Legislature(2013 - 2014)SENATE FINANCE 532
03/28/2013 09:00 AM Senate FINANCE
| Audio | Topic |
|---|---|
| Start | |
| SB22 | |
| SB83 | |
| SB57 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 22 | TELECONFERENCED | |
| *+ | SB 83 | TELECONFERENCED | |
| + | SB 57 | TELECONFERENCED | |
| + | TELECONFERENCED |
SENATE BILL NO. 83
"An Act relating to the corporation income tax; and
relating to the computation of interest under the
look-back method applicable to long-term contracts in
the Internal Revenue Code."
9:14:08 AM
Senator Bishop MOVED to ADOPT the proposed committee
substitute for SB 83, Work Draft 28-LS0634\U (Bullock,
3/27/13) as a working document. There being NO OBJECTION,
it was so ordered.
CHRISTINE MARASIGAN, STAFF, SENATOR KEVIN MEYER, discussed
the change in the CS. She noted that on ppage 1, line 11
the retroactive effective date was changed to January 1,
2013.
SENATOR PETER MICCICHE, SPONSOR, read from a prepared
statement. He explained the legislation. He communicated
that in addition to its focus on corporate income tax, the
bill was about fairness and simplicity. He detailed that
currently for state and federal corporate income tax
purposes contractors undertaking large multi-year projects
such as highways, schools, and universities were required
to estimate their total profit on a project and to pay
income tax on the portion of the project completed in a
given tax year. He stated that it was impossible to predict
in the first year of the project what the actual cost or
profit would be. Upon completion of the project and once
the profit amount had been determined, the contractor filed
look-back taxes (an amended return). A contractor either
owed additional taxes or received a refund based on whether
the profit had been over or under estimated; interest was
owed on the additional taxes due.
Senator Micciche relayed that although the Internal Revenue
Service (IRS) code had a specific provision for over and
under payments of estimated taxes for the multi-year
projects, existing state laws considered the payments
delinquent and applied an 11 percent interest rate. The
state made no distinction between its system of estimating
taxes based on a contractor's best knowledge and a tax
payer who did not make a timely filing. He believed there
should be a distinction between a tax penalty on delinquent
taxes and an amended return. Conversely, the bill would tie
the interest rate to a recognized index as opposed to the
11 percent interest currently paid by the state and
contractors in the current outdated system.
Senator Micciche expounded that the bill corrected the
interest issue, simplified the process for contractors, and
adopted the IRS bulletin rates for look-back taxes on long-
term projects allowing contractors and the state to use the
same interest pay schedules for state taxes as the federal
system. Currently the interest rate was 2 percent for under
payments when the profit had been underestimated and over
payments when the state owed money in the amount of $10,000
or less; interest was currently levied at 0.5 percent on
amounts greater than $10,000. The rate fluctuated and was
published quarterly. The CS specified the tax policy bullet
would be in effect for the 2013 calendar tax year. He
communicated that the bill would primarily impact Alaska C
corporation contractors, lenders, and surety bonding
companies; it would ultimately allow for greater cash flow
that would be reinvested in Alaska's communities. He
pointed to several letters of support (copy on file) from
general contractors, the Association of General
Contractors, bankers, public accountants, surety or bonding
brokers, and other. He opined that the legislation was
beneficial for the state, private sector businesses, and
Alaskans and it was an issue of fairness.
Senator Olson asked whether there was any opposition to the
bill. Senator Micciche was not aware of anyone who opposed
the modernization of the state's interest rates.
Senator Olson inquired about the administration's position.
Senator Micciche responded that he could not speak for the
administration, but believed the Department of Revenue
(DOR) was in support of the bill.
9:19:30 AM
Vice-Chair Fairclough OPENED public testimony.
IDONNA PEIPER NELSON, CFO AND PARTNER, PRINCIPLE DAVIS
CONSTRUCTORS AND ENGINEERS INC., spoke in support of SB 83.
She believed that the issue was not previously addressed
due to the complexity of the issue. She stated that the
interest rate was assessed on a tax that was difficult for
the taxpayer to understand or was even aware of. She
explained that a large contractor was defined by the
federal government as a contractor bringing in $10 million
or more per year in revenue; most contractors fell into
that category. When a contractor began a fixed-fee job,
they did not know exactly how profitable it would be; risk
was reduced as the project progressed and more became known
about exact costs. Typically contractors started out with
conservative cost estimates; each year the contractor's
current estimate was applied to the amount of revenue they
had and taxes were paid on the total amount.
Ms. Nelson communicated that the legislation would allow
contractors to pay taxes retroactively once actual costs
were known. The objective was to make everyone "whole." She
detailed that if a contractor was not conservative in the
early years of a project they would lose the respect of
their banker, bonding company, shareholders, and others
involved in the project. She furthered that because taxes
were paid and income was reported based on estimates, it
was crucial that estimates were conservative and that a
gain was shown by the project's end. She stated that a good
contractor would always have look-back taxes and an ethical
contractor always paid taxes owed on time. She stressed
that Davis Constructors was never delinquent in its tax
payments. She opined that the high interest rate intended
to deter companies from making late tax payments was fairly
insulting.
Ms. Nelson continued to discuss the company's work and its
contribution to the state. She conveyed that any additional
profits that would result from decreased interest on look-
back taxes would flow back into the business. She discussed
that federal rates charged on look-back taxes were designed
to recognize that the factor was out of the contractors'
control. Under the circumstance, the federal government
allowed businesses to pay the same interest rate that it
paid a tax payer who had overpaid taxes. She relayed that
an unethical contractor could technically make interest
money from the federal and state governments by
overestimating its ultimate profits.
9:28:11 AM
JOHN MACKINNON, EXECUTIVE DIRECTOR, ASSOCIATED GENERAL
CONTRACTORS OF ALASKA, ANCHORAGE (via teleconference),
spoke in support of SB 83. He emphasized that the bill
would bring the interest rate on the taxes due in-line with
current rates and would fluctuate with the federal rate,
which could change quarterly. The bill would separate the
look-back provision and interest on the taxes from other
sections of the code that were considered delinquent taxes.
He stressed that the taxes due were a result of an amended
return and were not delinquent. He believed the bill helped
level the playing field for C corporations and other types
of corporations.
Vice-Chair Fairclough CLOSED public testimony.
Vice-Chair Fairclough addressed the indeterminate zero
fiscal note from DOR. She pointed to the analysis on page 2
of the fiscal note, which point out, which indicated that
approximately 50 percent of the corporations in Alaska
would qualify. Changes in revenues were indeterminate.
Co-Chair Meyer supported the legislation. He MOVED to
REPORT CSSB 83(FIN) out of committee with individual
recommendations and the accompanying fiscal note. There
being NO OBJECTION, it was so ordered.
CSSB 83(FIN) was REPORTED out of committee with a "do pass"
recommendation and with a new indeterminate fiscal note
from the Department of Revenue.
9:31:57 AM
AT EASE
9:36:17 AM
RECONVENED