SB 122: "An Act relating to the Multistate Tax Compact; relating to apportionment of income to the state; relating to highly digitized businesses subject to the Alaska Net Income Tax Act; and providing for an effective date."
00 SENATE BILL NO. 122 01 "An Act relating to the Multistate Tax Compact; relating to apportionment of income to 02 the state; relating to highly digitized businesses subject to the Alaska Net Income Tax 03 Act; and providing for an effective date." 04 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA: 05 * Section 1. AS 43.19.010 is amended to read: 06 Sec. 43.19.010. Compact. The Multistate Tax Compact is hereby enacted into 07 law and entered into with all jurisdictions legally joining in it, in the form substantially 08 as follows: 09 ARTICLE I. 10 PURPOSES. 11 The purposes of this compact are to: 12 1. Facilitate proper determination of state and local tax liability of multistate 13 taxpayers, including the equitable apportionment of tax bases and settlement of 14 apportionment disputes.
01 2. Promote uniformity or compatibility in significant components of tax 02 systems. 03 3. Facilitate taxpayer convenience and compliance in the filing of tax returns 04 and in other phases of tax administration. 05 4. Avoid duplicative taxation. 06 ARTICLE II. 07 DEFINITIONS. 08 As used in this compact: 09 1. "State" means a state of the United States, the District of Columbia, the 10 Commonwealth of Puerto Rico, or any territory or possession of the United States. 11 2. "Subdivision" means any governmental unit or special district of a state. 12 3. "Taxpayer" means any corporation, partnership, firm, association, 13 governmental unit or agency or person acting as a business entity in more than one 14 state. 15 4. "Income tax" means a tax imposed on or measured by net income including 16 any tax imposed on or measured by an amount arrived at by deducting expenses from 17 gross income, one or more forms of which expenses are not specifically and directly 18 related to particular transactions. 19 5. "Capital stock tax" means a tax measured in any way by the capital of a 20 corporation considered in its entirety. 21 6. "Gross receipts tax" means a tax, other than a sales tax, which is imposed on 22 or measured by the gross volume of business, in terms of gross receipts or in other 23 terms, and in the determination of which no deduction is allowed which would 24 constitute the tax an income tax. 25 7. "Sales tax" means a tax imposed with respect to the transfer for a 26 consideration of ownership, possession or custody of tangible personal property or the 27 rendering of services measured by the price of the tangible personal property 28 transferred or services rendered and which is required by state or local law to be 29 separately stated from the sales price by the seller, or which is customarily separately 30 stated from the sales price, but does not include a tax imposed exclusively on the sale 31 of a specifically identified commodity or article or class of commodities or articles.
01 8. "Use tax" means a nonrecurring tax, other than a sales tax, which (a) is 02 imposed on or with respect to the exercise or enjoyment of any right or power over 03 tangible personal property incident to the ownership, possession or custody of that 04 property or the leasing of that property from another including any consumption, 05 keeping, retention, or other use of tangible personal property and (b) is complementary 06 to a sales tax. 07 9. "Tax" means an income tax, capital stock tax, gross receipts tax, sales tax, 08 use tax, and any other tax which has a multistate impact, except that the provisions of 09 Articles III, IV and V of this compact shall apply only to the taxes specifically 10 designated therein and the provisions of Article IX of this compact shall apply only in 11 respect to determinations pursuant to Article IV. 12 ARTICLE III. 13 ELEMENTS OF INCOME TAX LAWS. 14 TAXPAYERS OPTION, STATE AND LOCAL TAXES. 15 1. Any taxpayer subject to an income tax whose income is subject to 16 apportionment and allocation for tax purposes pursuant to the laws of a party state or 17 pursuant to the laws of subdivisions in two or more party states may elect to apportion 18 and allocate the taxpayer's income in the manner provided by the laws of such state or 19 by the laws of such states and subdivisions without reference to this compact, or may 20 elect to apportion and allocate in accordance with Article IV. This election for any tax 21 year may be made in all party states or subdivisions thereof or in any one or more of 22 the party states or subdivisions thereof without reference to the election made in the 23 others. For the purposes of this paragraph, taxes imposed by subdivisions shall be 24 considered separately from state taxes and the apportionment and allocation also may 25 be applied to the entire tax base. In no instance wherein Article IV is employed for all 26 subdivisions of a state may the sum of all apportionments and allocations to 27 subdivisions within a state be greater than the apportionment and allocation that would 28 be assignable to that state if the apportionment or allocation were being made with 29 respect to a state income tax. 30 TAXPAYER OPTION, SHORT FORM. 31 2. Each party state or any subdivision thereof which imposes an income tax
