Legislature(2023 - 2024)BELTZ 105 (TSBldg)
03/15/2024 01:30 PM Senate LABOR & COMMERCE
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| Audio | Topic |
|---|---|
| Start | |
| SB44 | |
| SB225 | |
| SB237 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 44 | TELECONFERENCED | |
| *+ | SB 225 | TELECONFERENCED | |
| *+ | SB 237 | TELECONFERENCED | |
SB 237-TAX CREDIT CHILD CARE/UTILITY/HOUSE/FOOD
3:00:16 PM
CHAIR BJORKMAN announced the consideration of SENATE BILL NO.
237, "An Act establishing a corporate income tax credit for
certain expenditures on child care services, utility rates,
residential housing, and food security and availability; and
providing for an effective date."
3:00:41 PM
FADIL LIMANI, Deputy Commissioner, Department of Revenue,
Juneau, Alaska, introduced SB 237 on behalf of the
administration and explained that this legislation is also
called the Alaska Affordability Act (AAA). He emphasized that
this is a top priority for the Governor, who wants to ensure
families continue to call Alaska home while attracting more
people and families to the state.
3:01:37 PM
MR. LIMANI advanced to slide 2 of the SB 237 Bill Overview:
[Original punctuation provided.]
SB 237 Bill Overview
This proposed legislation focuses on four key areas:
• Childcare
• Housing
• Energy
• Food Security
The idea behind this legislation is that it creates a
tax incentive for Corporations and businesses to
offset their corporate income tax liability for
qualified expenditures in those key areas.
The Department of Revenue will define the qualified
expenditures through regulations.
Further, the tax credits are limited to 50 percent of
qualified expenditures and may not exceed 50 percent
of the Corporation's tax liability for any year.
MR. LIMANI pointed out that the state does not have broad based
taxes; therefore, the corporate income tax is one of the few
levers available to incentivize businesses to develop
communities and provide economic development.
3:02:40 PM
MR. LIMANI advanced to slide 3, showing FY 2023 general fund
(GF) revenue from corporate income tax. He noted that the total
is approximately $436 million and pointed out that 70 percent of
this is tied to oil and gas. He stated that the $436 million
does not include the $7.6 million that is deposited into the
Constitutional Budget Reserve Fund (CBRF).
3:03:14 PM
SENATOR GRAY-JACKSON referred to the chart on slide 3 and asked
why tourism is a negative amount.
MR. LIMANI answered that this is due to the carryover from the
Coronavirus Aid, Relief, and Economic Security Act (CARES Act)
and deferred to Acting Deputy Director Mike Williams.
3:03:43 PM
MICHAEL WILLIAMS, Acting Deputy Director, Tax Division,
Department of Revenue, Anchorage, Alaska, explained that under
the federal CARES Act, corporations that had net losses during
the years of 2018, 2019, and 2020 were allowed - under federal
statute - to carry back those losses for up to five years and
claim refunds. There was a process for filing those claims - due
to the timing of filing claims and paying out refunds, some of
this refund process carried over into FY 2023. The roughly $18
million in negative revenue is attributed to those refund
claims.
3:04:37 PM
MR. LIMANI advanced to slide 4:
[Original punctuation provided.]
SB 237 Estimated Revenue Impact
At this time, we don't have clear visibility on the
revenue impact as we can't predict taxpayer behavior
and how much they may contribute to each of these
areas; however, we have run an analysis and determined
the maximum revenue impact to the State on Corporate
Income Tax Revenue would range from ($238) million in
FY25 to ($267) million in FY30.
MR. LIMANI explained that the chart on slide 4 looks at the
maximum impact on both non-petroleum and petroleum corporate
income tax revenue for FY 2025 ($(87.5) million non-petroleum,
$(150.1) million petroleum) through FY 2030 ($(126.3) million
for non-petroleum, $(140.5) million petroleum).
3:05:39 PM
MR. LIMANI advanced to slide 5:
[Original punctuation provided.]
