Legislature(2025 - 2026)BUTROVICH 205
03/28/2025 03:30 PM Senate RESOURCES
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| Audio | Topic |
|---|---|
| Start | |
| SB92 | |
| SB128 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 92 | TELECONFERENCED | |
| *+ | SB 128 | TELECONFERENCED | |
SB 92-CORP. INCOME TAX; OIL & GAS ENTITIES
3:31:47 PM
CHAIR GIESSEL announced the consideration of SENATE BILL NO. 92
"An Act establishing an income tax on certain entities producing
or transporting oil or gas in the state; and providing for an
effective date."
3:31:59 PM
CHAIR GIESSEL solicited a motion.
3:32:05 PM
SENATOR WIELECHOWSKI moved to adopt the committee substitute
(CS) for SB 92, work order 34-LS0540\L, as the working document.
3:32:15 PM
CHAIR GIESSEL objected for purposes of discussion.
3:32:30 PM
INTIMAYO HARBISON, Staff, Senator Cathy Giessel, Alaska State
Legislature, Juneau, Alaska, presented the summary of changes
from version N to version L of SB 92:
[Original punctuation provided.]
SB 92
Explanation of Changes
version N to version L
Page 1, Lines 5-6: Strikes fund usage requirement of
"energy and electrical grid projects or upgrades
fund".
Page 1, Lines 6-8: Conforming language related to
qualified entities.
Page 1, Lines 9-10: Adds new section for calculating
taxable income.
Page 1, Line 11: Creates new section (c) which
clarifies aggregation language under this section.
Page 1, Lines 11-14: Conforming changes related to
taxable income.
Page 2, Lines 1-4: Strikes the creation of the energy
and electrical grid projects or upgrades fund.
Page 2, Lines 5-9: Conforming changes related to
qualified entities and adding limited liability
company to the list of qualified entities.
Page 2, Lines 11-16: Clarifies the definition of
taxable income before deductions.
Page 3, Lines 1-31: Strikes non-relevant tax sections
from bill.
Page 3, Lines 11-12: Adds new section (j) clarifying
deductions that may be taken when calculating income
under this chapter. Further clarifies deductions
listed in under AS 43.20.031 (j).
Page 4, Lines 1-27: Strikes non-relevant tax sections
from bill.
Page 4, Lines 30-31: Conforming language related to
qualified entities.
3:34:31 PM
CHAIR GIESSEL clarified that CSSB 92, work order 34-LS0540\L is
before the committee. She pointed out that the explanation of
changes is written to version N and is therefore inaccurate. She
indicated that a corrected explanation of changes would be
provided.
MR. HARBISON clarified that the explanation of changes is
written to version N to indicate the changes that were made from
version N to version L. He suggested that considering the
explanation of changes alongside version N would clear up any
confusion regarding page numbers and line sections.
3:35:27 PM
SENATOR DUNBAR asked whether representatives from the Department
of Revenue (DOR) Tax Division were available for questions.
CHAIR GIESSEL replied yes. She indicated that upcoming invited
testimony may also provide answers to any questions committee
members have.
3:36:19 PM
SONJA KAWASAKI, Legal Counsel, Senate Majority Caucus, Alaska
State Legislature, Juneau, Alaska, said she would provide a
brief overview of the changes from SB 92 version N to L and
would provide the reasons for significant changes. She said she
would also answer any questions.
MS. KAWASAKI directed attention to CSSB 92, Section 1. She
explained that the deletion of "energy and electrical grid
projects or upgrades fund" would allow the taxes collected as a
result of SB 92 to flow into the general fund. Several technical
and conforming changes follow. She directed attention to CSSB
92, page 1, lines 5-12 and explained that in SB 92 version N,
"qualified" modified "taxable income." In CSSB 92 Version L,
"qualified" modifies "entity." This change aligns with common
vernacular and was recommended by the Department of Revenue
(DOR).
3:37:30 PM
MS. KAWASAKI directed attention to CSSB 92, Section 1,
subsection b. She explained that this subsection adds a method
for determining taxable income, which was not included in SB 92,
version N. This change was made with the assistance of DOR and
is modeled after current corporate income tax structure for oil
and gas producing and pipeline transportation entities. She said
that, when researching qualifying entities subject to SB 92,
they discovered an existing federal deduction (passed under the
Tax Cuts and Jobs Act of 2017 (TCJA)) would allow a 20 percent
deduction from qualified business income. She explained that
this is problematic, as state law incorporates (by reference)
Internal Revenue Service (IRS) code. This would have
automatically applied those credits and deductions to the tax
under SB 92. She stated that CSSB 92, version L eliminates that
possibility.