01 shall provide by law that any taxpayer required to file a return, whose only activities 02 within the taxing jurisdiction consist of sales and do not include owning or renting real 03 estate or tangible personal property, and whose dollar volume of gross sales made 04 during the tax year within the state or subdivision, as the case may be, is not in excess 05 of $100,000 may elect to report and pay any tax due on the basis of a percentage of 06 such volume, and shall adopt rates which shall produce a tax which reasonably 07 approximates the tax otherwise due. The Multistate Tax Commission, not more than 08 once in five years, may adjust the $100,000 figure in order to reflect such changes as 09 may occur in the real value of the dollar, and such adjusted figure, upon adoption by 10 the commission, shall replace the $100,000 figure specifically provided herein. Each 11 party state and subdivision thereof may make the same election available to taxpayers 12 additional to those specified in this paragraph. 13 COVERAGE. 14 3. Nothing in this Article relates to the reporting or payment of any tax other 15 than an income tax. 16 ARTICLE IV. 17 DIVISION OF INCOME. 18 1. As used in this Article, unless the context otherwise requires: 19 (a) "Apportionable income" means: 20 (i) all income that is apportionable under the Constitution of the 21 United States and is not allocated under the laws of this state, including: 22 (A) ["BUSINESS INCOME" MEANS] income arising from 23 transactions and activity in the regular course of the taxpayer's trade or 24 business; and 25 (B) [INCLUDES] income arising from tangible and intangible 26 property if the acquisition, management, employment, development, or 27 [AND] disposition of the property is or was related to the operation 28 [CONSTITUTE INTEGRAL PARTS] of the taxpayer's [REGULAR] trade or 29 business; and 30 (ii) any income that would be allocable to this state under the 31 Constitution of the United States, but that is apportioned rather than allocated
01 pursuant to the laws of this state [OPERATIONS]. 02 (b) "Commercial domicile" means the principal place from which the trade or 03 business of the taxpayer is directed or managed. 04 (c) "Compensation" means wages, salaries, commissions and any other form 05 of remuneration paid to employees for personal services. 06 (d) "Financial organization" means any bank, trust company, savings bank, 07 industrial bank, land bank, safe deposit company, private banker, savings and loan 08 association, credit union, cooperative bank, small loan company, sales finance 09 company, investment company, or any type of insurance company. 10 (e) "Non-apportionable [NONBUSINESS] income" means all income other 11 than apportionable [BUSINESS] income. 12 (f) "Public utility" means any business entity (1) which owns or operates any 13 plant, equipment, property, franchise, or license for the transmission of 14 communications, transportation of goods or persons, except by pipe line, or the 15 production, transmission, sale, delivery, or furnishing of electricity, water or steam; 16 and (2) whose rates of charges for goods or services have been established or 17 approved by a federal, state or local government or governmental agency. 18 (g) "sales" means all gross receipts of the taxpayer that are not allocated 19 under paragraphs of this Article, and that are received from transactions and 20 activity in the regular course of the taxpayer's trade or business; except that sales 21 of a taxpayer from hedging transactions and from the maturity, redemption, 22 exchange, loan, or other disposition of cash or securities, shall be excluded. 23 (h) "State" means any state of the United States, the District of Columbia, the 24 Commonwealth of Puerto Rico, any territory or possession of the United States, and 25 any foreign country or political subdivision thereof. 26 (i) "This state" means the state in which the relevant tax return is filed or, in 27 the case of application of this Article to the apportionment and allocation of income 28 for local tax purposes, the subdivision or local taxing district in which the relevant tax 29 return is filed. 30 2. Any taxpayer having income from business activity which is taxable both 31 within and outside this state, other than activity as a financial organization or public
01 utility or the rendering of purely personal services by an individual, shall allocate and 02 apportion net income as provided in this Article. If a taxpayer has income from 03 business activity as a public utility but derives the greater percentage of income from 04 activities subject to this Article, the taxpayer may elect to allocate and apportion the 05 taxpayer's entire net income as provided in this Article. 06 3. For purposes of allocation and apportionment of income under this Article, a 07 taxpayer is taxable in another state if (1) in that state the taxpayer is subject to a net 08 income tax, a franchise tax measured by net income, a franchise tax for the privilege 09 of doing business, or a corporate stock tax, or (2) that state has jurisdiction to subject 10 the taxpayer to a net income tax regardless of whether, in fact, the state does or does 11 not. 12 4. Rents and royalties from real or tangible personal property, capital gains, 13 interest, dividends or patent or copyright royalties, to the extent that they constitute 14 nonapportionable [NONBUSINESS] income, shall be allocated as provided in 15 paragraphs 5 through 8 of this Article. 16 5.(a) Net rents and royalties from real property located in this state are 17 allocable to this state. 18 (b) Net rents and royalties from tangible personal property are allocable to this 19 state: (1) if and to the extent that the property is utilized in this state, or (2) in their 20 entirety if the taxpayer's commercial domicile is in this state and the taxpayer is not 21 organized under the laws of or taxable in the state in which the property is utilized. 22 (c) The extent of utilization of tangible personal property in a state is 23 determined by multiplying the rents and royalties by a fraction, the numerator of 24 which is the number of days of physical location of the property in the state during the 25 rental or royalty period in the taxable year and the denominator of which is the number 26 of days of physical location of the property everywhere during all rental or royalty 27 periods in the taxable year. If the physical location of the property during the rental or 28 royalty period is unknown or unascertainable by the taxpayer, tangible personal 29 property is utilized in the state in which the property was located at the time the rental 30 or royalty payer obtained possession. 31 6.(a) Capital gains and losses from sales of real property located in this state
