Legislature(2009 - 2010)CAPITOL 106
03/19/2010 08:00 AM House EDUCATION
| Audio | Topic |
|---|---|
| Start | |
| HB367 | |
| HB206 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| += | HB 367 | TELECONFERENCED | |
| += | HB 206 | TELECONFERENCED | |
HB 367-TAX CREDITS FOR EDUCATIONAL CONTRIBUTIONS
8:06:18 AM
CHAIR SEATON announced that the first order of business would be
HOUSE BILL NO. 367 "An Act relating to tax credits for cash
contributions by taxpayers that are accepted for certain
educational purposes and facilities; and providing for an
effective date." [Before the committee was HB 367, Version E]
8:07:36 AM
KENDRA KLOSTER, Staff, Representative Cathy Munoz, Alaska State
Legislature, referred to the responses provided to the
committee, in a letter of March 16, 2010 from Johanna Bales, Tax
Division, Department of Revenue, and explained the information.
She referred to Attachments 1-6, which answer questions raised
during the last committee meeting on Version E. She explained
that Attachment 1 compares the benefit of an income tax
deduction to a "credit for contribution of $50,000,000 to a
university." Attachment 1 illustrates the differences between
the deduction and credit, and demonstrates that the value of the
credit is much larger.
8:09:18 AM
CHAIR SEATON noted that HB 367 indicates how a credit or
deduction would work. He asked whether it shows how the
additional expense would affect corporations since the
corporation would need to contribute 50 percent from its
corporate profits.
8:10:30 AM
MS. KLOSTER stated that the scenario on Attachment 1 picked the
maximum of $50 million, which represented a tax credit in the
amount of $25 million. She explained that either a deduction or
credit could be taken. She referred to Attachment 2, to
assumptions that compare the order of credits. Two different
types of credits were used, the Income Tax Education Credit or
the Film Production Tax Credit (FPTC). The difference is that
the Income Tax Education Credit (ITEC) would not have a tax
carry over, unlike other tax credits such as the Film Production
Tax Credit. She explained the carry-over procedure indicated on
the handout. Comparing Attachments 2 and 3, Attachment 2 shows
that the ITEC was fully used and results in tax credits
available for future use that carry over to the next year. The
amount is greater than if the ITEC was not used first.
8:11:57 AM
MS. KLOSTER referred to Attachment 4 showing the credits for FY
07, FY 08, and FY 09, which provides information requested by
the committee. Attachment 5 shows a breakdown by the type of
tax for FY 07, FY 08, and FY 09. She related that the last page
provides suggestions from the Department of Revenue (DOR).
8:12:46 AM
REPRESENTATIVE GARDNER referred to Attachment 5. She said, "The
note underneath says that the amounts do not include
contributions that would have enjoyed the tax credit but the
taxpayer did not claim the credit and instead claimed a
deduction." She asked for the circumstances in which a taxpayer
has the choice between taking a tax credit or a deduction.
MS. KLOSTER offered her belief that the taxpayer would have the
choice.
CHAIR SEATON asked whether the reason is because the tax credit
is limited to $200,000 and the deduction is unlimited.
8:14:29 AM
CHAIR SEATON opened public testimony on HB 367.
8:14:46 AM
DENNIS STEFFY, Director, Mining and Petroleum Training Services
(MAPTS), University of Alaska (UA), stated that his division has
benefited several times from the existing statute. He commented
that the division has been discussing more ambitious joint
projects. He stated that the limit on the amount of deductions
or credits has not been attractive. He offered his belief that
raising the limit would be beneficial. He recalled that up
until the 1980s donations from vendors has funded the Vocational
Education Department. Technology is not something companies can
donate, but "serious cash money" must be spent in order for
students to become competitive. He urged passage of HB 367.
8:16:27 AM
CHAIR SEATON asked him to identify the program.
MR. STEFFY related that he is the director of the University's
Mining and Petroleum Training Service, which has statewide
branches wherever industry is operating. He stated that he is
in Southeast Alaska for attrition work at Greens Creek Mine and
to provide training for the startup of the Kensington Mine, he
stated. His division works cooperatively with industry on
projects that could not be funded any other way.
8:17:07 AM
REPRESENTATIVE BUCH disclosed that he has previously worked with
Mr. Steffy on international partnerships on oil and gas.