MS. KAWASAKI said there is a potential concern related to the
current operation of corporate income tax law for corporations
in the oil and gas production industry and/or oil and gas
transportation through pipeline industry. Those corporations
will potentially have subsidiaries that are limited liability
corporations (LLC) and/or S corporations (S Corp). Under current
application of the law, DOR would consider those corporations
unitary businesses and this income is already included in the
corporate income tax. She explained that CSSB 92 (version L)
contains language to ensure that - for those subsidiaries that
may potentially meet the definition of entities subject to the
new tax in SB 92 - the taxation remains connected to the
associated corporation.
3:40:44 PM
CHAIR GIESSEL asked where that is found in CSSB 92.
MS. KAWASAKI clarified that this is found in CSSB 92 (version
L), page 2, lines 3-4. She explained that this section initially
referred only to AS 43.0.011, which applies to oil and gas
corporations. The additional clause ensures that this would also
apply to any entity that is a part of a unitary business with a
corporation that pays tax under those provisions. She suggested
checking with DOR to ensure the provision works as intended. She
explained that this provides clarification regarding which area
of tax code applies to those subsidiary entities.
3:41:47 PM
SENATOR CLAMAN directed attention to CSSB 92, page 2, Section
1(c), and asked whether the practical effect is that these are C
corporations rather than S corporations.
3:42:03 PM
MS. KAWASAKI replied yes. She explained that this subsection
excludes those corporations and their subsidiaries from
taxation.
3:42:29 PM
SENATOR CLAMAN asked for confirmation of his understanding that
this is because C corporations are already paying the tax.
3:42:34 PM
MS. KAWASAKI confirmed this understanding.
3:42:42 PM
SENATOR HUGHES asked for confirmation of her understanding that
the intention is to eliminate double taxation of C corporations.
She also asked whether the tax would apply to S corporations
before or after the 20 percent federal deduction.
3:43:45 PM
MS. KAWASAKI confirmed that CSSB 92, Section 1(c) addresses the
issue of double taxation. She said that there is an additional
provision later in CSSB 92 that more explicitly prevents double
taxation. She emphasized that double taxation was not intended.
She asked Senator Hughes to repeat her second question.
3:44:29 PM
SENATOR HUGHES recalled that federal law allows S corporations a
20 percent deduction. She asked whether the 9.4 percent
corporate tax in CSSB 92 would be applied before or after that
deduction.
3:44:50 PM
MS. KAWASAKI clarified that the federal deduction for qualified
business income (which was part of TCJA and was inadvertently
incorporated, by reference, into SB 92, version N) was removed
from CSSB 92, version L. She further clarified that the entities
subject to CSSB 92 would not receive that 20 percent federal
deduction. She shared her understanding that Congress is
deliberating whether to extend that deduction beyond 2025.
3:45:34 PM
SENATOR HUGHES asked for confirmation of her understanding that
the 9.4 percent tax would be multiplied by the S corporation's
income without the application of the 20 percent federal tax
deduction.
3:45:57 PM
MS. KAWASAKI explained that taxable income is determined using
the same calculation that is used to determine corporate income
tax. This change was suggested by DOR. She said she could not
speak to the specifics of taxation but reiterated that CSSB 92
prevents the federal credits and deductions for these entities
from also applying at the state level. She reiterated that she
cannot speak to specifics of the taxation function.
3:47:05 PM
MS. KAWASAKI continued to discuss the changes in CSSB 92,
version L. She directed attention to CSSB 92, Section 1,
subsection e. She explained that limited liability companies
(LLC) were unintentionally omitted from the list of entities
subject to the tax in SB 92. She briefly explained why the
omission occurred and explained that subsequent discussions -
along with DOR recommendations - revealed that LLCs needed to be
explicitly included.
3:48:00 PM
SENATOR KAWASAKI joined the meeting.
MS. KAWASAKI said the next change involved the deletion of
taxable income stipulations. She explained that SB 92, version
N, included taxable income qualifiers intended to ensure that
entities would not be able to give out gifts or bonuses and
exclude them from taxable income. Discussions with DOR
determined that the provision addressing the corporate income
tax taxable income calculations allayed those concerns and the
associated sections were deleted from version L. She directed
attention to CSSB 92, page 3, Section 4(j). She said that this
subsection addresses the potential for double taxation and
offered a brief explanation of how this would function. In
addition, SB 92, version N, Sections 4-8 were meant to inform
specific areas of tax code; however, those sections were
unrelated to the policy included in SB 92 and were therefore
removed from the CS.