01 are allocable to this state. 02 (b) Capital gains and losses from sales of tangible personal property are 03 allocable to this state if (1) the property had a situs in this state at the time of the sale, 04 or (2) the taxpayer's commercial domicile is in this state and the taxpayer is not 05 taxable in the state in which the property had a situs. 06 (c) Capital gains and losses from sales of intangible personal property are 07 allocable to this state if the taxpayer's commercial domicile is in this state. 08 7. Interest and dividends are allocable to this state if the taxpayer's commercial 09 domicile is in this state. 10 8.(a) Patent and copyright royalties are allocable to this state: (1) if and to the 11 extent that the patent or copyright is utilized by the payer in this state, or (2) if and to 12 the extent that the patent or copyright is utilized by the payer in a state in which the 13 taxpayer is not taxable and the taxpayer's commercial domicile is in this state. 14 (b) A patent is utilized in a state to the extent that it is employed in production, 15 fabrication, manufacturing, or other processing in the state or to the extent that a 16 patented product is produced in the state. If the basis of receipts from patent royalties 17 does not permit allocation to states or if the accounting procedures do not reflect states 18 of utilization, the patent is utilized in the state in which the taxpayer's commercial 19 domicile is located. 20 (c) A copyright is utilized in a state to the extent that printing or other 21 publication originates in the state. If the basis of receipts from copyright royalties does 22 not permit allocation to states or if the accounting procedures do not reflect states of 23 utilization, the copyright is utilized in the state in which the taxpayer's commercial 24 domicile is located. 25 9. All apportionable [BUSINESS] income shall be apportioned to this state by 26 multiplying the income by a fraction, the numerator of which is the property factor 27 plus the payroll factor plus the sales factor, and the denominator of which is three. 28 10. The property factor is a fraction, the numerator of which is the average 29 value of the taxpayer's real and tangible personal property owned or rented and used in 30 this state during the tax period and the denominator of which is the average value of 31 all the taxpayer's real and tangible personal property owned or rented and used during
01 the tax period. 02 11. Property owned by the taxpayer is valued at its original cost. Property 03 rented by the taxpayer is valued at eight times the net annual rental rate. Net annual 04 rental rate is the annual rental rate paid by the taxpayer less any annual rental rate 05 received by the taxpayer from subrentals. 06 12. The average value of property shall be determined by averaging the values 07 at the beginning and ending of the tax period but the tax administrator may require the 08 averaging of monthly values during the tax period if reasonably required to reflect 09 properly the average value of the taxpayer's property. 10 13. The payroll factor is a fraction, the numerator of which is the total amount 11 paid in this state during the tax period by the taxpayer for compensation and the 12 denominator of which is the total compensation paid everywhere during the tax period. 13 14. Compensation is paid in this state if: 14 (a) the individual's service is performed entirely within the state; 15 (b) the individual's service is performed both inside and outside the state, but 16 the service performed outside the state is incidental to the individual's service within 17 this state; or 18 (c) some of the service is performed in the state and (1) the base of operations 19 or, if there is no base of operations, the place from which the service is directed or 20 controlled is in the state, or (2) the base of operations or the place from which the 21 service is directed or controlled is not in any state in which some part of the service is 22 performed, but the individual's residence is in this state. 23 15. The sales factor is a fraction, the numerator of which is the total sales of 24 the taxpayer in this state during the tax period, and the denominator of which is the 25 total sales of the taxpayer everywhere during the tax period. 26 16. Sales of tangible personal property are in this state if: 27 (a) the property is delivered or shipped to a purchaser, other than the United 28 States Government, within this state regardless of the f.o.b. point or other conditions 29 of the sale; or 30 (b) the property is shipped from an office, store, warehouse, factory, or other 31 place of storage in this state and (1) the purchaser is the United States Government or
01 (2) the taxpayer is not taxable in the state of the purchaser. 02 17.(a) Sales, other than sales described in Section 16 [OF TANGIBLE 03 PERSONAL PROPERTY], are in this state if the taxpayer's market for the sales is 04 in this state. The taxpayer's market for sales is in this state: 05 (1) in the case of sale, rental, lease, or license of real property, if 06 and to the extent the property is located in this state; 07 (2) in the case of rental, lease, or license of tangible personal 08 property, if and to the extent the property is located in this state; 09 (3) in the case of sale of a service, if and to the extent the service is 10 delivered to a location in this state; and 11 (4) in the case of intangible property, 12 (i) that is rented, leased, or licensed, if and to the extent the 13 property is used in this state, provided that intangible property utilized in 14 marketing a good or service to a consumer is "used in this state" if that 15 good or service is purchased by a consumer who is in this state; and 16 (ii) that is sold, if and to the extent the property is used in 17 this state, provided that: 18 (A) a contract right, government license, or similar 19 intangible property that authorizes the holder to conduct a 20 business activity in a specific geographic area is "used in this state" 21 if the geographic area includes all or part of this state; 22 (B) sales from intangible property sales that are 23 contingent on the productivity, use, or disposition of the intangible 24 property shall be treated as a sale of the rental, lease, or licensing 25 of such intangible property under subsection (a)(4)(i); and 26 (C) all other sales of intangible property shall be 27 excluded from the numerator and denominator of the sales factor. 28 [: (a) THE INCOME-PRODUCING ACTIVITY IS PERFORMED IN 29 THIS STATE; OR] 30 (b) If the state or states of assignment under subsection (a) cannot be 31 determined, the state or states of assignment shall be reasonably approximated.