8:17:58 AM
CHAIR SEATON asked whether he has been working on petroleum
processes.
MR. STEFFY answered yes, the first class was taught in 1999. He
said he is not active in the program.
8:18:26 AM
REPRESENTATIVE MUNOZ asked about the infrastructure needs for
the program he directs.
MR. STEFFY explained the importance of training people to work
in the states petroleum and mining industry. He offered that a
tremendous number of high paying jobs are available. He
expressed frustration with non-Alaskans in these jobs.
Currently, the division has been in Juneau training students for
the Kensington, Greens Creek, Niblack, and Pogo mines using a
portion of the AJ Mine. The biggest need is to obtain high
technology mining machinery simulators. He emphasized that he
must have a more economical way of preparing people for jobs,
using portable simulators. He stated that if Alaska expands its
offshore oil production, that the division will "step up" its
health and safety programs including cold water survival. He
has been discussing a partnership to develop a cold water
survival facility in the Kenai or Soldotna area. He anticipated
the facility would cost about $11 million. He offered his
belief that the bill under consideration would make doing
business in Alaska more attractive to companies.
8:21:01 AM
CHAIR SEATON closed public testimony on HB 367.
8:21:10 AM
CHAIR SEATON asked for any comments from the tax division,
particularly on Attachment 1. He read, "The purpose is to
compare the benefit of a deduction or credit of $50 million."
The credit column indicates another $25 million from corporate
funds to the University of Alaska.
ROBYNN WILSON, Income Audit Manager, Tax Division, Department of
Revenue, explained that this compares the benefit of a deduction
to a credit. She compared it to federal taxes to illustrate her
point. She explained that with respect to federal tax
obligations, benefits exist in paying mortgage interest and
subsequently deducting the interest along with other deductions,
such as a child care tax since the deductions directly reduce
the overall tax obligation. She referred to Attachment 1 in
members' packets. Under the current statute, assuming a
contribution of $50 million, the taxpayer has a choice of a
deduction or a credit, but not both. This principle of not
taking both a deduction and a credit for the same contribution
is in current statute. The previous example in the graph, in
the second column, demonstrates the effect when the taxpayer
elected to use a credit. The outcome is that the $25 million
deduction represents 50 percent of the actual contribution.
8:23:57 AM
CHAIR SEATON asked if he understood correctly, that Attachment 2
is a comparison of Attachment 3.
MS. WILSON agreed. She stated the current statute for higher
education tax credit does not indicate how credits should be
"ordered." She stated that some tax credits have a carryover
and some do not. The reason that is important is apparent when
calculating the tax obligation. When the taxpayer having a
choice of tax credits, it would be helpful to place in statute
that the education tax credit has priority. If the other tax
credit has priority, the taxpayer could lose the benefit of the
education tax credit. She said she wanted to bring this to the
committee's attention. At the last hearing, she brought up
"ordering" and thought it would be helpful for the committee to
have an example to illustrate the different scenarios. This is
true of any two credits that have different carryover number of
years. She said she selected three tax credits for comparison,
including the Education Tax Credit. She pointed out that the
Alaska Oil and Gas Exploration and Development Credit already
requires being applied first. She selected the Film Production
Tax Credit (FPTC) as an example of another tax credit with
carryover capabilities.
8:26:49 AM
CHAIR SEATON questioned the need to mandate that taxpayers be
directed in a particular direction since it appears that complex
taxpayers would be receiving these credits. He asked whether
the state should mandate the structure for tax credits.
MS. WILSON suggested that the committee consider placing the
structure in statute. She directed attention to Attachment 6,
and explained the suggestions could be used as an amendment to
clarify the priority.
CHAIR SEATON asked for clarification.
MS. WILSON explained that defining "tax due under this chapter"
would apply the education tax credit as the next priority. She
further explained that with the current level of the education
tax credit, that it is not such an issue, but certainly if the
education tax credit is bumped up the quite a bit the issue
becomes more apparent.
8:29:18 AM
REPRESENTATIVE KELLER recalled "a soft recommendation" for this
change. He asked whether the beneficiary of this change would
be education, in general. He asked for clarification from the
taxpayer's perspective.
