Legislature(2025 - 2026)ADAMS 519
05/02/2025 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| Presentation: Overview and Capital Requests by Alaska Housing Finance Corporation | |
| SB113 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 57 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| + | SB 113 | TELECONFERENCED | |
| + | TELECONFERENCED |
SENATE BILL NO. 113
"An Act relating to the Multistate Tax Compact;
relating to apportionment of income to the state;
relating to highly digitized businesses subject to the
Alaska Net Income Tax Act; and providing for an
effective date."
Co-Chair Foster discussed the agenda.
2:39:56 PM
SENATOR BILL WIELECHOWSKI, SPONSOR, offered a brief history
of how the corporate income tax structure was developed.
Historically, the state's economy was based on "brick and
mortar" transactions. The store was located in, and
workers, and the sale of goods and services occurred in
Alaska. A national store like Sears and Robuck Company
could write off their out of state expenses against its
Alaskan profits. Therefore, Alaska and many other states
developed an apportionment system. Alaska's current
corporate income tax system took the store's national
profits and apportioned Alaska's profits based on the
three-factor formula: one was the portion of the sales, two
factored in property, and the third was the Alaska payroll.
The corporate income rate was calculated based off the
three-factor formula for C corporations. He explained what
happened when internet sales started in the state. Alaskans
began buying from companies with no property and no payroll
in the state. Therefore, the state's corporate income taxes
were dramatically reduced. In addition, for the sale of
highly digitized services many companies avoided paying
Alaska corporate income taxes because the "sale"
electronically occurred in another state. However, highly
digitized companies relied on state infrastructure. He
pointed out that when an internet sale occurred in Alaska,
the company was often using the state funded broadband,
the item was transported via state funded airports or
ports and was further shipped though state funded roads or
marine highway, etc. The highly digitized corporation paid
little or likely nothing to the state. He expounded that
the bill fixed the inequity by adopting market-based
sourcing for calculating the portion of a taxpayer's sales
that were subject to Alaska's corporate income tax and
adopted a single sales factor for calculating the taxable
income of highly digitized businesses. Market based
sourcing meant that the point of sale occurred where the
service was received. He illustrated that companies like
Facebook, Netflix, and Google had no payroll or property in
Alaska. If an individual purchased a Netflix subscription,
Netflix claimed that the sale had occurred at its
headquarters in Los Gatos, California or server farm in
Texas. The bill focused on where the service was delivered;
in Alaska based on a single sales factor using the
percentage of sales that occurred in the state. He noted
that telecommunications companies were carved out of the
bill due to the significant infrastructure they sustained
in the state. The next provision in SB 113 defined highly
digitized businesses." A business would be considered
highly digitized if fifty percent or more of its Alaska
sales were done on the internet or were internet related
services. He stressed that it was based on the amount of
sales in Alaska. He clarified that the provisions did not
necessarily create new taxes for the businesses making the
sales to Alaskan consumers because they were already paying
a corporate income tax to another state for its Alaskan
sales instead of to Alaska. He furthered that the United
States (U.S.) Supreme Court had ruled that if every state
had the same tax system, companies could not be taxed in
multiple states for the same transaction, resulting in a
tax shift from other states to Alaska with little or no tax
increase for the corporation. He emphasized that the bill
leveled the playing field and actually removed a
"disincentive" for those out-of-state companies to do
business in Alaska. He stressed that the bill did not raise
the corporate income tax rates, did not raise taxes on
Alaskan businesses, nor consumers. He reported that 37
states employed the single sales factor. He declared that
studies had shown that online companies did not set their
rates based on corporate income tax and the single sales
factor had no impact on consumer prices. The standard
Netflix monthly fee was $17.99 per month and was the same
price in Alaska as it was in Minnesota, that had the
highest corporate income tax in the country. The best-
selling snow shovel on Amazon sold for $41.64 in Alaska
with zero corporate income tax and cost the same in
Minnesota. He concluded that corporate income taxes were
spread out over worldwide costs.