01 (c) If the taxpayer is not taxable in a state to which a sale is assigned 02 under subsection (a) or (b), or if the state of assignment cannot be determined 03 under subsection (a) or reasonably approximated under subsection (b), such a 04 sale shall be excluded from the denominator of the sales factor. 05 (d) The tax administrator may adopt regulations as necessary or 06 appropriate to carry out the purposes of this section [THE INCOME- 07 PRODUCING ACTIVITY IS PERFORMED BOTH IN AND OUTSIDE THIS 08 STATE AND A GREATER PROPORTION OF THE INCOME-PRODUCING 09 ACTIVITY IS PERFORMED IN THIS STATE THAN IN ANY OTHER STATE, 10 BASED ON COSTS OF PERFORMANCE]. 11 18. If the allocation and apportionment provisions of this Article do not fairly 12 represent the extent of the taxpayer's business activity in this state, the taxpayer may 13 petition for or the tax administrator may require, in respect to all or any part of the 14 taxpayer's business activity, if reasonable: 15 (a) separate accounting; 16 (b) the exclusion of any one or more of the factors; 17 (c) the inclusion of one or more additional factors which will fairly represent 18 the taxpayer's business activity in this state; or 19 (d) the employment of any other method to effectuate an equitable allocation 20 and apportionment of the taxpayer's income. 21 ARTICLE V. 22 ELEMENTS OF SALES AND USE TAX LAWS. 23 TAX CREDIT. 24 1. Each purchaser liable for a use tax on tangible personal property shall be 25 entitled to full credit for the combined amount or amounts of legally imposed sales or 26 use taxes paid by the purchaser with respect to the same property to another state and 27 any subdivision thereof. The credit shall be applied first against the amount of any use 28 tax due the state, and any unused portion of the credit shall then be applied against the 29 amount of any use tax due a subdivision. 30 EXEMPTION CERTIFICATES, VENDORS MAY RELY. 31 2. Whenever a vendor receives and accepts in good faith from a purchaser a
01 resale or other exemption certificate or other written evidence of exemption authorized 02 by the appropriate state or subdivision taxing authority, the vendor shall be relieved of 03 liability for a sales or use tax with respect to the transaction. 04 ARTICLE VI. 05 THE COMMISSION. 06 ORGANIZATION AND MANAGEMENT. 07 1.(a) The Multistate Tax Commission is hereby established. It shall be 08 composed of one "member" from each party state who shall be the head of the state 09 agency charged with the administration of the types of taxes to which this compact 10 applies. If there is more than one such agency the state shall provide by law for the 11 selection of the commission member from the heads of the relevant agencies. State 12 law may provide that a member of the commission be represented by an alternate but 13 only if there is on file with the commission written notification of the designation and 14 identity of the alternate. The attorney general of each party state or the designee of the 15 attorney general, or other counsel if the laws of the party state specifically provide, 16 shall be entitled to attend the meetings of the commission, but shall not vote. Such 17 attorneys general, designees, or other counsel shall receive all notices of meetings 18 required under paragraph 1(e) of this Article. 19 (b) Each party state shall provide by law for the selection of representatives 20 from its subdivisions affected by this compact to consult with the commission member 21 from that state. 22 (c) Each member shall be entitled to one vote. The commission shall not act 23 unless a majority of the members are present, and no action shall be binding unless 24 approved by a majority of the total number of members. 25 (d) The commission shall adopt an official seal to be used as it may provide. 26 (e) The commission shall hold an annual meeting and such other regular 27 meetings as its bylaws may provide and such special meetings as its executive 28 committee may determine. The commission bylaws shall specify the dates of the 29 annual and any other regular meetings, and shall provide for the giving of notice of 30 annual, regular and special meetings. Notices of special meetings shall include the 31 reasons therefor and an agenda of the items to be considered.
01 (f) The commission shall elect annually, from among its members, a chairman, 02 a vice-chairman and a treasurer. The commission shall appoint an executive director 03 who shall serve at its pleasure, and it shall fix the duties and compensation of the 04 executive director. The executive director shall be secretary of the commission. The 05 commission shall make provision for the bonding of such of its officers and employees 06 as it may deem appropriate. 07 (g) Irrespective of the civil service, personnel or other merit system laws of 08 any party state, the executive director shall appoint or discharge such personnel as 09 may be necessary for the performance of the functions of the commission and shall fix 10 their duties and compensation. The commission bylaws shall provide for personnel 11 policies and programs. 12 (h) The commission may borrow, accept or contract for the services of 13 personnel from any state, the United States, or any other governmental entity. 14 (i) The commission may accept for any of its purposes and functions any and 15 all donations and grants of money, equipment, supplies, materials and services, 16 conditional or otherwise, from any governmental entity, and may utilize and dispose 17 of the same. 18 (j) The commission may establish one or more offices for the transacting of its 19 business. 20 (k) The commission shall adopt bylaws for the conduct of its business. The 21 commission shall publish its bylaws in convenient form, and shall file a copy of the 22 bylaws and any amendments thereto with the appropriate agency or officer in each of 23 the party states. 24 (l) The commission annually shall make to the governor and legislature of 25 each party state a report covering its activities for the preceding year. Any donation or 26 grant accepted by the commission or services borrowed shall be reported in the annual 27 report of the commission, and shall include the nature, amount and conditions, if any, 28 of the donation, gift, grant or services borrowed and the identity of the donor or 29 lender. The commission may make additional reports as it may deem desirable. 30 COMMITTEES. 31 2.(a) To assist in the conduct of its business when the full commission is not