3:51:04 PM
SENATOR DUNBAR asked how much revenue version L is estimated to
raise in comparison to version N.
3:51:28 PM
MS. KAWASAKI deferred the question. She said the changes from
version N to L do not intentionally impact the level of tax
revenue.
3:52:04 PM
MICHAEL WILLIAMS, Corporate Tax Manager, Tax Division,
Department of Revenue (DOR), Anchorage, Alaska, replied that
[when drafting version L] DOR considered the original policy
intent (in version N), which was to place a tax on entities
performing the same type of work as corporations producing oil
and gas in the state. He said that the revenue estimate remains
the same for both versions.
3:52:48 PM
SENATOR DUNBAR asked for confirmation of his understanding that
the changes from version N to L, some of which are substantive,
are not intended to change the estimated revenue raised by SB
92.
3:53:07 PM
MS. WILKERSON replied that this is correct.
3:53:23 PM
CHAIR GIESSEL removed her objection. She found no further
objection and CSSB 92, work order work order 34-LS0540\L, was
adopted.
3:53:37 PM
CHAIR GIESSEL opened public testimony on SB 92.
3:54:12 PM
WILLIAM HERMAN, representing self, Anchorage, Alaska, testified
in support of SB 92. He said he supports taxing S corporations
such as Hilcorp. He shared his understanding that Alaska is the
only state that does not tax S corporations. He shared his
understanding that DOR estimates that, if enacted, SB 92 would
generate $200 million per year. He expressed frustration that
the state provides subsidies for oil and gas corporations. He
opined that if oil and gas corporations cannot become
economically viable without subsidies, the State of Alaska needs
to decrease its dependence on the oil and gas industry. He
offered examples of potential solutions.
3:55:47 PM
DOUG WOODBY, representing self, Juneau, Alaska, testified in
support of SB 92. He said that SB 92 honors the Constitution of
the State of Alaska, which tasks the legislature with ensuring
Alaskans receive the maximum benefit from the state's natural
resources. SB 92 does this by closing the tax loophole for S
corporations. He opined that closing the loophole is fair and
said that S corporations pay income taxes in every other state.
He further opined that changing Alaska's tax code to reflect
what is done in other states is common sense. He pointed out
that S corporations can deduct state income taxes when filing
federal tax returns.
3:56:50 PM
PHILIP WIGHT, representing self, Ester, Alaska, testified in
support of SB 92. He recalled the first meeting of Alaska's
Constitutional Convention, in which E.L. "Bob" Bartlett
expressed concerns about how the State of Alaska was managing
the state's resources. He briefly quoted from Mr. Bartlett's
keynote address and shared his belief that this challenge is one
Alaska continues to face. He asserted that the political project
of the State of Alaska was focused on ensuring that outside
actors could not extract wealth without supporting the
governmental services required for healthy, permanent
communities. He said that Alaska is the only state that does not
tax S corporations.
3:59:07 PM
AURORA ROPH, representing self, Anchorage, Alaska, testified in
support of SB 92. She stated that, during her lifetime, Alaska
has struggled to pay for necessary services while corporations
have made millions of dollars from Alaska's resources. She
opined that closing the tax loophole for S corporations makes
sense. She said that all other states have a similar income tax
for S corporations. She added that she also supports using the
tax revenue for energy infrastructure upgrades. She commented
that SB 92 has bipartisan support and noted that this is rare.
4:00:10 PM
DENNIS HULL, State Affairs Manager, Americans for Tax Reform,
Arlington, Virginia, testified in opposition to SB 92. He sought
to correct the misconception that all other states tax S
corporations. He explained that several other states (e.g.
Florida, Wyoming, and South Dakota) do not tax S corporations.
Other states levy a very small tax (e.g. Nevada). Some states
that levy a personal income tax exclude S corporations and other
small businesses (e.g. Kansas). He said Americans for Tax Reform
is finalizing data on this topic and intends to make it
available in the coming week. He pointed out that Alaska's
corporate tax rate is the fourth highest in the nation. In
addition, Alaska has ten tax brackets, which is significantly
more than other states.
MR. HULL contrasted this with California, which has a high, flat
tax rate for all corporations. He briefly discussed how the
proposed tax in SB 92 compares to other states. He asserted that
any progressive tax system punishes successful companies and
opined that this phenomenon is especially pronounced in Alaska.
