tax payable to the United States Internal Revenue Service. 22 (d) A taxpayer, upon request by the department, shall furnish to the 23 department a true and correct copy of a return that the taxpayer has filed with the 24 United States Internal Revenue Service. 25 (e) A taxpayer shall notify the department in writing of an alteration in, or 26 modification of, the taxpayer's federal income tax return and of a recomputation of tax 27 or determination of deficiency, whether with or without assessment. A full statement 28 of the facts must accompany the notice. A taxpayer shall file the notice not later than 29 60 days after the final determination of the alteration, modification, recomputation, or 30 deficiency and shall pay any additional tax due under this chapter at that time. In this 31 subsection, "final determination" means the time that an amended federal return is 01 filed, a notice of deficiency or an assessment is mailed to the taxpayer by the Internal 02 Revenue Service, and the taxpayer has exhausted rights of appeal under federal law. 03 (f) The department may credit or refund overpayments of taxes, taxes 04 erroneously or illegally assessed or collected, penalties collected without authority, 05 and taxes that are found unjustly assessed or excessive in amount, or otherwise 06 wrongfully collected. The department shall, in regulation, set limitations, specify the 07 manner in which claims for credits or refunds are made, and give notice of allowance 08 or disallowance. When a refund is allowed to a taxpayer, the refund may be paid out 09 of the general fund on a warrant issued under a voucher approved by the department. 10 (g) A partnership, S corporation, estate, or trust shall provide to its partners, 11 beneficiaries, or shareholders, and to the department, all information necessary for its 12 partners, beneficiaries, and shareholders to comply with this chapter. 13 (h) An individual is not required to file a return under this section 14 electronically, but a person employed to prepare and file an income tax return for an 15 individual shall file the return for that individual electronically. 16 (i) The department shall adopt regulations that set out requirements for a 17 spouse, upon request, to be partially or fully relieved from joint and several liability 18 resulting from the joint filing of a tax return. 19 Sec. 43.22.080. Tax withholding on wages of individuals. (a) Every 20 employer making payment of wages or salaries 21 (1) shall, except as provided in (c) of this section, deduct and withhold 22 an amount of tax computed in a manner to approximate the amount of tax due on those 23 wages and salaries under this chapter for that taxable year; 24 (2) shall remit the tax withheld to the department accompanied by a 25 return on a form prescribed by the department at the times required by the department 26 by regulation; 27 (3) is liable for the payment of the tax required to be deducted and 28 withheld under this section but is not liable to any individual for the amount of the 29 payment; and 30 (4) shall furnish to an employee on or before January 31 of the 31 succeeding year, or within 30 days after a request by the employee after an employee's 01 or individual's termination if the 30-day period ends before January 31, a written 02 statement on a form prescribed by the department showing 03 (A) the name and taxpayer identification number of the 04 employer; 05 (B) the name and social security number of the employee; 06 (C) the total amount of wages and salary for the taxable year; 07 and 08 (D) the total amount deducted and withheld as tax under this 09 chapter for the taxable year. 10 (b) The department shall publish the rate of withholding required by this 11 section. 12 (c) An employer shall deduct and withhold the tax due under AS 43.22.010(e) 13 from an employee's wages subject to withholding from the first regular payroll of the 14 calendar year. If the employee's first payroll is insufficient to cover the estimated tax 15 due, the employer shall continue to deduct and withhold from subsequent payrolls 16 until the tax due under this subsection is fully withheld. A self-employed individual 17 shall remit to the department the tax due under this subsection in accordance with 18 regulations adopted by the department. 19 Sec. 43.22.085. Withholding on nonresident partners; composite returns. 20 (a) Unless otherwise provided by this section, a partnership that is required to file an 21 annual information return under subchapter K of the Internal Revenue Code (26 22 U.S.C. 701 - 761) shall file a partnership return as prescribed by the department and 23 shall report any income, gains, losses, or deductions that are derived from or 24 connected with a source in the state, as determined under this chapter. 25 (b) A partnership that is required to file a return under (a) of this section shall 26 withhold income tax from a nonresident partner's distributive share of the partnership's 27 income or a gain, loss, or deduction derived from or connected with a source in the 28 state at the highest marginal income tax rate applicable to individuals for the taxable 29 year. 30 (c) Withholding under this section is not required by a partnership that 31 (1) is a publicly traded partnership, as defined in 26 U.S.C. 7704(b) 01 (Internal Revenue Code); and 02 (2) files with the department an annual information return reporting the 03 name, address, taxpayer identification number, and other information requested by the 04 department concerning each unitholder whose distributive share of partnership 05 income, regardless of source, is more than $1,000. 06 (d) The department shall adopt regulations that allow a partnership subject to 07 withholding under this section to file a composite return. 