01 meeting, the commission shall have an executive committee of seven members, 02 including the chairman, vice-chairman, treasurer and four other members elected 03 annually by the commission. The executive committee, subject to the provisions of 04 this compact and consistent with the policies of the commission, shall function as 05 provided in the bylaws of the commission. 06 (b) The commission may establish advisory and technical committees, 07 membership on which may include private persons and public officials, in furthering 08 any of its activities. Such committees may consider any matter of concern to the 09 commission, including problems of special interest to any party state and problems 10 dealing with particular types of taxes. 11 (c) The commission may establish such additional committees as its bylaws 12 may provide. 13 POWERS. 14 3. In addition to powers conferred elsewhere in this compact, the commission 15 shall have power to: 16 (a) Study state and local tax systems and particular types of state and local 17 taxes. 18 (b) Develop and recommend proposals for an increase in uniformity or 19 compatibility of state and local tax laws with a view toward encouraging the 20 simplification and improvement of state and local tax law and administration. 21 (c) Compile and publish information as in its judgment would assist the party 22 states in implementation of the compact and taxpayers in complying with state and 23 local tax laws. 24 (d) Do all things necessary and incidental to the administration of its functions 25 pursuant to this compact. 26 FINANCE. 27 4.(a) The commission shall submit to the governor or designated officer or 28 officers of each party state a budget of its estimated expenditures for such period as 29 may be required by the laws of that state for presentation to the legislature thereof. 30 (b) Each of the commission's budgets of estimated expenditures shall contain 31 specific recommendations of the amounts to be appropriated by each of the party
01 states. The total amount of appropriations requested under any such budget shall be 02 apportioned among the party states as follows: one-tenth in equal shares; and the 03 remainder in proportion to the amount of revenue collected by each party state and its 04 subdivisions from income taxes, capital stock taxes, gross receipts, taxes, sales and use 05 taxes. In determining such amounts, the commission shall employ such available 06 public sources of information as, in its judgment, present the most equitable and 07 accurate comparisons among the party states. Each of the commission's budgets of 08 estimated expenditures and requests for appropriations shall indicate the sources used 09 in obtaining information employed in applying the formula contained in this 10 paragraph. 11 (c) The commission shall not pledge the credit of any party state. The 12 commission may meet any of its obligations in whole or in part with funds available to 13 it under paragraph 1(i) of this Article: provided that the commission takes specific 14 action setting aside such funds prior to incurring any obligation to be met in whole or 15 in part in such manner. Except where the commission makes use of funds available to 16 it under paragraph 1(i), the commission shall not incur any obligation prior to the 17 allotment of funds by the party states adequate to meet the same. 18 (d) The commission shall keep accurate accounts of all receipts and 19 disbursements. The receipts and disbursements of the commission shall be subject to 20 the audit and accounting procedures established under its bylaws. All receipts and 21 disbursements of funds handled by the commission shall be audited yearly by a 22 certified or licensed public accountant and the report of the audit shall be included in 23 and become part of the annual report of the commission. 24 (e) The accounts of the commission shall be open at any reasonable time for 25 inspection by duly constituted officers of the party states and by any persons 26 authorized by the commission. 27 (f) Nothing contained in this Article shall be construed to prevent commission 28 compliance with laws relating to audit or inspection of accounts by or on behalf of any 29 government contributing to the support of the commission. 30 ARTICLE VII. 31 UNIFORM REGULATIONS AND FORMS.
01 1. Whenever any two or more party states, or subdivisions of party states, have 02 uniform or similar provisions of law relating to an income tax, capital stock tax, gross 03 receipts tax, sales or use tax, the commission may adopt uniform regulations for any 04 phase of the administration of such law, including assertion of jurisdiction to tax, or 05 prescribing uniform tax forms. The commission may also act with respect to the 06 provisions of Article IV of this compact. 07 2. Prior to the adoption of any regulation, the commission shall: 08 (a) As provided in its bylaws, hold at least one public hearing on due notice to 09 all affected party states and subdivisions thereof and to all taxpayers and other persons 10 who have made timely request of the commission for advance notice of its regulation- 11 making proceedings. 12 (b) Afford all affected party states and subdivisions and interested persons an 13 opportunity to submit relevant written data and views, which shall be considered fully 14 by the commission. 15 3. The commission shall submit any regulations adopted by it to the 16 appropriate officials of all party states and subdivisions to which they might apply. 17 Each such state and subdivision shall consider any such regulations for adoption in 18 accordance with its own laws and procedures. 19 ARTICLE VIII. 20 INTERSTATE AUDITS. 21 1. This Article shall be in force only in those party states that specifically 22 provide therefor by statute. 23 2. Any party state or subdivision thereof desiring to make or participate in an 24 audit of any accounts, books, papers, records or other documents may request the 25 commission to perform the audit on its behalf. In responding to the request, the 26 commission shall have access to and may examine, at any reasonable time, such 27 accounts, books, papers, records, and other documents and any relevant property or 28 stock of merchandise. The commission may enter into agreements with party states or 29 their subdivisions for assistance in performance of the audit. The commission shall 30 make charges, to be paid by the state or local government or governments for which it 31 performs the service, for any audits performed by it in order to reimburse itself for the
