Legislature(1997 - 1998)
02/04/1998 03:28 PM House L&C
| Audio | Topic |
|---|
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 187 - SMALL BUSINESS DEVELOPMENT TAX CREDIT Number 0243 CHAIRMAN ROKEBERG announced the next order of business was HB 187, "An Act relating to a small business development tax credit under the Alaska Net Income Tax Act; and providing for an effective date." Number 0257 JEFF BUSH, Deputy Commissioner, Department of Commerce and Economic Development (DCED), came forward to testify. He cited DCED figures indicating 96 percent of Alaska businesses have 50 employees or less, the normal definition of a small business, and he stated 70 percent of Alaskans are employed by businesses that fall under this definition. Number 0286 MR. BUSH stated HB 187 is part of the Governor's proposal for Alaska business investment incentives, offering tax credits for capital, improving and expanding investments to small businesses. He stated it would apply to non-affiliated businesses with 50 employees or less, noting subsidiaries of larger businesses would be ineligible. The credit would amount to 10 percent of a business's investment on an annual basis, up to $100,000; therefore, the total maximum credit for any one business would be $10,000 in a year. Mr. Bush stated the other maximum would be 50 percent of business's total tax liability. Mr. Bush noted the bill has a fiscal note which shows approximately $2 million in fiscal impact. The committee needs to know, he said, that amount was calculated by Department of Revenue to be the financial impact to the state if every business qualifying for this investment credit took the maximum credit available through investment. Number 0355 CHAIRMAN ROKEBERG asked if Mr. Bush, as a member of the Administration, was taking exception to a fiscal note prepared by the Administration. Number 0360 MR. BUSH said he did not think he was taking exception, noting it was a very conservative fiscal note. Mr. Bush said the proposal was designed to help small businesses. He commented that a representative of the Department of Revenue was present to answer technical questions. Number 0402 REPRESENTATIVE COWDERY asked if HB 187's fiscal impact had been included in the Governor's current budget. Number 0415 MR. BUSH replied he thought the impact was probably not part of the budget calculation since the impact was attached to the fiscal note. Number 0429 REPRESENTATIVE COWDERY asked where the money would come from to make up the budget loss from this proposed tax credit. Number 0442 MR. BUSH stated there would be a reduction in overall general fund state revenues as a result of this bill. Mr. Bush said he could make what he thought was a legitimate argument: There is the hope there would be expanded business opportunities and expanded business investment through this tax credit, and in the long run there would be an increase in business activity and, therefore, an increase in tax revenue. However, he said, any tax credit program is a reduction in state revenues. Mr. Bush stated he thought the fiscal impact would be incorporated into the state budget if the bill passed. Number 0438 REPRESENTATIVE COWDERY stated the reason for his line of questioning was caution about bills with attached fiscal notes, in view of oil prices, et cetera. Number 0490 CHAIRMAN ROKEBERG noted Mr. Bush's testimony sounded like a particular theory of economics which holds, by decreasing taxes, economic activity increases and future gross tax revenues are enhanced. Chairman Rokeberg said it sounded almost like a Laffer curve or supply side economic theory. Number 0523 MR. BUSH commented he was not subscribing to that theory. He stated the only way this credit could apply was if a business increased investment, developing additional infrastructure and capital. He said the credit also involved a three year time frame. At the end of the three years, presumably, a business would have a greater infrastructure, more employees and a greater income, and hopefully after that, resulting greater tax revenues might be seen for the state. Mr. Bush said he does not think necessarily the tax credit directly caused the increased business activity, as the economic theory Chairman Rokeberg raised suggested. Number 0577 REPRESENTATIVE RYAN asked if the DCED had figures for the number of businesses or corporations in Alaska with 50 or fewer employees. Number 0585 MR. BUSH responded that 2,461 businesses with 50 or fewer employees pay corporate