04/04/2018 01:30 PM House FINANCE

HOUSE BILL NO. 398                                                                                                            
                                                                                                                                
     "An Act  relating to  the allocation  and apportionment                                                                    
     of  income of  a  public utility  for  purposes of  the                                                                    
     Alaska  Net  Income  Tax  Act;  and  providing  for  an                                                                    
     effective date."                                                                                                           
                                                                                                                                
1:40:12 PM                                                                                                                    
                                                                                                                                
BRODIE ANDERSON, STAFF, REPRESENTATIVE NEAL FOSTER, relayed                                                                     
that the bill addressed foregone revenue. He read from a                                                                        
prepared statement:                                                                                                             
                                                                                                                                
     HB  399 is  accumulation  of work  to address  foregone                                                                    
     revenue  and  provide the  state  with  the ability  to                                                                    
     potentially capture new revenue.                                                                                           
                                                                                                                                
     A brief  history on how  this piece of  legislation was                                                                    
     introduced.                                                                                                                
                                                                                                                                
     In 2014,  legislation was passed  that required  a both                                                                    
     Department  of  Revenue   and  Legislative  Finance  to                                                                    
     create  a  report  on  Indirect  Expenditures  and  the                                                                    
     amount forgone revenue not captured by the State.                                                                          
                                                                                                                                
     The first Indirect Expenditure  Report was submitted in                                                                    
     2015. In that  report it identified a  list of indirect                                                                    
     expenditures within  Department of Revenue  that should                                                                    
     be terminated.                                                                                                             
                                                                                                                                
     Then  last year  during  the FY18  budget process,  the                                                                    
     House  Finance  Subcommittee   for  the  Department  of                                                                    
     Revenue  reviewed   these  indirect   expenditures  and                                                                    
     recommended   that   House  Finance   Committee   offer                                                                    
     legislation    that     eliminates    these    indirect                                                                    
     expenditures.                                                                                                              
                                                                                                                                
     HB 399 repeals certain  credits and exemptions from the                                                                    
     recommendations   offered   in    both   the   Indirect                                                                    
     expenditure report and the Sub-committee.                                                                                  
                                                                                                                                
     The  indirect  expenditures  repealed in  HB  399  were                                                                    
     selected   for  repeal   for  following   reasons:  The                                                                    
     indirect expenditures did  not meet legislative intent,                                                                    
     had   limited  benefit   or  wasn't   used,  or   their                                                                    
     conforming purpose has changed.                                                                                            
                                                                                                                                
     House   Bill  399   repeals   the  following   indirect                                                                    
     expenditures:                                                                                                              
     ? Federal Tax Credits                                                                                                      
     ? Foreign Royalty Exclusions                                                                                               
     ? Reduced Rate for Capital Gains                                                                                           
     ? Credit associated with the Stranded Gas Act                                                                              
                                                                                                                                
     The combined total  of the potential new  revenue is up                                                                    
     to an  estimated $6.9 million dollars  according to the                                                                    
     fiscal note in front of the committee.                                                                                     
                                                                                                                                
1:43:15 PM                                                                                                                    
                                                                                                                                
Mr. Anderson reviewed the sectional analysis (copy on                                                                           
file):                                                                                                                          
                                                                                                                                
     Section  1 AS  43.20  Adds new  section Sec.  43.20.146                                                                    
     Removes  the exemption  of multistate  public utilities                                                                    
     from water's  edge reporting within the  Multistate Tax                                                                    
     Compact.                                                                                                                   
                                                                                                                                
     Section   2    Uncodified   Law   Adds    new   section                                                                    
     Applicability Section  1 does not take  effect under AS                                                                    
     43.20 (Alaska  Net Income Tax Act)  until the effective                                                                    
     date.                                                                                                                      
                                                                                                                                
     Section 3 Uncodified Law Adds new section Transition:                                                                      
     Regulations shall change to implement the legislation                                                                      
     but not be adopted before January 1, 2019.                                                                                 
                                                                                                                                
     Section 4 Effective Date Sections 1 and 2 take effect                                                                      
     on January 1, 2019                                                                                                         
                                                                                                                                
Co-Chair  Foster  asked  to  hear  from  the  Department  of                                                                    
Revenue.                                                                                                                        
                                                                                                                                
Representative   Wilson   asked   if   the   bill   included                                                                    
nonprofits.                                                                                                                     
                                                                                                                                
BRANDON   S.   SPANOS,   DEPUTY  DIRECTOR,   TAX   DIVISION,                                                                    
DEPARTMENT  OF REVENUE,  answered  that the  bill would  not                                                                    
apply to nonprofits.                                                                                                            
                                                                                                                                
Representative Wilson provided a  scenario where a telephone                                                                    
company operated in  Alaska and New York.  She asked whether                                                                    
the  taxes paid  would  be split  between  both states.  Mr.                                                                    
Spanos answered  in the affirmative.  He explained  that the                                                                    
amount Alaska would receive was  based on property, payroll,                                                                    
and sales.                                                                                                                      
                                                                                                                                
1:46:14 PM                                                                                                                    
                                                                                                                                
Representative Ortiz shared  that he had a  local utility in                                                                    
his community owned by the city.  He asked if the bill would                                                                    
impact  the  utility.  Mr. Spanos  answered  that  utilities                                                                    
owned by the municipality had  a tax-exempt status. The bill                                                                    
would not apply to those entities.                                                                                              
                                                                                                                                
Co-Chair  Foster  spoke  to   utilities  doing  business  in                                                                    
multiple  states.  He  stated  that  typically  corporations                                                                    
should  follow   the  "three  factor   apportionment  income                                                                    
formula". The bill would eliminate  the exemption from three                                                                    
utilities  that   currently  did  not  follow   the  formula                                                                    
resulting in  all utilities following  the same  formula. He                                                                    
asked if his understanding was accurate.                                                                                        
                                                                                                                                
Mr.  Spanos  answered that  it  was  partially accurate.  He                                                                    
clarified that the  statute allowed the utility  to choose a                                                                    
different  formula  and  the   bill  standardized  the  same                                                                    
formula for everyone.                                                                                                           
                                                                                                                                
Co-Chair Foster OPENED and CLOSED public testimony.                                                                             
                                                                                                                                
1:48:48 PM                                                                                                                    
                                                                                                                                
Co-Chair  Foster relayed  amendments  would be  due by  5:00                                                                    
p.m.                                                                                                                            
                                                                                                                                
1:49:06 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
1:49:20 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Co-Chair Foster  related that the committee  was comfortable                                                                    
with moving the bill out of committee.                                                                                          
                                                                                                                                
Co-Chair Seaton  noted the bill  had a new zero  fiscal note                                                                    
from the Department of Revenue (DOR).                                                                                           
                                                                                                                                
Co-Chair  Seaton MOVED  to REPORT  HB 398  out of  committee                                                                    
with individual recommendations  and the accompanying fiscal                                                                    
note.                                                                                                                           
                                                                                                                                
Representative Wilson OBJECTED for  a clarification that the                                                                    
fiscal note was indeterminate for state revenue.                                                                                
                                                                                                                                
There being NO further OBJECTION, it was so ordered.                                                                            
                                                                                                                                
HB 398 was REPORTED out  of committee with no recommendation                                                                    
and  with  one  zero  fiscal note  from  the  Department  of                                                                    
Revenue.                                                                                                                        
                                                                                                                                
1:50:33 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
1:51:07 PM                                                                                                                    
RECONVENED