MS. WILSON answered that it would depend on the circumstances,
whether the taxpayer intended to make an education contribution
or considered other credits since each taxpayer has different
circumstance that will need to be considered. She offered her
belief that having clear legislative intent would be helpful.
8:30:17 AM
CHAIR SEATON envisioned the suggested change would provide an
incentive to use the credit
MS. WILSON characterized it as a "taxpayer friendly" amendment
and would provide clarity regarding the administration of the
tax.
8:31:35 AM
MS. WILSON, in response to Representative Gardner, highlighted
that the education tax credit was initially drafted to apply to
all the taxes and the insurance provisions are first in the
statutes, under Title 21.
8:32:10 AM
REPRESENTATIVE EDGMON referred to Attachment 1 to an assumption,
with read, "--company does all of its business in Alaska" and
asked if that represented a side note or is a requirement.
MS. WILSON answered that it is not a requirement, but represents
an assumption for this example. She said she also considered
providing an example in which a taxpayer conducts business in
multiple jurisdictions, which seemed complicated. She explained
that Alaska taxes a piece of its income so the benefit of a
deduction is lower. The point of Attachment 1 is to highlight
that the benefit of a credit is more valuable than the benefit
of a deduction.
8:33:31 AM
REPRESENTATIVE EDGMON referred to Attachment 4, titled "Alaska
Education Tax Credit Credits Claimed" and asked the reason the
Fishery Resource Landing Tax dramatically decreased from FY 08
to FY 09.
MS. WILSON said she did not know.
8:33:56 AM
REPRESENTATIVE KELLER turned to Attachment 6, and asked whether
currently the taxpayer has the choice to prioritize the
education tax credit or another credit. He asked whether
ambiguity in the statute is the reason for the suggested
language change.
MS. WILSON agreed there is ambiguity in the law. This is a
policy call for the committee to decide. The examples provided
in Attachments 2 and 3 should help with the decision.
8:35:18 AM
CHAIR SEATON, with respect to applying tax credits, asked if any
issues arise for a "complex" taxpayer applying for multiple
credits as to the prioritization of the tax credits.
MS. WILSON offered the statute changes would help make the tax
credit application process clear. Currently, as the statutes
are amended to allow for additional tax credits, it becomes
problematic for the department.
8:36:26 AM
REPRESENTATIVE GARDNER asked for the distinction between
deductions and credits in the bill. She further asked whether
federal charitable contributions are deductions or credits.
MS. WILSON referred to page 5, line 23-28 to AS 43.20.014(d),
which read, "also be allowed as a deduction under 26 U.S.C.170
against the tax imposed by this chapter; and[.]" She
interpreted that to mean that Alaska bases its taxes on
corporations starting with federal taxable income. Thus, the
federal return, with some modifications is used to calculate the
Alaska tax. She highlighted that 26 U.S.C.170 references the
provision of the Internal Revenue Code that allows the
charitable contribution. The section outlines that if a
taxpayer claims a credit, a deduction cannot also be claimed.
REPRESENTATIVE GARDNER asked whether charitable donations earn a
credit or a deduction under federal law.
MS. WILSON stated that under the federal code, charitable
donations have a tax deduction benefit, similar to a personal
tax return.
8:39:08 AM
REPRESENTATIVE BUCH asked whether this is the first time that
priorities have been aligned in Alaska.
MS. WILSON cited AS 43.20.043, the Tax Development and
Exploration Credit, which creates a prioritized credit that
specifies the tax credit will be applied first. She remarked
that the Congress has been specific about which credits are
applied first for federal tax credits.
8:40:18 AM
CHAIR SEATON referred to Attachment 6 and asked Ms. Wilson to
explain the next DOR suggested edit to HB 367.
8:40:28 AM
MS. WILSON explained that the current statute indicates that a
taxpayer cannot claim more than $150,000 for the education tax
credit. She provided a scenario in which a taxpayer was subject
to the corporate income tax and the fisheries business tax. The
statute says the taxpayer cannot claim more than a $150,000
credit, but could apply the credit "wherever the taxpayer sees
fit" between the corporate tax, fish tax, or some combination of
taxes. However, the definition of taxpayer is fundamentally the
problem. She described another scenario in which a big oil
corporate company performs work in Alaska. The department would
expect to have subsidiaries, such as pipeline, exploration and
production, and marketing companies. Those corporations
commonly file one tax return.