2:46:35 PM
DAVID DUNSMORE, STAFF, SENATOR BILL WIELECHOWSKI,
introduced the PowerPoint presentation "SB 113; Corporate
Income Tax Modernization" dated May 2, 2025 (copy on file).
He began on slide 2 titled: "SB 113 makes two reforms to
st
bring Alaska's tax apportionment system into the 21
century
• Market-based sourcing to ensure Alaskan sales are
properly apportioned to the state
• Single sales factor for highly digitized businesses
• SB 113 makes no changes to corporate income tax rates
or brackets.
Mr. Dunsmore turned to slide 4 describing "What Is Tax
Apportionment?"
Under the Commerce Clause of the U.S. Constitution,
states may only tax activity that is reasonably
attributable to that state.
For taxpayers who operate in multiple states, it is
necessary to determine what portion of their income
can be taxed by each state.
To avoid taxpayers having to do separate accounting in
each state, states have adopted mathematical formulas
to determine tax apportionment.
Mr. Dunsmore continued to slide 5 titled The U.S. Supreme
Court Has Ruled That States Must Use "Fair Apportionment"
To Determine What Is Taxable By Their State, Requiring The
System Be Internally And Externally Consistent
Internal consistency: If all states used the same
system, there would be no double taxation.
External consistency: That the value taxed is "fairly
attributable" to the state.
Oklahoma Tax Comm'n v. Jefferson Lines, Inc., 514 U.S.
175 (1995)
Mr. Dunsmore continued to slide 6 titled Traditionally
States Have Used An Equally Weighted Three-Factor Formula
For Tax Apportionment
Sales Factor
The percentage of a taxpayer's sales that are made in
the state
Property Factor
The percentage of a taxpayer's property that is
located in the state
Payroll Factor
The percentage of a taxpayer's payroll that is made in
the state
He moved to slide 7 titled "The Traditional Three-Factor
Corporate Tax Apportionment Formula." The slide illustrated
the mathematical formula.
Mr. Dunsmore discussed to slide 8 titled "Alaska Is A
Member Of The Multistate Tax Compact
This is an advisory compact with 14 other states and
the District of Columbia that promotes uniformity in
tax apportionment and filing procedures.
The Commissioner of Revenue represents Alaska on the
commission that governs the compact.
The 6th Alaska State Legislature codified the compact
in Alaska Statutes in 1970 as AS 43.19.010 which
establishes Alaska's tax apportionment laws.
The Legislature has not made any amendments to this
statutory language since then.
Mr. Dunsmore continued to slide 9titled "The current
apportionment formula was designed for a brick-and-mortar
world
In the modern digital economy a corporation can target
advertising to Alaska, sell a product through Alaska's
broadband infrastructure, and ship it through Alaska's
roads, ports and airports without having any property
or payroll in Alaska.
SB 113 makes common sense reforms to ensure these
sales are properly apportioned to Alaska
2:49:43 PM
Mr. Dunsmore continued to the title slide 10 Market-Based
Sourcing" and slide 11 titled "Currently Alaska Uses A
Methodology Called "Cost Of Performance" To Determine
Whether Sales Happened In Alaska
Under cost of performance, a sale is considered to
happen in Alaska when "the income producing activity
is performed in this state."
This means that out-of-state corporations can argue
that online sales to Alaskans do not take place in
Alaska.
SB 113 replaces cost of performance with a "market-
based" methodology where sales will be considered to
happen in Alaska when the market for the sales is in
Alaska.
Mr. Dunsmore highlighted to slide 12 that detailed, Under
Market-Based Sourcing A Sale Occurs In Alaska When:
• For sales of real property when the property is
located in the state
• For tangible personal property, when the property is
located in the state
• For services when the service is delivered in the
state
• For intangible property when it is used in the state
Mr. Dunsmore illuminated slide 13 titled "At least 36 other
states already use some form of market-based sourcing,"
which listed the states.
