Legislature(2025 - 2026)BARNES 124
02/28/2025 09:00 AM House LABOR & COMMERCE
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| Audio | Topic |
|---|---|
| Start | |
| HB113 | |
| HB34 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 113 | TELECONFERENCED | |
| += | HB 34 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
HB 113-TAX EXEMPTION: SMALL BUSINESS
9:02:50 AM
CO-CHAIR FIELDS announced that the first order of business would
be HOUSE BILL NO. 113, "An Act relating to a tax exemption for
qualified small businesses; and providing for an effective
date."
9:03:14 AM
CO-CHAIR HALL, on behalf of the House Labor and Commerce
Standing Committee, sponsor of HB 113, gave the sponsor
statement [included in the committee packet], which read as
follows [original punctuation provided]:
In 2012, the Alaska Legislature passed Senate Bill 23,
which created the small business tax exemption under
AS 43.20.012 for qualified small businesses and
shortly thereafter, in 2013, passed Senate Bill 83,
which provided for a real on July 1st, 2023.
Following the expiration of the tax exemption in FY
2024, small businesses began to advocate to re-instate
it so that they could continue their operations in
Alaska. The House Labor & Commerce Co-Chairs believe
that helping small businesses thrive and do business
in Alaska allows their payrolls to flow into
communities and their commerce to continue to serve
Alaskans.
Restoring this small business tax exemption will
ensure revenue not collected by the state is returned
several times into local communities.
9:04:08 AM
TRISTAN WALSH, Staff, Representative Carolyn Hall, Alaska State
Legislature, gave a PowerPoint, titled "HB 113 Small Business
Tax Exemption" [hard copy included in the committee packet], on
behalf of the bill sponsor, the House Labor and Commerce
Standing Committee, on which Representative Hall serves as co-
chair. He moved to the second slide of the PowerPoint
presentation, "HB 113 An Act Relating To A Tax Exemption for
Qualified Small Businesses," which read as follows [original
punctuation provided]:
In 2023, a small business tax exemption in AS
43.20.012 was allowed to expire.
The tax exemption applied only to qualified small
businesses under IRS (Internal Revenue Service) code
and had under $50m in assets.
In FY23, this amounted to approximately $2.5m across
47 beneficiaries.
MR. WALSH moved to the third slide and gave an overview of the
eligibility criteria for HB 113, which read as follows [original
punctuation provided]:
-The corporation must be engaged in an active business
as described in 26 U.S.C.A §IRC 1202 (e);
-Corporate assets may not exceed $50m of all
affiliates (80% of which must be used in the active
conduct of one or more trades or businesses.)
-Includes any business except: engineering, law,
health, architecture, accounting, actuarial science,
performing arts, consulting, athletics, financial
services, brokerage services?(See Supporting Document
IRS Federal Tax Code 26 USC 1202 (eff'd 2012), page 5)
MR. WALSH moved to the fourth slide, drawing committee members'
attention to a table graph representing the tax brackets for the
Alaska corporate net income tax. He noted that HB 113
essentially exempts qualified businesses from the Alaska
corporate net income tax under AS.43.20.011.
MR. WALSH, noting that the proposed legislation is a
reinstatement of an expired tax credit from 2012, moved to the
fifth slide to give an overview of additional requirements,
which read as follows [original punctuation provided]:
Qualification will be determined on the first day
of the tax year for which the corporation claims it
qualifies.
Must be incorporated in or authorized to do
business in Alaska.
All corporations that are members of the same
parent subsidiary-controlled group shall be treated as
one corporation.
MR. WALSH moved to the sixth and final slide, drawing committee
members' attention to a table graph representing "Corporate
Income Tax Small Business Exemption History." He noted that the
revenue collected from tax was approximately $2.5 million in
fiscal year 2023 (FY 23). Mr. Walsh concluded by inviting
questions from committee members.
9:07:42 AM
CO-CHAIR FIELDS commented that HB 113 came to fruition after the
Chamber of Commerce and a local small business owner notified
him of the expired tax credit.
9:08:06 AM
REPRESENTATIVE COULOMBE queried the reason for the original 10-
year expiration date.
9:08:26 AM
MR. WALSH explained that the original bill, sponsored by former
Senator Ellis, was Senate Bill 23, passed in 2012 [during the
Twenty-Seventh Alaska State Legislature]; it was an omnibus tax
credit bill, which began as a film tax credit and later included
oil tax credits. He reported that the following year, in 2013,
the provision for a 10-year expiration was added while
correcting interest rates charged to construction companies. He
stated that, in many cases, the legislature might include
expiration provisions so that an issue can be reconsidered at a
future date. He further stated that he did not know the exact
intent behind the original 10-year expiration date.
9:09:31 AM
REPRESENTATIVE COULOMBE asked whether the loss of revenue would
affect any local government.