01 actual costs incurred in making the audit. 02 3. The commission may require the attendance of any person within the state 03 where it is conducting an audit or part thereof at a time and place fixed by it within 04 such state for the purpose of giving testimony with respect to any account, book, 05 paper, document, other record, property or stock of merchandise being examined in 06 connection with the audit. If the person is not within the jurisdiction, the person may 07 be required to attend for such purpose at any time and place fixed by the commission 08 within the state of which the person is a resident: provided that such state has adopted 09 this Article. 10 4. The commission may apply to any court having power to issue compulsory 11 process for orders in aid of its powers and responsibilities pursuant to this Article and 12 any and all such courts shall have jurisdiction to issue such orders. Failure of any 13 person to obey any such order shall be punishable as contempt of the issuing court. If 14 the party or subject matter on account of which the commission seeks an order is 15 within the jurisdiction of the court to which application is made, such application may 16 be to a court in the state or subdivision on behalf of which the audit is being made or a 17 court in the state in which the object of the order being sought is situated. The 18 provisions of this paragraph apply only to courts in a state that has adopted this 19 Article. 20 5. The commission may decline to perform any audit requested if it finds that 21 its available personnel or other resources are insufficient for the purpose or that, in the 22 terms requested, the audit is impracticable of satisfactory performance. If the 23 commission, on the basis of its experience, has reason to believe that an audit of a 24 particular taxpayer, either at a particular time or on a particular schedule, would be of 25 interest to a number of party states or their subdivisions, it may offer to make the audit 26 or audits, the offer to be contingent on sufficient participation therein as determined by 27 the commission. 28 6. Information obtained by any audit pursuant to this Article shall be 29 confidential and available only for tax purposes to party states, their subdivisions or 30 the United States. Availability of information shall be in accordance with the laws of 31 the states or subdivisions on whose account the commission performs the audit, and
01 only through the appropriate agencies or officers of such states or subdivisions. 02 Nothing in this Article shall be construed to require any taxpayer to keep records for 03 any period not otherwise required by law. 04 7. Other arrangements made or authorized pursuant to laws for cooperative 05 audit by or on behalf of the party states or any of their subdivisions are not superseded 06 or invalidated by this Article. 07 8. In no event shall the commission make any charge against a taxpayer for an 08 audit. 09 9. As used in this Article, "tax," in addition to the meaning ascribed to it in 10 Article II, means any tax or license fee imposed in whole or in part for revenue 11 purposes. 12 ARTICLE IX. 13 ARBITRATION. 14 1. Whenever the commission finds a need for settling disputes concerning 15 apportionments and allocations by arbitration, it may adopt a regulation placing this 16 Article in effect, notwithstanding the provisions of Article VII. 17 2. The commission shall select and maintain an arbitration panel composed of 18 officers and employees of state and local governments and private persons who shall 19 be knowledgeable and experienced in matters of tax law and administration. 20 3. Whenever a taxpayer who has elected to employ Article IV, or whenever the 21 laws of the party state or subdivision thereof are substantially identical with the 22 relevant provisions of Article IV, the taxpayer, by written notice to the commission 23 and to each party state or subdivision thereof that would be affected, may secure 24 arbitration of an apportionment or allocation, if the taxpayer is dissatisfied with the 25 final administrative determination of the tax agency of the state or subdivision with 26 respect thereto on the ground that it would subject the taxpayer to double or multiple 27 taxation by two or more party states or subdivisions thereof. Each party state and 28 subdivision thereof hereby consents to the arbitration as provided herein, and agrees to 29 be bound thereby. 30 4. The arbitration board shall be composed of one person selected by the 31 taxpayer, one by the agency or agencies involved, and one member of the
01 commission's arbitration panel. If the agencies involved are unable to agree on the 02 person to be selected by them, such person shall be selected by lot from the total 03 membership of the arbitration panel. The two persons selected for the board in the 04 manner provided by the foregoing provisions of this paragraph shall jointly select the 05 third member of the board. If they are unable to agree on the selection, the third 06 member shall be selected by lot from among the total membership of the arbitration 07 panel. No member of a board selected by lot shall be qualified to serve if the member 08 is an officer or employee or is otherwise affiliated with any party to the arbitration 09 proceeding. Residence within the jurisdiction of a party to the arbitration proceeding 10 shall not constitute affiliation within the meaning of this paragraph. 11 5. The board may sit in any state or subdivision party to the proceeding, in the 12 state of the taxpayer's incorporation, residence or domicile, in any state where the 13 taxpayer does business, or in any place that it finds most appropriate for gaining 14 access to evidence relevant to the matter before it. 15 6. The board shall give due notice of the times and places of its hearings. The 16 parties shall be entitled to be heard, to present evidence, and to examine and cross- 17 examine witnesses. The board shall act by majority vote. 18 7. The board shall have power to administer oaths, take testimony, subpoena 19 and require the attendance of witnesses and the production of accounts, books, papers, 20 records, and other documents, and issue commissions to take testimony. Subpoenas 21 may be signed by any member of the board. In case of failure to obey a subpoena, and 22 upon application by the board, any judge of a court of competent jurisdiction of the 23 state in which the board is sitting or in which the person to whom the subpoena is 24 directed may be found may make an order requiring compliance with the subpoena, 25 and the court may punish failure to obey the order as a contempt. The provisions of 26 this paragraph apply only in states that have adopted this Article. 27 8. Unless the parties otherwise agree the expenses and other costs of the 28 arbitration shall be assessed and allocated among the parties by the board in such 29 manner as it may determine. The commission shall fix a schedule of compensation for 30 members of arbitration boards and of other allowable expenses and costs. No officer 31 or employee of a state or local government who serves as a member of a board shall be