Mr. Dunsmore continued to slide 15 that mathematically
represented the "Single Sales Factor for Highly Digitized
Businesses He pointed to the calculation on the slide:
The Share of Total Corporate Income Apportioned was
divided by statewide sales and total sales.
For highly digitized businesses only, the sales factor
would be the only factor used for tax apportionment.
Mr. Dunsmore continued to slide 16 titled A Business Would
Be Considered Highly Digitized If 50 Percent Or More Of Its
Alaska Sales Are Of:
• Intangible property delivered electronically
• Services delivered electronically
• Services related to computers, electronic
transmission, or internet technology
• Tangible property purchased through the internet
Mr. Dunsmore spoke to slide 17 titled "The Three-Factor
Formula Will Still Be Used For Brick-And-Mortar
Businesses," which depicted the mathematical three-factor
formula.
Mr. Dunsmore underlined slide 18:
Alaska has previously adopted a different
apportionment formula for the oil and gas industry,
because the Legislature found that the traditional
formula did not fairly reflect their Alaska income.
Similarly, it is appropriate to use a different
formula for highly digitized businesses, because the
current formula does not fairly reflect Alaska sales.
Mr. Dunsmore moved to slide 19 titled "The Current Three-
Factor Formula Is A Disincentive To High-Tech Businesses
Opening Alaska Facilities
Having payroll and property in Alaska can
significantly increase an online business' Alaska
taxes.
Adopting a single sales factor for this industry will
remove this disincentive and level the playing field
between out-of-state and Alaska businesses.
Mr. Dunsmore continued to slide 20 titled "At Least 37
Other States Already Use A Single Sales Factor For At Least
Some Industries Other States," which listed the states.
Mr. Dunsmore continued to slide 21 titled " These Reforms
Would Have Little Or No Impact On Alaskan Consumers
Online businesses generally set their prices at the
national or global level.
Both market-based sourcing and single sales factor are
common features of tax apportionment systems across
the country.
This bill does not change the tax rates or brackets at
all, merely the formula for determining what income is
taxable in Alaska.
Mr. Dunsmore concluded the presentation.
2:53:15 PM
Co-Chair Foster appreciated Mr. Dunsmore brevity and his
efficient delivery of the presentation.
Representative Stapp deduced that a company based in
Minnesota with a high rate of corporate income tax using
apportionment would actually pay less taxes under the bill
because Minnesota's high apportionment tax rate would now
be shared with Alaskans lower apportionment tax rate. He
surmised that the company would pay less taxes overall. He
asked for comments. Mr. Dunsmore replied that it was hard
to answer not having a specific case but believed that the
scenario was likely. Representative Stapp felt that it was
complicated on the surface" but emphasized that the taxes
were already being paid to the company's domiciled state
that collected 100 percent of the tax. He thought that the
tax was not different than what Alaska already did for oil
and gas taxes, that were apportioned based on their Alaskan
profits. He suggested reading the multi-state compact where
it describes the different ways states had accomplished
apportionment. He appreciated the work on the bill and
thought modernizing the state's corporate tax structure was
beneficial.
Co-Chair Foster requested a discussion of the bill's fiscal
note.
2:56:22 PM
MICHAEL WILLIAMS, CORPORATE TAX MANAGER, TAX DIVISION,
DEPARTMENT OF REVENUE (via teleconference), deferred the
answer to his colleague.
DALE YANCEY, TAX DIRECTOR, DEPARTMENT OF REVENUE, (via
teleconference), reviewed the published fiscal impact note
(FN1(REV) from the Department of Revenue (DOR). He
explained that the fiscal note revenue change was
indeterminate because the highly digital companies were
currently paying very little or no tax in the state.
Therefore, the department did not have information to
produce a highly specific fiscal note. However, the
division deduced that a range of $25 million to $65 million
would be raised via the tax. In addition, two new positions
were added to the expenditure line due to necessary audits
that ensured the new tax was implemented correctly.