MS. Wilson related that when the education tax credit was
initially enacted, the minutes show the intent was to give a
single $150,000 credit to the oil company. However, since the
definition refers to the individual corporation, it is not clear
whether the corporation is entitled to receive one credit or
three $150,000 credits. Additionally, using that scenario, it
is possible that two would file a consolidated tax return and
one would file separately and the question of the amount of tax
credit is also unclear. This ambiguity also exists in the
fisheries business tax area. She suggested that if the
legislative intent is to offer one $150,000 credit, the statute
should be amended to clarify the intent. She referred again to
Attachment 6 to the suggested language change, which defines
"affiliated group" so the tax credit would apply to the group.
She further explained that it could be expanded to all tax types
and to related tax groups.
8:44:36 AM
CHAIR SEATON referred to page 5, line 19 of Version E, to AS
43.20.014(d) which read
(d) A contribution claimed as a credit under this
section may not
(1) be the basis for a credit claimed [AS A
CREDIT] under another provision of this title;
(2) also be allowed as a deduction under 26
U.S.C. 170 against the tax imposed by this chapter;
and
(3) when combined with contributions that
are the basis for credits..."
CHAIR SEATON asked if any distinction exists and whether this
refers to existing language.
MS. WILSON responded that she used existing statute and did not
consider the specific language in HB 367. She referred to the
language in paragraph (3), "...contributions that are the basis
for..." and related her understanding this will not change the
meaning but does provide a clear statement of what is already in
statute. She drew attention to the language in the Attachment
6, which read, "If the taxpayer is a member of an affiliated
group, then the credit may not exceed $150,000 for the
affiliated group." She explained that clearly limits the credit
to a single tax credit of $150,000 and if the credit is
increased, that figure would be replaced with the new credit.
8:46:31 AM
CHAIR SEATON asked whether the DOR has any issue with the
language previously mentioned in paragraph (3) of Version E.
MS. WILSON agreed. She pointed out that Attachment 6 would add
a definition for "affiliated group." She explained that
definition is in statute at AS 43.20.073 would be duplicated in
this bill.
8:47:31 AM
MS. WILSON, in response to Representative Munoz, referred to
Attachment 6, and statutes that should be comformed, as well.
CHAIR SEATON advised that the matter could be handled as a
conceptual amendment that would make the changes uniformly
throughout the bill.
8:48:44 AM
REPRESENTATIVE KELLER made a motion to adopt Conceptual
Amendment 1, which read:
On page 5, line 26:
If the taxpayer is a member of an affiliate group the
credit made not exceed $25 million for the affiliated
group.
AS 43.20.014(e)(3) "affiliated group" means a group of
two or more corporations in which 50 percent or more
of the voting stock of each member of the group is
directly or indirectly owned by one or more corporate
or noncorporate common owners, or by one or more of
the members of the group.
Similar language to be added to other provisions of
the other taxes to which the credit would apply [AS
21.89.070, 21.89.074, AS 43.55.019, AS 43.56.018, AS
43.65.018, AS 43.75.018 and AS 43.77.045].
8:50:22 AM
REPRESENTATIVE KELLER clarified his Conceptual Amendment 1 would
include language to paragraph (3), as follows:
Following "with"
Insert: "when combined with contributions that are the
basis for credits taken during the taxpayer's tax year
under AS 21.89.070, 21.89.075, AS 43.55.019, AS 43.56.018,
AS 43.65.018, AS 43.75.018, or AS 43.77.045..."
CHAIR SEATON that specific language is currently in Version E.
There being no objection, Conceptual Amendment 1 was adopted.
8:51:12 AM
CHAIR SEATON added that the language for Conceptual Amendment 1
is taken from Attachment 6, adding the affiliate group
definition to all taxes.
8:51:56 AM
CHAIR SEATON stated there is also a recommendation by the DOR to
consider edits to prioritize Education Credit before other tax
credits.
CHAIR SEATON made a motion to adopt Conceptual Amendment 2, to
add a paragraph as follows:
AS 43.20.014(e)(2) "tax due under this chapter" means the
tax liability after application of the credit under AS
43.20.043 and before application of any other credits
allowable under this chapter.