He stated that SB 92 would place a burden on any relatively
successful business in Alaska and added that, since statehood,
corporations in Alaska have been on an uneven playing field when
compared to other states. He briefly discussed the potential
negative impact that overhauling the S corporation tax structure
would have on future investments in the state.
4:02:42 PM
REBECCA SIEGEL, representing self, Fairbanks, Alaska, testified
in support of SB 92. She said she is a teacher in Fairbanks and
briefly discussed how the State of Alaska's budget crisis
impacts education. She opined that it is irresponsible not to
close the S corporation tax loophole. She stated that the money
generated by SB 92 could be used to fund education. She opined
that this is a commonsense solution. She noted that the
Constitution of the State of Alaska requires that the state's
resources be used to benefit all Alaskans and opined that this
requires taxing S corporations. She shared her understanding
that the oil and gas industry is creating fewer jobs than in
years past and opined that job creation is no longer a
reasonable argument for limiting the taxes on the oil and gas
industry.
4:04:52 PM
CATHERINE ROCCHI, Energy Fellow, Alaska Public Interest Research
Group (AKPIRG), Anchorage, Alaska, testified in support of SB
92. She stated that creating a tax break for S corporations was
not a deliberate policy decision; rather, it was an accidental
byproduct of eliminating Alaska's personal income tax in 1980.
She briefly discussed how, in 2020, affiliated S corporations
acquired all of BP's Alaska assets - resulting in the loss of
millions of dollars of annual corporate income tax revenue for
the State of Alaska. She encouraged committee members to
consider closing the loophole as a way to recoup income tax
revenues that the State of Alaska depended on for decades prior
to 2020 (rather than considering it as a source of new revenue).
Speaking on behalf of herself, she shared that she has discussed
SB 92 with many people (including some Hilcorp employees). Each
person has expressed shock that Hilcorp is not subject to a
corporate income tax.
4:07:11 PM
KEN GRIFFIN, representing self, Wasilla, Alaska, testified in
opposition to SB 92. He asserted that SB 92 would effectively
create a 9.4 percent state income tax, as corporations pass the
cost to consumers. He briefly discussed how a state income tax
would compare to the State of Alaska's budget deficit, which is
estimated to increase in the coming years. He said that levying
a state income tax and taking a portion of each Alaskan's
Permanent Fund Dividend (PFD) would not cover the current budget
deficit. He briefly discussed how the market functions and
emphasized the high cost of renewable energy. He opined that the
problem is not that the state cannot make money but how the
state spends its money (namely, on increasing the size of
government). He opined that if the state had focused on building
a more efficient private sector, there would not be a budget
deficit. He briefly discussed the legislature's budget process
and implied that this process is ineffective. He asserted that
increasing taxes would create a larger issue by driving Alaskans
to relocate to other states.
4:09:35 PM
CHAIR GIESSEL held public testimony on SB 92 open.
4:09:47 PM
CHAIR GIESSEL held SB 92 in committee.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB 128 Alaska Farm Bureau Presentation.pdf |
SRES 3/28/2025 3:30:00 PM |
SB 128 |
| SB 128 Fiscal Note Ag. Dev..pdf |
SRES 3/28/2025 3:30:00 PM |
SB 128 |
| SB 128 Fiscal Note Commissioner.pdf |
SRES 3/28/2025 3:30:00 PM |
SB 128 |
| SB 128 Fiscal Note NLPMC.pdf |
SRES 3/28/2025 3:30:00 PM |
SB 128 |
| SB 128 Letter of Support.pdf |
SRES 3/28/2025 3:30:00 PM |
SB 128 |
| SB 128 Supporting Documents DoAg White Paper.pdf |
SRES 3/28/2025 3:30:00 PM |
SB 128 |
| 3.28.25 SB 128 Sectional Analysis.pdf |
SRES 3/28/2025 3:30:00 PM |
SB 128 |
| SB 128 AFSTF Letter of Support.pdf |
SRES 3/28/2025 3:30:00 PM |
SB 128 |
| L.pdf |
SRES 3/28/2025 3:30:00 PM |
SB 92 |
| SB 92 Explanation of Changes v.A to v.L.pdf |
SRES 3/28/2025 3:30:00 PM |
SB 92 |
| SB 92 Sectional Analysis v.L.pdf |
SRES 3/28/2025 3:30:00 PM |
SB 92 |
| SB 128 Public Testimony.pdf |
SRES 3/28/2025 3:30:00 PM |
SB 128 |
| SB 92 Public Testimony.pdf |
SRES 3/28/2025 3:30:00 PM |
SB 92 |