Legislature(2017 - 2018)BUTROVICH 205
04/19/2018 03:30 PM Senate STATE AFFAIRS
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| Audio | Topic |
|---|---|
| Start | |
| HB398 | |
| HCR19 | |
| HB398 | |
| HB47 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 87 | TELECONFERENCED | |
| + | HB 398 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HB 47 | TELECONFERENCED | |
| += | HCR 19 | TELECONFERENCED | |
HB 398-CORP TAX: PUBLIC UTILITY INCOME ALLOCATION
3:34:20 PM
CHAIR MEYER announced the consideration of House Bill 398 (HB
398).
3:34:52 PM
BRODIE ANDERSON, Staff, Representative Foster, Alaska State
Legislature, Juneau, Alaska, provided an overview of HB 398 as
follows:
House Bill 398 addresses foregone revenue and provides
the state with the ability to capture new revenue in
Alaska corporate income tax through the elimination of
the public utility exemption for water's-edge
reporting.
A brief history on how we got this piece of
legislation introduced. Back in 2004, legislation was
passed that required both the Department of Revenue
and Legislative Finance to create a report on indirect
expenditures and the amount of foregone 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 the
Department of Revenue that should be terminated; then
last year in the FY18 budget process, House Finance
Subcommittee for the Department of Revenue reviewed
these indirect expenditures and recommended that the
House Finance Committee offer legislation that
eliminates these indirect expenditures. House Bill 398
repeals a specific exemption from the recommendations
offered in both of those reports.
The indirect expenditure repealed in House Bill 398 is
the public utility exemption and it was selected for
the following reason: It did not meet the legislation
intent and it was felt that it provided a loophole by
allowing multi-state corporations operating a public
utility in Alaska to choose their apportionment method
that is complementary to providing the lowest tax
liability possible for the corporation.
Typically, multi-state corporations use three-factor
formula for apportionment, this formula uses three
fractions represented by ratios of the company's
property, payroll and sales within the taxing state,
this one being Alaska, to their total property payroll
and sales within the United States or water's edge.
The three ratios are multiplied together to produce a
percentage of the company's total taxable income to be
allocated to the taxing state, Alaska; this only
applies to all non-oil-and-gas corporations, for oil-
and-gas corporations we use a formula based on their
Alaskan profits and their worldwide profits.
The Department of Revenue cannot indicate the amount
of potential new revenue captured because the small
amount of taxpayers utilizing the exemption, they are
required to keep that tax information confidential due
to the size of the tax pool, they have indicated
though that there will be new revenue if this passes
according to their fiscal note provided to members in
their packet.
3:37:51 PM
CHAIR MEYER asked Mr. Anderson to review the sectional analysis
for HB 398.
MR. ANDERSON reviewed the sectional analysis as follows:
Section 1
Adds a new section, AS 43.20.146, which removes the
exemption of the multistate public utilities from
water's-edge reporting from within the Multistate Tax
Compact.
Section 2 & Section 3
Are uncodified law dealing with the applicability of
the effective date and transition language for the
regulations that would be drafted not to be in effect
until January 1, 2019.
Section 4
The effective date which applies to Section 1 and
Section 2 of the bill is January 1, 2019.
3:39:03 PM
At ease.
[CHAIR MEYER set HB 398 aside until later in the meeting.]
HB 398-CORP TAX: PUBLIC UTILITY INCOME ALLOCATION
4:14:13 PM
CHAIR MEYER called the committee back to order. He announced the
committee's continuation of the hearing on HB 398.
SENATOR WILSON asked if there is opposition to the bill.
MR. ANDERSON replied that the bill has not received opposition.
He confirmed from previous hearings in the House Finance
Committee that the bill will not affect the state's nonprofit-
public utilities, strictly multi-state corporations that have a
public utility within Alaska's boundaries. He detailed that
approximately one to five corporations might be impacted.
CHAIR MEYER asked if the corporations that will be adversely
impacted know that HB 398 was working through the process.
MR. ANDERSON replied that he has contacted specific lobbyists
that have contracts within some of the multi-state corporations
to figure out whether they would be impacted and what type of
opposition might come against HB 398. He disclosed that he has
not received opposition notification from the corporations.
