Legislature(2011 - 2012)HOUSE FINANCE 519
02/06/2012 01:30 PM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| HB142 | |
| HB 118 | |
| HB198 | |
| HB180 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 142 | TELECONFERENCED | |
| + | HB 180 | TELECONFERENCED | |
| + | HB 198 | TELECONFERENCED | |
| += | HB 118 | TELECONFERENCED | |
HOUSE BILL NO. 118
"An Act relating to a tax credit for corporate income
taxes paid for qualified research and development
expenditures; and providing for an effective date."
1:42:58 PM
Co-Chair Thomas MOVED to ADOPT a proposed committee
substitute for HB 118, work draft 27-GH1951\B. Co-Chair
Stoltze OBJECTED for purpose of discussion.
JOE MICHEL, STAFF, REPRESENTATIVE BILL STOLTZE, explained
changes to the proposed committee substitute. He observed
that there were two changes on page 2, line 11:
"apportioned to this state" and "AS 43.20.021" were
deleted; and "this title was inserted.
Co-Chair Stoltze WITHDREW his OBJECTION. There being NO
further OBJECTION, proposed committee substitute for HB
118, work draft 27-GH1951\B was adopted.
CURTIS THAYER, DEPUTY COMMISSIONER, DEPARTMENT OF COMMERCE,
COMMUNITY AND ECONOMIC DEVELOPMENT, testified in support of
HB 118. He observed that innovation can be an expensive,
intricate and time-intensive enterprise. But it also could
also spark a chain of investments in capital equipment,
workers, and spillover activities in every economic sector.
Nearly 40 other states had already recognized this by
establishing a tax credit for research and development in
addition to illustrated economic benefits the credit brings
to those states. The tax credit also brought a competitive
benefit advantage over Alaska.
Mr. Thayer observed that House Bill 118 would address the
issue by establishing a 20 percent tax credit for qualified
research and development (R&D) conducted by corporate
taxpayer in Alaska. In effect, the research and development
tax credit would stimulate private-sector investment,
entrepreneurial activity and business expansion in the
state that would bring opportunity and sustainable long-
term benefits to the state's economy.
Mr. Thayer noted the HB 118 tax credit was modeled after
the federal R&D established in 1981 and reauthorized
fourteen times. The credit was reauthorized through 2011.
Legislation was introduced to make the R&D tax credit
permanent in order to help companies create good jobs while
growing future productivity.
Mr. Thayer explained that the legislation would allow
Alaskan corporations to receive a 20% tax credit, not to
exceed $10 million per taxpayer, per tax year. The research
and development activities, or the payroll of the
employees, must take place in Alaska. To qualify, research
and development activities must meet the following:
· The purpose is discovering information technological
in nature;
· The application of which is intended to be useful in
the development of a new or improved component of the
taxpayer;
· Substantially all of the activities constitute a
process of experimentation; and
· The experimentation is for a qualifying activity or
purpose.
Mr. Thayer reviewed what would qualify:
•Developing new or improved products, processes, or
formulas;
•Developing prototypes or models;
•Building or improving manufacturing facilities;
•Developing or improving software technologies;
•Certification testing; and
•Developing or applying for patents.
Mr. Thayer reviewed what would not qualify:
•Exploration activity to ascertain the existence,
location, extent, or quality of any ore or mineral
deposit;
•Duplicating an existing business component;
•Surveys and studies such as market research,
advertising, and routine data collection;
•Research in the social sciences, arts, or humanities;
and
•Anything for style, taste, cosmetic, or seasonal
reasons.
1:48:13 PM
Mr. Thayer gave examples of the type of credits that could
occur. He referred to seafood processing waste disposal in
fisheries. The EPA had restricted processing effluent.
Research was needed to reduce sediment piles through
process innovation, increased protein and by-product
utilization. Tax credits meant research conducted in
Alaska, jobs, vendor payments, increased experience, and
capacity building in process and product innovation. He
observed that some of the research was being down out-side
of the state of Alaska for fish processing plants in the
state of Alaska.
Mr. Thayer reviewed potential tax credits for minerals,
rare earth deposit processing. There was a need to
customize the process for milling and recovery to use
deposits to the fullest potential. More than 240 processes
might be required to reach all components in a deposit. He
observed the work was being done in Canada and maintained
it should be done in Alaska.