Representative Allard voiced that she had many questions,
but thought she had a firm position on the bill regardless
of answers. She asked if Senator Wielechowski knew where
Amazon was located. Senator Wielechowski responded that it
was not Alaska. Representative Allard shared that Alaska
was a remote state and many citizens relied on products
from out-of-state. She acknowledged that Amazon was located
in Seattle, Washington. She stated that there was no
personal or corporate tax in Washington. She ascertained
that any products from Amazon would be taxed and that would
be passed on to the Alaskan consumer. She had other
concerns that SB 113 would substantially hurt the school
district in Wrangel, Alaska. She did not favor implementing
taxes while the state lacked a spending cap. In addition,
she noted that there were "3 parts to sales" and "sales"
was not defined on page 3, lines 18 through 22. She also
felt that the bill would impact banks that might do
business outside of Alaska, like Wells Fargo due to
"interest rates, fees, services, charges, and gross
receipts from investments and trading activities." She
asked for comment.
3:02:34 PM
Senator Wielechowski responded that SB 113 was not his
bill" or idea, it was proposed by Governor Dunleavy to the
Fiscal Policy Working Group, and he could not take credit
for it. He relayed that the governor did not support taxes
on Alaskans and therefore, would not support a bill that
imposed taxes on Alaskans. He did not believe the bill
increased taxes on Alaskans. He addressed the Amazon
example. He thought that Amazon already paid a very small
corporate income tax to Alaska. He pointed out that 36
states had market based sourcing and 37 states had highly
digitized taxes and no one saw Amazon pulling out of other
states like Minnesota with the highest corporate income tax
rate. He reiterated that Amazon did not have a cost
differential on products it was selling in Alaska versus
other states. He offered to provide more information that
showed no impact on consumer prices. He noted that the
issue brought up by the Wrangell School District was due to
misunderstanding what the bill actually did. In addition,
he related that he attempted to work with Wells Fargo, but
the administration had shared that the proposed fix was
unworkable. He offered that he received a letter from "our"
attorneys" and from the Multi State Tax Commission, Bruce
Fort, Senior Counsel and read: this modernization would
reduce litigation and the need to engage in frequent
settlements for less than the appropriate tax amount to
avoid that litigation." He believed that the bill was a
modernization effort and provided some level of certainty
to the banks. He stressed that there was "no intention to
raise costs or fees on anyone."
Representative Allard believed that the bill was hiding the
tax on Alaskans, and no one wanted to say it. She named
some highly digitized corporations and believed that it
would be a tax passed on to consumers. She mentioned
wireless cell towers and fiber optic switching facilities
and thought that an additional tax would be passed on to
the consumer. Senator Wielechowski answered that it was
not a new tax" and was already being paid to other states.
He emphasized that Alaskans were paying the cost via the
company using state resources and Alaskan consumers were
picking up the tab. He believed that it was unfair to
Alaska's brick and mortar companies. The costs were "taking
money out of Alaskans pockets" because the out-of-state
corporations were not paying their share. He stressed that
the bill fixed the problem and Alaskans were already paying
the costs for the Out-of-state companies who were paying
taxes to other states. He reiterated that it was very
unfair.
3:07:41 PM
Mr. Dunsmore referenced cell towers and fiber optic
infrastructure that was addressed in the bill on page 24,
line 8, that excluded telecommunication utilities from the
definition of a highly digitized business.
Co-Chair Foster ascertained that a company like Amazon
would likely pass on any cost from SB 113 through a price
increase. However, he did not foresee Amazon adding a tax
on Alaskan consumers, it would be complex, and it would not
make sense. He asked Senator Wielechowski if he was aware
of any other ways Amazon could increase prices. Senator
Wielechowski responded that the 36 states that already
adopted the same tax structure did not experience a
corporate tax increase reflected in consumer prices. He
elucidated that the tax had a complex formula and Amazon's
costs "were spread out among every consumer in the world."
He reiterated that Alaskans were paying for the taxes the
other 36 states were collecting by not implementing the tax
in Alaska.