REPRESENTATIVE KELLER objected. He said there does not appear
to be enough information to support adding the language in
Conceptual Amendment 2.
8:53:17 AM
CHAIR SEATON suggested that he initially had that trepidation.
However, future revenue officers and commissioners could change
the usefulness of the tax credit by interpreting this in an
ambiguous manner. He suggested that Conceptual Amendment would
provide necessary clarity.
REPRESENTATIVE KELLER offered that is possible. However, he
offered his belief that it may be important to allow the
industry to decide how to apply the tax credits. He suggested
that if the industry would like to "go a step further" that this
bill has another committee of referral and the issue could be
handled in that committee.
REPRESENTATIVE EDGMON echoed the previous comments. He stated
that on the surface the bill seems simple, but the details of HB
367 have far reaching implications. He suggested that it may be
important to have more discussions to delve into the impacts of
HB 367.
8:55:58 AM
CHAIR SEATON asked about the possible consequences of adopting
Conceptual Amendment 2.
MS. WILSON advised that Conceptual Amendment 2 would give the
DOR clear guidance in preparing regulations and tax return form.
It would maximize the credit usage for the education credit.
She stated that "clearing up the ambiguity would be the biggest
benefit." She was not aware of any downside.
CHAIR SEATON related that if Conceptual Amendment 2 was adopted,
and taxpayers had concerns, the language could be removed from
the bill. He expressed concern that if the DOR would like more
direction and guidance to "write" regulations with any downside
to the industry, that his preference is to adopt Conceptual
Amendment 2.
REPRESENTATIVE KELLER maintained his objection. He opined the
statute could be made ambiguous in another way.
8:59:27 AM
CHAIR SEATON restated Conceptual Amendment 2, as follows:
AS 43.20.014(e)(2) "tax due under this chapter" means the
tax liability after application of the credit under AS
43.20.043 and before application of any other credits
allowable under this chapter.
CHAIR SEATON asked whether that language also needs to apply to
other sections of the bill.
MS. WILSON answered yes.
CHAIR SEATON related Conceptual Amendment 2 is a conceptual
amendment.
9:00:03 AM
A roll call vote was taken. Representatives Buch, Munoz,
Edgmon, and Seaton voted in favor of Conceptual Amendment 2.
Representatives Keller and Gardner voted against it. Therefore,
Conceptual Amendment 2 was adopted by a vote of 4-2.
[The clerk reported the tally as 4-2.]
CHAIR SEATON asked for a count. He asked to void the tally.
REPRESENTATIVE GARDNER indicated her vote was a "Yea" vote. He
stated that the vote would be retaken.
9:00:10 AM
REPRESENTATIVE KELLER stated in lieu of time he would like to
remove his objection.
CHAIR SEATON announced that Conceptual Amendment 2 was adopted.
9:02:47 AM
REPRESENTATIVE EDGMON related that he is still "catching up" and
has some questions. He said he supports the concept, but has
concern over the fiscal impact. He said he does not feel he has
a full understanding of the fiscal impact at this point.
CHAIR SEATON reported that the fiscal note is an indeterminate
fiscal note.
REPRESENTATIVE BUCH agreed with Representative Edgmon. He said
he would like more time to have confidence we are moving in the
right direction. He stated that he would like another hearing
on the bill.
CHAIR SEATON stated several members would like another hearing.
[HB 367 was held over.]
9:06:06 AM
HB 367-TAX CREDITS FOR EDUCATIONAL CONTRIBUTIONS
CHAIR SEATON announced that the committee would take up HB 367.
REPRESENTATIVE MUNOZ made a motion to offer a Conceptual
Amendment 3 to lower the tax credit from $25 million to $5
million.
CHAIR SEATON referred to page 3, line 25, and stated the
Conceptual Amendment 3 would lower the tax credit from $25
million to $5 million.
REPRESENTATIVE BUCH objected for purpose of discussion.
REPRESENTATIVE BUCH offered to assist. He removed his
objection. There being no objection, Conceptual Amendment 3 was
adopted.
[HB 367 was held over.]
10:03:18 AM
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 367 Workdraft version E.pdf |
HEDC 3/12/2010 8:00:00 AM HEDC 3/19/2010 8:00:00 AM |
HB 367 |