9:09:41 AM
MR. WALSH offered his belief that the state would be primarily
affected but deferred to Deputy Director Spanos.
9:10:31 AM
BRANDON SPANOS, Deputy Director, Tax Division, Department of
Revenue, responded that all the revenue that would be forgone
would otherwise be going into the general fund (GF) and subject
to appropriation.
9:10:57 AM
REPRESENTATIVE CARRICK asked if all of the forgone revenue
normally goes into the UGF (Unrestricted General Fund) and
further asked the total of forgone revenue.
MR. SPANOS confirmed that the total forgone revenue typically
goes to the UGF. He further stated that the total forgone
revenue would be an estimated $2,722,000, based on the last
three fiscal years.
REPRESENTATIVE CARRICK asked for clarification that the
exemptions are based on the Internal Revenue Service (IRS) tax
code.
MR. WALSH answered yes.
9:14:06 AM
REPRESENTATIVE SADDLER asked the reason for removing the sunset
clause and making the proposed legislation "permanent."
9:14:23 AM
CO-CHAIR HALL offered her belief that small businesses in Alaska
should have exemptions to allow more dollars to circulate
locally and contribute to a thriving local economy. She stated
that she is not in favor of a sunset clause.
9:14:49 AM
REPRESENTATIVE SADDLER stated he understood the benefit of
consistent tax credits. He further asked the cost of re-
imposing the tax exemption.
9:15:31 AM
MR. SPANOS replied that the costs to reprogram the system would
include staff time. He noted that, because the exemption had
existed previously, it would not take a lot of time.
9:16:26 AM
REPRESENTATIVE COULOMBE asked for clarification that the
proposed legislation is the same as the prior exemption that
expired.
MR. WALSH responded that the language in HB 113 is the same as
the original legislation from 2012, without the sunset clause.
REPRESENTATIVE COULOMBE asked for an explanation of the salmon,
salmon egg, and shellfish exemptions.
MR. WALSH responded that when the original bill in 2012 was
receiving hearings, there was concern that non-profit hatcheries
were having difficulty with the IRS and the exemptions for
salmon, salmon egg, and shellfish were a result of an effort to
hold the hatcheries harmless.
REPRESENTATIVE COULOMBE asked whether the exemptions were still
necessary.
MR. WALSH replied that he would get back to the committee.
9:18:09 AM
REPRESENTATIVE SADDLER requested information on the effects and
benefits of the proposed legislation.
9:18:34 AM
MR. WALSH replied that he would get back to the committee after
working with the Department of Revenue (DOR). He remarked that,
anecdotally, small businesses reported that they saw an increase
in taxes of roughly $2,000. He stated that for many small
businesses, the repeal of the tax exemption came as a surprise.
9:19:11 AM
CO-CHAIR FIELDS noted that his office would share correspondence
with small businesses regarding the discovery of the tax credit
expiration.
9:19:17 AM
CO-CHAIR HALL offered her belief that it is very important to
create stable fiscal environments for small businesses.
9:19:43 AM
REPRESENTATIVE SADDLER questioned whether DOR's information
technology (IT) systems were up to the task.
9:20:12 AM
MR. SPANOS responded that DOR upgraded its system in 2014 and
then upgraded the system again in 2024. He noted that taxpayers
could use their phones to file tax returns, and the legislature
requires electronic filing. He stated that DOR would need to
make some adjustments to the program but would not need an
entirely new system. He called the current system "state of the
art."
9:21:39 AM
CO-CHAIR FIELDS announced that HB 113 was held over.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB0113A.pdf |
HL&C 2/28/2025 9:00:00 AM |
HB 113 |
| HB 113 Sponsor Statement 2.27.2025.pdf |
HL&C 2/28/2025 9:00:00 AM |
HB 113 |
| HB 113 Ver A Sectional Analysis 2.27.2025.pdf |
HL&C 2/28/2025 9:00:00 AM |
HB 113 |
| HB 113 Supporting Document-PPT 2.27.2025.pdf |
HL&C 2/28/2025 9:00:00 AM |
HB 113 |
| HB 34_HLC_CS.pdf |
HL&C 2/24/2025 3:15:00 PM HL&C 2/28/2025 9:00:00 AM |
HB 34 |
| HB34_G_explanation of changes.pdf |
HL&C 2/24/2025 3:15:00 PM HL&C 2/28/2025 9:00:00 AM |
HB 34 |
| HB 34 Amendment G.3.pdf |
HL&C 2/28/2025 9:00:00 AM |
HB 34 |
| HB 34 Amendment G.4.pdf |
HL&C 2/28/2025 9:00:00 AM |
HB 34 |
| HB 34 Amendment G.5.pdf |
HL&C 2/28/2025 9:00:00 AM |
HB 34 |