Representative Allard referred to a letter by CTIA (copy on
file) that was sent to Senator Olsen. [Secretary Note: The
letter was included in a public testimony packet posted to
BASIS and included in the member's bill file.] She noted
that the letter stated communication for wireless services
would be impacted by SB 113. Senator Wielechowski directed
attention to the bill on page 24, lines 5 through 8, where
it stated that the section did not apply to the utility
furnishing telecommunication services. He added that he was
asked by the telecommunication companies to add the
exemption. He believed that it was fair to exempt them.
3:12:09 PM
Representative Bynum voiced that how the tax on Amazon
would impact Alaska was a question of debate. He reported
that he had done some research and discovered that it had a
significant corporate presence in California, New York, and
both states had a corporate income tax and high population.
Texas lacked a corporate income tax but had a gross
receipts tax and franchise tax that Amazon paid. Washington
did not have a corporate income tax but had a business and
occupation tax (B&O) on gross receipts. He noted that other
states that had a corporate income tax where Amazon had a
significant presence in. He initially had a concern
regarding a cost impact on Alaska, but Amazon was already
paying the tax to many other large states. He shared that
he had told his constituents that no cost would ever go up
for highly digitized services for companies like Netflix
etc., who built taxes into their overall pricing structure.
He did not think that the tax would impact Alaska
specifically and any price increase would be due to rising
costs impacting their pricing models to do business on
their platforms in the overall "scheme of things." He asked
for comment. Senator Wielechowski appreciated his comments
and thought Representative Bynum stated his understanding
with eloquence.
Mr. Dunsmore added that the same question was asked in the
Senate. He did additional extensive research to discover
whether there was any evidence of differential pricing
based on an apportionment corporate income tax and found
none. He found that a few online venders had experimented
with differential pricing based on zip code and not based
on tax rates; it was based on higher income zip codes. He
stressed that he did not find any evidence that corporate
tax rates had an effect on consumer pricing.
Representative Bynum shared that he had his staff perform
research on how many companies in Alaska were filing
corporate taxes and he discovered the number was 22,000. He
wondered if the bill would impact current brick and mortar
stores like Home Depot or Costco that were also moving into
the digital space. Mr. Dunsmore answered that the
definition for highly digitized business was based on more
than half of the Alaska sales done online. However, the
bill contained clarifying language that if the main way a
customer interacted with the business was not online it
would not be considered an online sale. As businesses
transitioned to a hybrid model it would be determined
business by business. He indicated that concerning a
business in Alaska's overall tax burden, it should not
result in higher taxes due to a single formula tax factor
that was "agnostic" regarding where the business was
physically located. The three factor formula could be a
disincentive for online businesses to locate in Alaska
because of any property and payroll.
3:18:43 PM
Representative Galvin shared a recent news story that
consumer prices were anticipated to significantly increase
in the near future. She hoped that people would not
attribute price increases to the bill. She restated the
fact that no price differentials were shown in any state
that had implemented the tax. She asked for comment from
the sponsor. Senator Wielechowski replied that the
effective date was Jan 1, 2026, and the lag time was to
enable the department to establish the new tax system.
3:20:49 PM
AT EASE
3:21:00 PM
RECONVENED
Representative Galvin explained that the news was from the
New York Times and read the headline: "Companies Are
Serving Notice, We are Raising Prices Because of Tariffs."
The article included a list of the companies that were
serving notices to customers. She mentioned some names of
the companies and products. Senator Wielechowski simply did
not think Alaska had the kind of market impact as other
states causing the tax to outweigh the outcome experienced
in other states.
3:22:42 PM
AT EASE
3:25:19 PM
RECONVENED
Representative Stapp shared that Washington had a business
and occupation tax which was 1.5 percent of all gross
receipts, which was "massive" for a company like Amazon. He
reiterated that 36 other states instituted the tax.
Currently, an incorporated small business in Alaska paid
corporate income taxes to the state. He wondered why it was
acceptable to tax Alaskans selling products to those living
in Alaska and not to tax out-of-state businesses who did
business in Alaska. He did not want to punish Alaskans with
Alaskan businesses who pay corporate income tax and allow
out-of-state business operating in Alaska to go tax free.