01 entitled to compensation therefor unless the member is required on account of the 02 service as a board member to forego the regular compensation attaching to the public 03 employment, but any such board member shall be entitled to expenses. 04 9. The board shall determine the disputed apportionment or allocation and any 05 matters necessary thereto. The determinations of the board shall be final for purposes 06 of making the apportionment or allocation, but for no other purpose. 07 10. The board shall file with the commission and with each tax agency 08 represented in the proceeding: the determination of the board; the board's written 09 statement of its reasons therefor; the record of the board's proceedings; and any other 10 documents required by the arbitration rules of the commission to be filed. 11 11. The commission shall publish the determinations of boards together with 12 the statements of the reasons therefor. 13 12. The commission shall adopt and publish rules of procedure and practice 14 and shall file a copy of such rules and of any amendment thereto with the appropriate 15 agency or officer in each of the party states. 16 13. Nothing contained herein shall prevent at any time a written compromise of 17 any matter or matters in dispute, if otherwise lawful, by the parties to the arbitration 18 proceedings. 19 ARTICLE X. 20 ENTRY INTO FORCE AND WITHDRAWAL. 21 1. This compact shall enter into force when enacted into law by any seven 22 states. Thereafter, this compact shall become effective as to any other state upon its 23 enactment thereof. The commission shall arrange for notification of all party states 24 whenever there is a new enactment of the compact. 25 2. Any party state may withdraw from this compact by enacting a statute 26 repealing the same. No withdrawal shall affect any liability already incurred by or 27 chargeable to a party state prior to the time of such withdrawal. 28 3. No proceeding commenced before an arbitration board prior to the 29 withdrawal of a state and to which the withdrawing state or any subdivision thereof is 30 a party shall be discontinued or terminated by the withdrawal, nor shall the board 31 thereby lose jurisdiction over any of the parties to the proceeding necessary to make a
01 binding determination therein. 02 ARTICLE XI. 03 EFFECT ON OTHER LAWS AND JURISDICTION. 04 Nothing in this compact shall be construed to: 05 (a) Affect the power of any state or subdivision thereof to fix rates of taxation, 06 except that a party state shall be obligated to implement Article III 2 of this compact. 07 (b) Apply to any tax or fixed fee imposed for the registration of a motor 08 vehicle or any tax on motor fuel, other than a sales tax: provided that the definition of 09 "tax" in Article VIII 9 may apply for the purposes of that Article and the commission's 10 powers of study and recommendation pursuant to Article VI 3 may apply. 11 (c) Withdraw or limit the jurisdiction of any state or local court or 12 administrative officer or body with respect to any person, corporation or other entity 13 or subject matter, except to the extent that such jurisdiction is expressly conferred by 14 or pursuant to this compact upon another agency or body. 15 (d) Supersede or limit the jurisdiction of any court of the United States. 16 ARTICLE XII. 17 CONSTRUCTION AND SEVERABILITY. 18 This compact shall be liberally construed so as to effectuate the purposes 19 thereof. The provisions of this compact shall be severable and if any phrase, clause, 20 sentence, or provision of this compact is declared to be contrary to the constitution of 21 any state or of the United States or the applicability thereof to any government, 22 agency, person or circumstance is held invalid, the validity of the remainder of this 23 compact and the applicability thereof to any government, agency, person or 24 circumstance shall not be affected thereby. If this compact shall be held contrary to the 25 constitution of any state participating therein, the compact shall remain in full force 26 and effect as to the remaining party states and in full force and effect as to the state 27 affected as to all severable matters. 28 * Sec. 2. AS 43.20.143(a) is amended to read: 29 (a) All apportionable [BUSINESS] income of water transportation carriers 30 shall be apportioned to this state in accordance with AS 43.19 (Multistate Tax 31 Compact) as modified by the following:
01 (1) the numerator of the property factor is the sum of the value for 02 property in a fixed location, including buildings and land used in the business, and 03 intrastate equipment and personal property determined according to AS 43.19 04 (Multistate Tax Compact), and the value of interstate mobile property determined on a 05 days-spent-in-ports basis as provided in (4) of this subsection; the denominator of the 06 property factor is determined according to AS 43.19 (Multistate Tax Compact); 07 (2) the numerator of the payroll factor is the sum of the wages and 08 salaries of employees assigned to fixed locations determined according to AS 43.19 09 (Multistate Tax Compact) and the wages and salaries of employees assigned to 10 interstate mobile property determined on a days-spent-in-ports basis as provided in (4) 11 of this subsection; the denominator of the payroll factor is determined in accordance 12 with AS 43.19 (Multistate Tax Compact); 13 (3) the numerator of the sales factor is the sum of all revenues from 14 intrastate activities and revenues from interstate activities determined on a days-spent- 15 in-ports basis as provided in (4) of this subsection; the denominator is determined in 16 accordance with AS 43.19 (Multistate Tax Compact); 17 (4) the portions of the numerator of the property, payroll, and sales 18 factors which are directly related to interstate mobile property operations are 19 determined by a ratio which the number of days spent in ports inside the state bears to 20 the total number of days spent in ports inside and outside the state; the term "days 21 spent in ports" does not include periods when ships are tied up because of strikes or 22 withheld from Alaska service for repairs, or because of seasonal reduction of service; 23 days in port are computed by dividing the total number of hours in all ports by 24. 24 * Sec. 3. AS 43.20.144(a) is amended to read: 25 (a) All apportionable [BUSINESS] income of a taxpayer engaged in the 26 production of oil or gas from a lease or property in this state or engaged in the 27 transportation of oil or gas by pipeline in this state shall be apportioned to this state in 28 accordance with AS 43.19 (Multistate Tax Compact) as modified by this section. 29 * Sec. 4. AS 43.20.144(b) is amended to read: 30 (b) A taxpayer's apportionable [BUSINESS] income to be apportioned under 31 this section to the state shall be the federal taxable income of the taxpayer's