4:17:46 PM
BRANDON SPANOS, Deputy Director, Tax Division, Alaska Department
of Revenue, Anchorage, Alaska, confirmed that he has spoken with
specific taxpayers on the legislation's impact. He assumed that
those impacted the most know about HB 398.
CHAIR MEYER said he was concerned that the corporations
currently receiving the tax exemption will pass the added cost
from the legislation on to Alaskan. He asked if the Regulator
Commission of Alaska (RCA) has oversite.
MR. SPANOS explained that the RCA does not regulate all
utilities. He pointed out that telecommunications used to be
regulated, but currently falls under that utility definition.
CHAIR MEYER remarked that he questioned Mr. Sponos' response. He
said he believed that the RCA does have regulatory oversite and
noted that he had dealt with a bill that addressed the topic.
MR. SPANOS admitted that he was not an expert in the regulation
field.
4:20:04 PM
CHAIR MEYER pointed out that HB 398 has a zero fiscal note. He
asked if the hope is the state will get some money back.
MR. ANDERSON answered yes. He explained that the fiscal note
reflects an increase of some sort due to the potential change in
tax liability for corporations utilizing the exemption.
CHAIR MEYER noted that Mr. Anderson mentioned that the normal
process is a three-step process and the affected corporations do
not have to meet the three-step process.
MR. ANDERSON answered correct. He detailed as follows:
Back when we first wrote the Alaska Corporate Tax
Code, banking organizations, financial organizations
and public utilities, multi-state corporations, were
exempt. In the '80s, Alaska removed financial
organizations but at that point no public utility was
utilizing this exemption so when the Department of
Revenue removed the exemption, it did not come under
the radar that public utilities had an exemption.
So, we fast forward until I believe the document from
the Department of Revenue said about 10 to 15 years
ago, public utilities or at least a couple started to
utilize the exemption and that's why they felt that
they needed a statutory change rather than a
regulatory change to get rid of this exemption and
that's with water's-edge reporting for calculating all
other multi-state corporations use water's-edge
reporting where you compare, you create the formula
for your Alaska sales, payroll and property against
your U.S. or water's-edge sales, payroll and property,
and then out of that the percentage is calculated for
you Alaska tax liability; that formula, that
percentage is exempt for public utilities that are
multi-state corporations because of the exemption and
as long as it is in line with what Department of
Revenue agrees with, they can calculate their own
apportionment.
4:22:22 PM
CHAIR MEYER opened and closed public testimony.
4:22:48 PM
SENATOR GIESSEL moved to report HB 398, version 30-LS1231\D from
committee with individual recommendations and attached zero
fiscal note.
4:23:01 PM
CHAIR MEYER announced that being no objection, the motion
carried.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 398 Sponsor Statement 4.3.18.pdf |
SSTA 4/19/2018 3:30:00 PM |
HB 398 |
| HB 398 Version D.PDF |
SSTA 4/19/2018 3:30:00 PM |
HB 398 |
| HB 398 Sectional Analysis v.D 4.3.18.pdf |
SSTA 4/19/2018 3:30:00 PM |
HB 398 |
| HB 398 Additional Documents - Legislative Legal Services Memo 1.9.2018.pdf |
SSTA 4/19/2018 3:30:00 PM |
HB 398 |
| HB 398 Additional Documents - Dept. of Revenue Letter of Explanation 4.3.18.pdf |
SSTA 4/19/2018 3:30:00 PM |
HB 398 |
| HB 398 Additional Documents - 2015 Indirect Expenditure Report-Public Utility Exemption.pdf |
SSTA 4/19/2018 3:30:00 PM |
HB 398 |
| HB 398 Fiscal Note.pdf |
SSTA 4/19/2018 3:30:00 PM |
HB 398 |
| HB 47 Fiscal Note OMB 2866.pdf |
SSTA 4/19/2018 3:30:00 PM |
HB 47 |
| HB 47 Actuarial Letter Conduent 4.5.2018.pdf |
SSTA 4/19/2018 3:30:00 PM |
HB 47 |
| ANLPAC2018 Report to the Governor and Legislature.pdf |
SSTA 4/19/2018 3:30:00 PM |
HCR 19 |
| HCR 19 Version T.pdf |
SSTA 4/19/2018 3:30:00 PM |
HCR 19 |