He believed it was a matter of fairness and taxes should be
apportioned to the non-Alaskan businesses, which was
positive for small businesses. Everyone had seen small
businesses go out of business being replaced by big
national chains. He postulated that if the state did not
tax local businesses unfavorably, fewer would go out of
business. He asked for comment by the sponsor. Senator
Wielechowski responded that Representative Stapps comments
made fair points. He agreed that many people felt that it
was unfair that Alaska's small and large business were
paying a tax, and outside companies were not. He reiterated
that outside companies received the benefit of the state's
infrastructure: broadband, bridges, roads, ports, etc. and
were paying very little or no taxes and was unfair.
Representative Allard relayed that passage of HB 57 -
Schools: Comm. Devices/Class Size/Funding [Chapter 5 SLA 25
- 05/20/2025] was directly correlated to the adoption of SB
113. She deduced that outside businesses might be
increasing taxes on Alaskans. She asked if SB 113 did not
pass whether the state would fund reading grants or Career
and Technical Education (CTE). Senator Wielechowski
responded in the affirmative regarding the bills
correlation and added that it was his understanding was
that those items she listed were dependent upon SB 113
passing.
3:29:36 PM
Representative Bynum inquired about the definition of
highly digitized services based on 50 percent of sales. He
asked where the number was derived. Senator Wielechowski
answered that it was the same number that Governor Dunleavy
proposed to the Fiscal Policy Working Group. The bill's
concept was favorable to many as a way to capture revenue
from outside without taxing Alaskans.
Mr. Dunsmore added that he was not aware of the 50 percent
being model language and was located in Section 7, page 23,
lines 23 through 24 of the bill.
Representative Galvin asked how many years since the 36
other states had implemented the tax structure and if
implementation was successful. Mr. Dunsmore resplied that
there were two documents in the bill packet by CCH State
Tax Smart Charts by CCH Answer Connect (copies on file)
that showed the general trend was for increasing number of
states to adopt the single sales tax.
3:32:16 PM
Representative Galvin asked about digital or social media
sales. She exemplified ads on social media. She knew the
bill had a carve out for telecommunications. She wondered
if the carve out applied to ads.
Senator Wielechowski replied that the rationale for carving
out the telecom industry was because they had substantial
businesses in Alaska. The carve out would not apply to
companies like Facebook, and all highly digitized
companies.
Representative Hannan directed a question to the Department
of Revenue. She noted her full support of the bill. She
referenced the multi-state compact statute and relayed that
14 states used a different method of analyzing the
broadcaster apportionment. Therefore, rather than using an
audience method, they utilized a broadcaster customer
location method that did not require estimation and was
more precise. She asked whether DOR performed an analysis
about the state's ability to get the most revenue out of
the tax. She wondered whether using an audience method,
versus a broadcaster customer location method made a
difference in the revenue earned by the bill.
3:34:47 PM
Mr. Williams replied that DOR had not analyzed one method
over another. He acknowledged that there were multiple ways
to acquire the tax. He elaborated that the multi-state tax
commission had a model regulation for broadcasters. The
department had not adopted the model regulation. There
would be any number of regulations required if the bill was
adopted and the bill merely represented a "framework" and
step in the right direction. The department would fine tune
its method through the regulatory process.
Co-Chair Foster had a request for more clarity regarding SB
57 and if it were to fail, concerning the contingency
clause on adoption of SB 113. He reported that the
contingency clause allowed any bill and not specifically SB
113. He wondered whether he was correct. Senator
Wielechowski responded in the affirmative.