01 consolidated business for the tax period, except that 02 (1) taxes based on or measured by net income that are deducted in the 03 determination of the federal taxable income shall be added back; the tax levied and 04 paid under AS 43.55 may not be added back; 05 (2) intangible drilling and development costs that are deducted as 06 expenses under 26 U.S.C. 263(c) (Internal Revenue Code) in the determination of the 07 federal taxable income shall be capitalized and depreciated as if the option to treat 08 them as expenses under 26 U.S.C. 263(c) (Internal Revenue Code) had not been 09 exercised; 10 (3) depletion deducted on the percentage depletion basis under 26 11 U.S.C. 613 (Internal Revenue Code) in the determination of the federal taxable income 12 shall be recomputed and deducted on the cost depletion basis under 26 U.S.C. 612 13 (Internal Revenue Code); and 14 (4) depreciation shall be computed on the basis of 26 U.S.C. 167 15 (Internal Revenue Code) as that section read on June 30, 1981. 16 * Sec. 5. AS 43.20.144(c) is amended to read: 17 (c) A taxpayer's apportionable [BUSINESS] income shall be apportioned to 18 this state by multiplying the taxpayer's income determined under (b) of this section by 19 the apportionment factor applicable to the taxpayer among the following factors: 20 (1) the apportionment factor of a taxpayer subject to this section but 21 not engaged in the production of oil and gas, or of gas only, as appropriate, from a 22 lease or property in this state during the tax period is a fraction, the numerator of 23 which is the sum of the property factor under AS 43.19 (Multistate Tax Compact) and 24 the sales factor under (d) of this section for the taxpayer for that tax period, and the 25 denominator of which is two; 26 (2) the apportionment factor of a taxpayer subject to this section but 27 not engaged in the pipeline transportation of oil or gas in this state during the tax 28 period is a fraction, the numerator of which is the sum of the property factor under (e) 29 of this section and the extraction factor under (f) of this section for the taxpayer for the 30 tax period, and the denominator of which is two; 31 (3) the apportionment factor of a taxpayer engaged both in the
01 production of oil or gas from a lease or property in this state and in the pipeline 02 transportation of oil or gas in this state during the tax period is a fraction, the 03 numerator of which is the sum of the sales factor under (d) of this section, the property 04 factor under (e) of this section, and the extraction factor under (f) of this section for 05 the taxpayer for the tax period, and the denominator of which is three. 06 * Sec. 6. AS 43.20.145(e) is amended to read: 07 (e) The department may require a corporation that files under (a) of this 08 section to file a report under AS 43.20.142, [AND] 43.20.143, and 43.20.148 prepared 09 without regard to this section if the corporation or an affiliated corporation 10 (1) fails to comply with regulations adopted under this chapter, 11 including domestic disclosure spread sheet filing requirements; or 12 (2) does not provide information that is requested by the department 13 that is necessary for the department to audit the taxpayer's corporate return in a 14 reasonable period of time. 15 * Sec. 7. AS 43.20 is amended by adding a new section to article 2 to read: 16 Sec. 43.20.148. Highly digitized businesses. (a) All apportionable income of a 17 taxpayer engaged in a highly digitized business in the state shall be apportioned to this 18 state in accordance with AS 43.19 (Multistate Tax Compact) as modified by this 19 section. 20 (b) The apportionment factor of a taxpayer subject to this section is the sales 21 factor. The sales factor is determined in accordance with AS 43.19 (Multistate Tax 22 Compact). 23 (c) A taxpayer is engaged in a highly digitized business in this state when 50 24 percent or more of the taxpayer's sales in this state consist of any combination of sales 25 of 26 (1) intangible property delivered by electronic transmission in this 27 state; 28 (2) services delivered by electronic transmission in this state; 29 (3) services related to computers, electronic transmissions, or Internet 30 technology delivered in this state; or 31 (4) tangible personal property delivered in this state from Internet
01 sales, if the Internet is the primary mode of customer access in this state. 02 (d) The department may require a taxpayer to apportion income under this 03 section if the department determines that the taxpayer's business activity in this state 04 may be otherwise characterized as a highly digitized business. 05 (e) In this section, 06 (1) "delivered" includes delivered to or on behalf of a customer or 07 delivered through a customer; 08 (2) "electronic transmission" includes transmission by wire, lines, 09 cable, fiber optics, electronic signals, satellite transmission, audio or radio waves, or 10 similar means, whether or not the provider owns, leases, or otherwise controls the 11 transmission equipment; 12 (3) "intangible property" includes licenses and sublicenses for data 13 access, streaming or other electronic transmission of music, videos, books, games, or 14 other digital goods, and remote access software; 15 (4) "Internet sales" includes sales through an Internet website, 16 application, or other electronic means, including sales made by computer, tablet, 17 telephone, or other similar device. 18 * Sec. 8. The uncodified law of the State of Alaska is amended by adding a new section to 19 read: 20 TRANSITION: HIGHLY DIGITIZED BUSINESS TAX APPORTIONMENT. 21 AS 43.20.148, enacted by sec. 7 of this Act, applies to a taxpayer that is filing a return for a 22 tax year beginning on or after January 1, 2024. 23 * Sec. 9. This Act takes effect January 1, 2024.