Mr. Thayer spoke to timber for use in architectural and
building industries. To be specified for many building and
architectural uses, species must have technical standards
set for each product form.
Mr. Thayer observed that there were 38 states with a form
of R&D tax credit or incentive available. He clarified that
credits were not stackable against other industries such as
oil and gas within the title of the legislation.
1:50:08 PM
ALAN JOHNSTON, WEDBUSH SECURITIES, ANCHORAGE, testified in
support of the legislation. He noted he had been in the
investment business for 35 years and stressed the
importance of the legislation. He emphasized the importance
of raising aspirations that R&D could occur in Alaska.
1:51:44 PM
DAN WHITE, ASSOCIATE VICE CHANCELLOR, RESEARCH, UNIVERSITY
OF ALASKA, FAIRBANKS, spoke in support of the legislation
and stressed the importance of moving research and
development from the university into the private sector.
moving R&D to the private sector was seen as a critical
element of economic development in Alaska, especially in
engineering. Businesses would gain competitive advantage in
national and global markets from applied research conducted
and licensed by the University of Alaska, Fairbanks. He
concluded that HB 118 would provide a significant incentive
to business to take advantage of emerging opportunities and
contribute to the university's mission. The legislation
would build a bridge between the university and the private
sector that would lead to job growth and diversification
for the state.
1:53:38 PM
Representative Guttenberg noted that seasonal items would
not apply and pointed out that "seasonal" could apply to
agriculture, fishing, or timber; and questioned the
definition. Mr. Thayer offered to provide a definition
under the tax code. Co-Chair Stoltze asked for further
clarification regarding agricultural seasonal definitions.
Mr. Thayer observed that agricultural items would qualify.
He pointed out that the peony market was a product of the
university's research.
1:57:03 PM
Representative Gara recalled concerns that state money
would not displace federal funds. He asked the federal tax
rate. Mr. Thayer explained businesses could not claim both
a state and federal tax credit on the same percentage.
Mr. Thayer explained that the 20 percent tax credit for
qualified research and development that exceeded the
average qualified research and development expenditures as
defined in 26 U.S.C 41(d) (Internal Revenue Code) for the
three years immediately preceding the year in which the
credit was claimed. Unused credits might be carried forward
for up to seven years after the expenditure for which the
credit was claimed. In order to prevent a corporate
taxpayer from claiming more than one benefit for a single
expenditure, the bill would also provide that a credit
could not be claimed for expenditures the corporation
deducted in calculating its tax liability, or for any other
credit, including any federal credits, that had been
apportioned to the state and claimed under the current
Alaska Net Income Tax Act.
Representative Gara asked what would occur in a case where
there was a 22 percent state credit and an 18 percent
federal credit and questioned if the state would pay the
extra 2 percent or the entire credit. He reiterated his
request for the federal tax rate.
1:59:19 PM
Representative Guttenberg reiterated his question: What
agricultural products qualify that would not be seasonal.
BRUCE TANGEMAN, DEPUTY COMMISSIONER, TAX DIVISION,
DEPARTMENT OF REVENUE (via teleconference), could not
respond but promised to provide the information.
Representative Gara asked the federal tax rate and if it
would be replaced with state credits. Mr. Tangeman stated
he would provide the information.
Co-Chair Stoltze noted the bill would be held in order to
allow the Department of Revenue time to research answers to
the member's questions.
2:01:17 PM
Representative Gara concluded that businesses could take
the state or federal tax credit and restated his previous
scenario. He thought the state would pay the entire tax if
its tax credit was higher than the federal rate.
Representative Gara noted a comprehensive system of
deductions and credits under 43.55 oil and gas tax
established under Alaska's Clear and Equitable Share
(ACES). He did not see the prohibition for adding these
credits to the proposed R&D tax credit. He wanted further
assurance that the tax could not be taken in addition to
the ACES credit.
2:03:00 PM
Representative Neuman asked equipment and facilities would
be allowed if they supported a new product or technology.
Mr. Thayer affirmed that they would be covered as long as
the business was a taxpayer to the state of Alaska and it
supported new technology to bring something to market; it
would qualify if it had not been done before. He clarified
the credit would apply for developing and proving the
technologies or building or improving manufacturing
facilities to add or enhance a product.