Co-Chair Josephson asked about the fiscal note speaking to
the $25 million to $65 million in anticipated revenue. He
assumed a reliable amount of revenue would be established
via experience; subsequent to implementation and a couple
of fiscal years of collecting the tax. Senator Wielechowski
answered in the affirmative. The taxpayer transparency laws
were "opaque and it was difficult to currently know the
exact estimate. Co-Chair Josephson recalled that the amount
in HB 57 was $22 million for reading grants. He guessed
that any excess would go to the General Fund (GF). Senator
Wielechowski responded in the affirmative. He elaborated
that reading grants totaled $22 million and the CTE was
another $10 million. He reminded the committee that despite
the amount of revenue generated from the tax, it was all
subject to appropriation since funds could not be
dedicated.
3:39:13 PM
Co-Chair Josephson cited the growth in online purchasing
that had increased markedly in the last decade. He deemed
that the state had already forgone roughly one half billion
dollars. Senator Wielechowski agreed with his conclusion.
Co-Chair Josephson observed that the only Amazon warehouse
he was aware of was in his district. He ascertained that
under the modernized tax, the state would dispense with the
property and payroll factor of the warehouse and focus on
the sales factor. He guessed that the net result would
likely be increased revenue.
Mr. Dunsmore responded that it was not possible to answer
specifically. He discerned that in general it was likely
that companies like Netflix or Facebook would pay more
taxes since they currently pay nothing or a minute sum. Co-
Chair Josephson recounted statements by Representative
Allard regarding the absence of corporate income tax in
Washington state causing the tax to be passed on to
Alaskans. He surmised that the tax did not work that way.
Amazon did not sell products only to Alaska and therefore,
it was a much more significant math issue in terms of
apportionment of overall sales. In addition, Alaska was not
getting its Amazon products all from Washington State
warehouses which also weakened Representative Allard's
conclusions. Mr. Dunsmore answered that the type of large
multi-national company like Amazon was why states created
the apportionment laws in the first place. It has property
and payroll all across the country.
Senator Wielechowski interjected that corporate income tax
was very different than sales tax. Sales tax was relatively
simple, but apportionment meant Amazon was apportioning
expenses from across the country and world. He exemplified
that when Amazon shipped products, it paid more to ship to
Utqiaqvik than to Seattle or Los Angeles and wrote off the
extra costs on its corporate income tax, which would
continue. Therefore, it was difficult to determine the
impact. Alaska was not the tail wagging the dog," it had a
small population. There were other states that were
possibly subsidizing shipping costs to Alaska, but it
washes out in the end because of apportionment laws.
3:44:05 PM
Representative Allard relayed that small businesses sold
products through Amazon and received 1099s from Amazon. She
believed that the small businesses would be impacted.
Senator Wielechowski responded that it was possible but was
difficult to determine; if they were not a C corporation,
they did not pay taxes. If they were already in Alaska,
they were already paying some taxes. Ultimately, it
depended on what type of business it was: C or S
corporation, LLC, partnership, sole proprietor, etc. He was
aware that only C corporations paid taxes in Alaska other
than that, the answer was unknown.
Mr. Dunsmore responded that she pointed out "exactly why
the single sales factor" was pro-business in bringing
online business to the state. He reiterated that Amazon was
likely paying very little taxes. However, he agreed that
small Alaska based C corporations were currently, likely
paying a much higher rate than Amazon. He stated that the
reform was "pro-business."
Representative Allard was bringing it up because she had a
flurry of small businesses sending her their 1099s. She
read the following if business and occupation tax for
companies doing business in Washington in an attempt to get
a piece of the business using fulfillment centers?" She
paraphrased that it had something to do with Washington's
business and occupation tax. She asked if Senator
Wielechowski had information regarding the B&O tax. Senator
Wielechowski replied that Representative Stapp stated that
the Washington B&O tax was 1.5 percent.
Representative Tomaszewski asked if there were any specific
Alaskan companies that the bill would affect. Mr. Dunsmore
responded that without knowing the specifics, it was
impossible to answer. Representative Tomaszewski wondered
how it would affect a company like Turo or Airbnb. Mr.
Dunsmore responded that both would meet the definition of a
highly digitized business and the Department of Revenue
would address how they would be taxed through the
regulation process.