08 Sec. 43.22.090. Permanent fund tax payment. The department shall adopt 09 regulations establishing procedures for an individual eligible for a dividend under 10 AS 43.23.005 to direct the department to hold all or a part of the amount of the 11 dividend to pay the tax due under this chapter. The amount held under this section 12 may not exceed the dividend amount after contributions, garnishments, levies, fees, 13 attachments, assignments, or other reductions or donations allowed under AS 43.23. 14 The department shall apply the amount held under this section to tax owed in the 15 taxable year in which the taxpayer applies for the dividend. The department shall 16 refund the amount of the dividend not applied against taxes under this section to the 17 individual who appears on the application for the dividend. 18 Sec. 43.22.095. Administration. (a) The department shall adopt necessary 19 regulations and forms to implement and interpret this chapter, including regulations 20 and forms for the electronic filing and payment of tax due under this chapter. Federal 21 regulations issued under the Internal Revenue Code shall be considered persuasive 22 authority in interpreting any provision of the Internal Revenue Code on which the tax 23 imposed by this chapter relies, whether or not a federal regulation has been 24 specifically incorporated into a department regulation, unless the federal regulation 25 (1) conflicts with a provision of this chapter; 26 (2) conflicts with a regulation adopted by the department; or 27 (3) is inconsistent with the purposes of this chapter. 28 (b) A transaction or payment between related persons must have economic 29 substance, must serve a bona fide business purpose, and must not have occurred for 30 the primary purpose of lowering the tax due under this chapter. The department, after 31 review or audit of a taxpayer's return, may determine whether there is sufficient 01 documentation or whether a transaction or payment meets the requirements of this 02 subsection. If the department determines that the documentation, transaction, or 03 payment fails to meet the requirements of this subsection, the department may adjust 04 the amount of a payment or transaction, disregard the payment or transaction, or make 05 another adjustment necessary for determining the tax under this chapter. If a payment 06 in an amount greater than $500,000 is made or required to be made from one person to 07 a related person, the related persons shall submit documentation substantiating that the 08 amount of the payment is consistent with 26 U.S.C. 482 (Internal Revenue Code). 09 Payments subject to this subsection include payments for interest, royalties, 10 management fees, services, inventory, tangible personal property, intangible property, 11 and real property. 12 (c) A tax deficiency assessed by the department under this section is assumed 13 to be correct. A taxpayer has the burden of proving that the tax deficiency is 14 erroneous. 15 (d) The department shall adjust the amount of the exemption under 16 AS 43.22.030(b) annually for inflation. Adjustments must be consistent with inflation 17 adjustments made by the Internal Revenue Service to the federal individual income tax 18 standard deduction. The department shall round amounts under this subsection to the 19 nearest $100 and publish the adjusted amounts. 20 (e) The tax collected by the department under this chapter shall be deposited 21 into the general fund and accounted for separately. 22 Sec. 43.22.100. References to Internal Revenue Code. (a) Sections 26 U.S.C. 23 6654, 6662, 6664, 6694, 6695, 6700 - 6702, 6707, 6713, 7201, 7202, 7206, 7207, 24 7216, 7407, and 7408 (Internal Revenue Code), as those sections read on January 1, 25 2023, are incorporated by reference as a part of this chapter and, if conflicting, 26 supersede provisions in AS 43.05 and AS 43.10. 27 (b) When provisions of the Internal Revenue Code incorporated by reference 28 under (a) of this section refer to rules and regulations adopted by the United States 29 Commissioner of Internal Revenue, they are regarded as regulations adopted by the 30 department under this chapter, unless the department adopts specific regulations in 31 their place. 01 Sec. 43.22.105. Information released to a banking institution.  02 Notwithstanding AS 43.05.230, information on an individual income tax return may 03 be released to a banking institution to verify the direct deposit of an income tax refund 04 or correct an error in that deposit. 05 Sec. 43.22.150. Definitions. In this chapter, 06 (1) "domicile" means an individual's true, fixed, principal, and 07 permanent home, to which the individual intends to return even if currently living 08 elsewhere; if an individual has two or more homes, "domicile" means the home that 09 the individual regards and uses as the individual's more permanent home; once 10 established, a domicile remains the individual's domicile until the individual 11 demonstrates a real change of intent and moves to a new domicile; indications of 12 domicile include the 13 (A) location of the place of employment of the individual; 14 (B) location of real property owned by the individual; 15 (C) registration and physical location of motor vehicles, planes, 16 boats, and snow machines owned by the individual; 17 (D) location of a bank account or active checking account of 18 the individual; 19 (E) address where the individual receives mail; 20 (F) location of a school where the individual or a member of 21 the individual's immediate family 22 (i) attends; or 23 (ii) receives resident tuition; 24 (G) location of an organization of which the individual is a 25 member; 26 (H) location of a parent, child, grandchild, or great-grandchild; 