SB 237 Implementation Cost
The department will need to make minor changes to its
Tax Revenue Management System (TRMS) and tax forms to
implement this bill. The Tax Division will use
existing resources to absorb the costs to update tax
forms, TRMS, and other miscellaneous implementation
costs.
3:06:21 PM
MR. WILLIAMS advanced to slide 6 and discussed the sectional
analysis for SB 237:
[Original punctuation provided.]
SB 237 Sectional Analysis
Section 1: Adds a new section at 43.20.022 which
creates a new tax creditthe Alaska affordability tax
credit. The amount of the credit is up to 50 percent
of a corporation's tax liability. The credit is 50
percent of qualifying expenditures for employer-
provided childcare, residential heating and
electricity affordability, housing affordability, and
food affordability. The bill authorizes the department
to adopt regulations that define qualifying
expenditures.
A contribution claimed as an Alaska affordability tax
credit could not also be the basis for a different tax
credit or be allowed as a federal tax deduction, which
is the basis for computing the Alaska corporate income
tax.
The credit is nontransferable and cannot be carried
forward or backwards.
Section 2: The credit takes effect January 1, 2025.
3:07:43 PM
SENATOR DUNBAR presented an example of a large corporation that
used the tax credit to set up a childcare facility for
employees. They offset overhead costs using the tax credit and
charge a fee to their employees (a subsidized rate). He asked
how this would interact with the tax credit and if the
corporation would be prohibited from charging a rate - or if
there would be any restrictions on the rate charged to
employees. He questioned whether the corporation could
potentially make money off of the daycare or if it would be
revenue neutral.
3:09:07 PM
MR. WILLIAMS said that this is a complex question, some of which
would require follow-up. He explained that under Section 129 of
the Internal Revenue Code an employer can provide a certain
amount of childcare to employees before it is considered
"compensation" to the employee. Likewise, the employee can make
elected, tax-free deferrals for childcare after a certain amount
(typically $5,000) of provided childcare for employer or
employee. He stated that anything beyond this could be
considered compensation to the employee. If an employer is
charging the employee for childcare, up to $5,000 could be
excluded but anything beyond this amount would be considered
taxable. He stated that there is no prohibition on how much an
employer can charge an employee for the daycare (other than
market factors). He opined that charging above market prices
would not benefit employee retention.
3:10:48 PM
SENATOR DUNBAR asked - if the employer is free to continue
charging for the daycare while taking advantage of the tax - how
50 percent is the "right number". He surmised that the intention
is to tip the daycare into affordability and questioned why not
use 20 or 30 percent.
MR. WILLIAMS stated that this would be a policy call and added
that he does not know what would incentivize corporations to
provide this service.
3:11:56 PM
MR. LIMANI stated that childcare is a critical need across the
state, particularly since emerging from the Covid-19 pandemic.
Parents returning to the workforce are facing difficulty finding
affordable childcare and often choose to stay home, causing a
reduction in the workforce in some areas. He explained that 50
percent was chosen to incentivize corporations and provide
affordable childcare for employees.
3:13:01 PM
SENATOR DUNBAR stated that, while he understands this, over $200
million is a lot. He pointed out that the Governor vetoed $7.5
million out of Head Start, which functions as daycare for many
low-income families. SB 237 would benefit middle-class and upper
middle-class families. He acknowledged that childcare support is
needed and suggested that adjusting the fiscal note to $150
million would still tip childcare into affordability. The
remaining $50 million could be used to expand head start
programs. He opined that, without additional data, 50 percent
appears to be an arbitrary number. He requested additional data
utilizing different percentages and information from other
states that have implemented something similar.
3:14:20 PM
MR. LIMANI stated that from that perspective - and considering
the education component, where there are contributions - the
maximum contribution is not reached. He reiterated that the
intention of SB 237 is to make it worthwhile for corporations to
do offer these services. He stated that even at 50 percent, it
is not known whether businesses would entertain the necessary
infrastructure to consider this. He indicated that this may be
even more difficult to ascertain for energy and housing, which
are much more complex and costly than childcare.
3:15:38 PM
CHAIR BJORKMAN held SB 237 in committee.