3:49:18 PM
Representative Tomaszewski asked if DOR generated a list of
companies that would be impacted.
Senator Wielechowski responded that there was no list due
to taxpayer confidentiality. Regarding Airbnb, he directed
attention to page 9, which addressed what was included in
the bill. He guessed that it might already be paying
corporate income taxes to the state and would be impacted
by SB 113. He deduced that if the Alaskan homeowner was not
a C corporation, they would not be impacted. Representative
Tomaszewski asked whether a sunset provision was
considered. Senator Wielechowski answered in the
affirmative. He discouraged it and added that any issues
could be fixed retroactively. He was committed to fixing
the bill in the next year if problems were identified,
which was his preference over a sunset provision. He
emphasized that it was very difficult to alter corporate
income tax in Alaska. He stressed that state services
needed to be paid for and believed that Alaskan companies
were bearing the entire costs and out-of-state companies
were paying very little. He considered the situation
"fundamentally unfair."
Representative Bynum cited eBay and wondered whether a
small business selling online would be impacted by SB 113.
Senator Wielechowski responded that eBay would be impacted
in the same way as Amazon. He guessed that to the extent it
or a subsidiary was a C corporation, it was already paying
taxes. The bill would establish a single sales market
factor, which might increase its taxes.
3:53:42 PM
Representative Allard asked if Amazon could potentially
pull out of Alaska if SB 113 was adopted and shut down the
warehouse. Senator Wielechowski answered that he had not
heard any comments from Amazon regarding closing the
warehouse.
3:54:31 PM
AT EASE
3:58:52 PM
RECONVENED
Co-Chair Foster inquired whether there was interest in
reporting the bill out of committee.
Representative Stapp believed that it was important to
modernize the state's corporate tax structure especially
since the state had not updated the nationwide compact
since the 1970's. In addition, due to "the complexity,
technology, and changing landscape" the legislature would
need to revisit the discussion. Therefore, he wanted to
move the bill.
Representative Stapp MOVED to report SB 113 out of
Committee with individual recommendations and the
accompanying fiscal note.
4:00:25 PM
Representative Allard OBJECTED. She would not stop it from
leaving committee, but she thought the bill would greatly
impact the rural areas of the state. She did not favor
allocating funds that were not yet received. She relayed
that the fiscal plan had 6 parts to it. She believed that
there would be hidden costs to Alaskans" and the
overnment did not want to come out full and transparent."
Representative Allard WITHDREW her objection
There being NO OBJECTION, it was so ordered.
SB 113 was REPORTED out of committee with eight "do pass
recommendations, one "no recommendation," and two do not
pass recommendations, with one previously published fiscal
impact note: FN1 (REV).
4:02:02 PM
AT EASE
4:02:54 PM
RECONVENED
Co-Chair Foster discussed future meetings.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB113 Additional Documents - CCH AnswersConnect - Apportionment Formulas.pdf |
HFIN 5/2/2025 1:30:00 PM |
SB 113 |
| SB113 Additional Documents - CCH AnswersConnect - Market Based Sourcing.pdf |
HFIN 5/2/2025 1:30:00 PM |
SB 113 |
| SB113 Public Testimony Rec'd by 4.16.25.pdf |
HFIN 5/2/2025 1:30:00 PM |
SB 113 |
| SB113 Sectional Analysis ver A, 4.16.25.pdf |
HFIN 5/2/2025 1:30:00 PM |
SB 113 |
| SB113 Sponsor Statement Ver A, 4.16.25.pdf |
HFIN 5/2/2025 1:30:00 PM |
SB 113 |
| SB113 Sponsor's Powerpoint, 4.16.25.pdf |
HFIN 5/2/2025 1:30:00 PM |
SB 113 |
| SB 57 250502-HFIN-AHFC-OVERVIEW...pdf |
HFIN 5/2/2025 1:30:00 PM |
SB 57 |
| SB 57 250502-HFIN-AHFC-OVERVIEW Final.pdf |
HFIN 5/2/2025 1:30:00 PM |
SB 57 |