27 (I) location of dental and medical personnel that provide 28 services to the individual on a regular or consistent basis; 29 (J) filing of a prior year tax return by the individual as a 30 resident or nonresident; 31 (K) location where an individual is registered to vote; 01 (L) location where an individual holds a resident fishing, 02 hunting, or trapping license; 03 (2) "employee" has the meaning given in 26 U.S.C. 3401; 04 (3) "employer" has the meaning given in 26 U.S.C. 3401; 05 (4) "federal adjusted gross income" has the meaning given to "adjusted 06 gross income" in 26 U.S.C. 62; 07 (5) "fiduciary" means a guardian, trustee, executor, administrator, 08 receiver, or conservator or a person, whether individual or corporate, acting in a 09 similar position of special confidence toward another; 10 (6) "head of household" means a single taxpayer, or married taxpayer 11 where both spouses file separate returns, with a qualified dependent living in the same 12 home for more than half the taxable year; 13 (7) "Internal Revenue Code" means the Internal Revenue Code (26 14 U.S.C. 1 et seq.), as amended; 15 (8) "irrevocable trust" means a trust or portion of a trust that is not 16 subject to a power to revest title in a person whose property constitutes the trust or a 17 portion of the trust; 18 (9) "nonresident estate" means an estate other than a resident estate or 19 part-year resident estate; 20 (10) "nonresident individual" means an individual who is not a resident 21 of the state for any portion of the taxable year; 22 (11) "nonresident trust" means a trust other than a resident trust or 23 part-year resident trust; 24 (12) "partner" means a partner as defined in 26 U.S.C. 7701(a) 25 (Internal Revenue Code) and includes a member of a limited liability company or 26 similar entity that is treated as a partnership for federal income tax purposes; 27 (13) "partnership" means an entity as defined in 26 U.S.C. 7701(a) 28 (Internal Revenue Code) and includes a limited liability company and a similar entity 29 treated as a partnership for federal income tax purposes; 30 (14) "part-year resident estate" means an estate that is a resident of the 31 state for a portion of but not the entire taxable year; 01 (15) "part-year resident individual" means an individual who is a 02 resident of the state for a portion of but not the entire taxable year; 03 (16) "part-year resident trust" means a trust that is a resident of the 04 state for a portion of but not the entire taxable year; 05 (17) "related person" means a person that satisfies the definition of 06 "related persons" in 26 U.S.C. 144 or 147 or a person in a relationship as described in 07 26 U.S.C. 267(b) (Internal Revenue Code); 08 (18) "resident estate" means the estate of a 09 (A) decedent who at the time of death was a resident of the 10 state, regardless of the residence of the fiduciary or beneficiary, if the 11 disposition or administration of the estate is subject to state law; or 12 (B) person who, at the time of commencement of a bankruptcy 13 proceeding under Title 11 of the United States Code, was a resident of the 14 state; 15 (19) "resident individual" means an individual who 16 (A) receives a permanent fund dividend under AS 43.23.005; 17 (B) receives a tax benefit available only to an individual 18 domiciled in the state; or 19 (C) is domiciled in the state for the entire taxable year unless 20 the individual maintains a permanent place of abode outside the state and 21 spends, in the aggregate, not more than 30 days during the taxable year in the 22 state; 23 (20) "resident trust" means a trust or a portion of a trust consisting of 24 property 25 (A) transferred by will of a decedent who at the time of death 26 was a resident of the state if the disposition or administration of the property is 27 subject to state law; or 28 (B) of a person who was a resident at the time the property was 29 transferred to the trust if, at the time of the transfer, the trust was 30 (i) an irrevocable trust; 31 (ii) a revocable trust and the trust has not become 01 irrevocable; or 02 (iii) a revocable trust and the trust later became 03 irrevocable at a time the person transferring property to the trust was a 04 resident; 05 (21) "revocable trust" means a trust or portion of a trust that is subject 06 to a power, exercisable immediately or at a future time, to revest title in a person 07 whose property constitutes the trust or portion of the trust; 08 (22) "S corporation" means a corporation that has elected to file a 09 federal income tax return under 26 U.S.C. 1361 - 1379 (Internal Revenue Code); 10 (23) "taxable income" means income taxable under this chapter; 11 (24) "taxable year" means the calendar year or a fiscal year ending 12 during the calendar year; 13 (25) "taxpayer" means a person subject to a tax imposed by this 14 chapter; 15 (26) "wages" has the meaning given in 26 U.S.C. 3401. 16  * Sec. 3. AS 43.23 is amended by adding a new section to read: 17 Sec. 43.23.092. Permanent fund dividend individual income tax payment.  18 In accordance with AS 43.22.090, the department shall prepare the Alaska permanent 19 fund dividend application to allow an applicant to direct the department to hold all or 20 part of the amount of the individual's permanent fund dividend for application against 21 the individual income tax imposed under AS 43.22. 22  * Sec. 4. AS 43.05.085; AS 43.20.012(b), and 43.20.013 are repealed January 1, 2025. 23  * Sec. 5. The uncodified law of the State of Alaska is amended by adding a new section to 24 read: 25 APPLICABILITY. AS 43.22, added by sec. 2 of this Act, applies to income received 26 on or after the effective date of sec. 2 of this Act. 27  * Sec. 6. This Act takes effect January 1, 2025.