2:05:08 PM
Vice-chair Fairclough observed that page 2 lines 5 and 6
provided for a seven-year credit carry forward and asked
why a past tax liability would be allowed for seven years.
Mr. Thayer explained that the provision was modeled after
federal tax legislation.
Vice-chair Fairclough referred to page 2, line 9. She
shared concerns that the state deduction would be taken in
lieu of another deduction [federal] and questioned if there
should be a requirement to go forward on the other
deduction.
Vice-chair Fairclough observed the national and global
recession and questioned what other states were doing in
terms of R&D tax credits.
2:07:09 PM
Representative Gara referred to subsections (c) and (d) on
page 2:
(c) If the tax credit under this section exceeds the
taxpayer's tax liability after other tax credits are
taken under this chapter for the year in which the
expenditure is incurred, the excess of the tax credit
over the liability may be carried forward for up to
seven years. If an unused credit is carried forward to
a tax year from an earlier year, the credit arising in
the earliest year is applied first against the tax
liability for the year.
(d) A person may not claim a credit under this section
for qualified research and development expenditures
that were deducted in the calculation of tax liability
under AS 43.20.011(e) or for which any other credit,
including any federal credit, has been apportioned to
this state and claimed under AS 43.20.021.
Representative Gara thought that the above sections
conflicted. He thought that they implied that credits were
stackable to 100 percent. Mr. Thayer responded that the
committee substitute would effectively prohibit stacking.
He maintained that the legislation prohibited a company
from claiming R&D tax credits against corporate income tax
if the expense used in calculating the R&D was used to
claim a credit against taxes due on other types under Title
43. Testimony in previous committees during the 2011
session expressed concern that a company subject to both
corporate income tax and oil and gas production tax could
receive a credit against both taxes for the same expense.
The committee substitute assured that the company could
only take a credit against one tax type for those expenses.
Representative Gara reiterated his concerns. Mr. Thayer
noted that an oil company or subsidiary that does R&D on
heavy or viscous retrieval would qualify as long as there
was no other tax credit received; the credit would not
apply once production was begun.
2:09:23 PM
Representative Gara provided a scenario based on a company
invested in heavy oil technology that received a deduction
of their tax rate, which could be 40 percent. He suggested
that the legislation would not prevent the company from
getting a tax credit on top of the deduction.
Mr. Thayer reiterated that the legislation refers back to
the bill title, which indicated that credits would only pay
for qualified research and development expenditures. He
maintained that they could not take both.
Representative Gara argued that the legislation spoke to
tax credits not deducts, which were separate under the oil
and gas [tax] code.
Mr. Tangeman clarified that it could not be used as a tax
credit if it were used as a deduction and pointed to
Section (d), page 2, line 8:
A person may not claim a credit under this section for
qualified research and development expenditures that
were deducted in the calculation of tax liability
under AS 43.20.011(e).
2:11:24 PM
Representative Gara agreed with the intent but noted that
AS 43.20.011(e) referred to the nine percent state
corporate tax, not the oil and gas tax. Mr. Tangeman felt
that Section (d) was clear and maintained that the intent
was not to allow stacking. Representative Gara suggested an
amendment was needed for clarification that the credit
could not be stacked on credits and deductions taken under
AS 43.55, oil and gas tax.
2:13:22 PM
Representative Neuman asked what discussions had occurred
regarding transferable and non-transferable credits. He
observed that transfers had been enacted to assist smaller
companies with working capital. He recognized that the
state was still "on the hook" for 100 percent, but
suggested they be transferrable.
Mr. Thayer noted that only the film incentive program had
transferrable tax credits. He observed issues surrounding
how credits would be transferred and evaluated. Film
industry tax credits sell between 80 to 90 cents on a
dollar. Smaller companies would not have a tax liability to
the state. The credit would be aimed at large companies
that had the ability to do a lot of R&D in the state.
Mr. Tangeman agreed that the intent was not to be
transferable and the seven year provision would allow
smaller corporations to have time to realize the tax
liability.
Co-Chair Stoltze closed public testimony.
HB 118 was HEARD and HELD in Committee for further
consideration.
2:17:41 PM
AT EASE
2:25:42 PM
RECONVENED