Legislature(2025 - 2026)SENATE FINANCE 532
03/10/2025 09:00 AM Senate FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| SB113 | |
| SB80 | |
| Presentation: Three Year Budget Oulook Update, Legislative Finance Division | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 113 | TELECONFERENCED | |
| += | SB 80 | 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."
9:02:31 AM
SENATOR BILL WIELECHOWSKI, SPONSOR, presented the bill. He
said that the bill made two reforms to Alaskas tax
apportionment system. The bill adopts market-based sourcing
for calculation the portion of a taxpayers sales that are
subject to Alaskas corporate income tax and adopts a
single sales factor for calculation the taxable income of
highly digitized businesses. He noted that the reforms
would raise funds for the state and would not change the
states corporate income tax rates. He stressed that the
bill would not tax Alaskan businesses or consumers.
9:05:50 AM
DAVID DUNSMORE, STAFF, SENATOR WIELECHOWSKI, discussed a
presentation entitled "SB 113 - Corporate Income Tax
Modernization" (copy on file). He looked at slide 2, " SB
113 makes two reforms to bring Alaska's tax apportionment
system into the 21st 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 showed slide 3, "What is tax apportionment?"
Mr. Dunsmore referenced slide 4:
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 turned to slide 5:
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 considered slide 6, "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
Mr. Dunsmore displayed slide 7, "The Traditional Three-
Factor Corporate Tax Apportionment Formula."
Mr. Dunsmore highlighted slide 8, "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 looked at slide 9, "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.
9:08:44 AM
Co-Chair Hoffman queried the significance of the photo on
slide 9.
9:08:47 AM
Mr. Dunsmore replied that hed simply sought a good visual
aide.
9:08:57 AM
Mr. Dunsmore displayed slide 10, "Market-Based Sourcing."
Mr. Dunsmore advanced to slide 11, "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 122 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 looked at slide 12, "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 showed slide 13, "At least 36 other states
already use some form of market-based sourcing."
Mr. Dunsmore showed slide 14, "Single Sales Factor for
Highly Digitized Businesses."
Mr. Dunsmore turned to slide 15, "For highly digitized
businesses only, the sales factor would be the only factor
used for tax apportionment."
Mr. Dunsmore considered slide 16, "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 displayed slide 17, "The three-factor formula
will still be used for brick-and-mortar businesses."
Mr. Dunsmore highlighted 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 looked at slide 19:
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 addressed slide 20, "At least 37 other states
already use a single sales factor for at least some
industries."
Mr. Dunsmore advanced to slide 21, "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.
9:12:17 AM
Co-Chair Hoffman asked about the effective date of January
1, 2026. He wondered why the effective date was not July 1,
2025 the beginning of the fiscal year.
9:12:35 AM
Mr. Dunsmore replied that it was recommended that it began
at the calendar year, because most corporations used a
st
calendar year beginning January 1.
9:13:04 AM
Senator Kaufman asked what was to prevent businesses for
adding service charges for sales in Alaska.
9:13:40 AM
Mr. Dunsmore replied that there had been no evidence of
businesses using tax apportionment to set prices in the
state.
9:14:13 AM
Senator Kaufman thought it would be easy for businesses to
set prices using tax apportionment.
9:14:38 AM
Senator Kiehl looked at slide 16. He asked how the total of
Alaska sales would be reached.
9:15:13 AM
Mr. Dunsmore replied that the number would be 50 percent
aggregate of all the listed criteria.
9:16:20 AM
Co-Chair Hoffman OPENED and CLOSED public testimony.
SB 113 was HEARD and HELD in committee for further
consideration.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB 113 Research Tax Division 2024 Annual Report excerpt.pdf |
SFIN 3/6/2025 9:00:00 AM SFIN 3/10/2025 9:00:00 AM SFIN 4/9/2025 9:00:00 AM |
SB 113 |
| SB 113 Research - CCH AnswersConnect - Apportionment Formulas.pdf |
SFIN 3/6/2025 9:00:00 AM SFIN 3/10/2025 9:00:00 AM SFIN 4/9/2025 9:00:00 AM |
SB 113 |
| SB 113 Sponsor's Powerpoint version A 2.26.25.pdf |
SFIN 3/6/2025 9:00:00 AM SFIN 3/10/2025 9:00:00 AM |
SB 113 |
| SB 113 Sectional Analysis version A 2.26.25.pdf |
SFIN 3/6/2025 9:00:00 AM SFIN 3/10/2025 9:00:00 AM SFIN 4/9/2025 9:00:00 AM |
SB 113 |
| SB 113 Sponsor Statement version A 2.26.25.pdf |
SFIN 3/6/2025 9:00:00 AM SFIN 3/10/2025 9:00:00 AM SFIN 4/9/2025 9:00:00 AM |
SB 113 |
| SB 113 Research - CCH AnswersConnect - Market Based Sourcing.pdf |
SFIN 3/6/2025 9:00:00 AM SFIN 3/10/2025 9:00:00 AM SFIN 4/9/2025 9:00:00 AM |
SB 113 |
| SB 113 Public Testimony Allmeroth.pdf |
SFIN 3/10/2025 9:00:00 AM SFIN 4/9/2025 9:00:00 AM |
SB 113 |
| 031025 SFIN FY26-28 Fiscal Outlook 3-10-25.pdf |
SFIN 3/10/2025 9:00:00 AM |
|
| SB 113 Banuelos Testimony.pdf |
SFIN 3/10/2025 9:00:00 AM SFIN 4/9/2025 9:00:00 AM |
SB 113 |