income tax, according to DCED figures. Number 0598 REPRESENTATIVE RYAN stated that was assuming over $100,000 gross income (indisc.). Number 0605 MR. BUSH responded in the negative. There are 59 corporations that pay over $20,000 in taxes and qualify as small businesses that would be able to take the maximum credit of $10,000, or 50 percent of their tax liability. He noted half of the 2,461 small businesses only pay between $1 and $100 in taxes. Number 0646 REPRESENTATIVE RYAN noted the liberalization of the limited liability company (LLC) law the previous year and asked if LLCs would qualify for the tax credit. Number 0657 MR. BUSH said he was not sure if LLCs paid corporate income tax, thus qualifying for the credit, and he directed the question to Mr. Bartholomew of the Department of Revenue (DOR). Number 0667 BOB BARTHOLOMEW, Deputy Director, Income and Excise Audit Division, Department of Revenue, came forward to testify. Mr. Bartholomew stated there are about 12,000 corporations in the state; 5,000 of these qualify as LLCs and subchapter S corporations, are not subject to the tax laws, and would not be eligible for the program. Number 0693 REPRESENTATIVE RYAN asked if a corporation not chartered in Alaska could qualify for the program. Number 0702 MR. BARTHOLOMEW responded it would be any corporation which pays Alaska corporate income tax that has the investment made in Alaska. He said he thought the bill required the investment to be made in Alaska. Mr. Bartholomew indicate a foreign corporation could qualify. Number 0717 REPRESENTATIVE TOM BRICE asked about the retroactive to 1997 effective date, questioning if that would be changed to 1998. MR. BUSH responded he had an amendment prepared which moved everything one year - the effective dates, the carry-forwards. Number 733 REPRESENTATIVE BRICE added in question, "And the repealer?" Number 0741 CHAIRMAN ROKEBERG asked Mr. Bartholomew for a gross number of corporations paying taxes in the state compared to the number fitting the small business definition. Chairman Rokeberg also requested the amount of the state's gross corporate tax receipts, excluding the petroleum companies. Number 0783 MR. BARTHOLOMEW stated the DOR has a prepared chart he could provide to the committee which shows the level of taxes paid by corporations. He noted page 3 of the fiscal note shows, matching the DOR's data with the Department of Labor's, the corporations with less than 50 employees. Number 0840 CHAIRMAN ROKEBERG referred to HB 232 in the 19th Legislature which was very similar in construction. He said the bill was referred to the House Finance Standing Committee and did not proceed further. Chairman Rokeberg asked for some history of that bill. Number 0863 MR. BARTHOLOMEW stated he was sure the DOR had been involved in the bill as far as fiscal notes, but he said he would have to research the files. Number 0870 CHAIRMAN ROKEBERG noted he would be interested in knowing whether the Administration had supported that bill. He added, to Mr. Bush, that the current bill sounded like a modest type of investment tax credit (ITC), noting ITCs used to be "in vogue" in the federal tax code. He asked Mr. Bush if the DCED had done any studies regarding the actions of other states to determine the actual economic effect of such a measure, and if there was any basis or rationale to know whether this bill would have its intended effect. Number 0940 MR. BUSH replied in the negative, stating the bill was modeled after the old federal investment tax credit system. Number 0958 MR. BARTHOLOMEW commented that he did not think, in the discussion which led to this bill's proposal, there had been such a macroeconomic analysis. He said he thought it was based on the flat to 1 percent growth rate in Alaska two years ago and the perception small business did not seem to be receiving the benefits larger companies may have received through lobbying efforts. The idea, he indicated, was that if a small business was willing to make a capital investment, the state would be willing to participate by giving a tax break. Number 1021 REPRESENTATIVE RYAN commented on the high cost of plane fares to Juneau for small businesses, and mentioned the general theory that if citizens are allowed to keep a little bit more money, they can do things to advance their livelihood. He called this advancement, capital investment. REPRESENTATIVE BRICE made a motion to adopt Amendment 1. Amendment 1 read: Page 2, line 8: Delete "1996" Insert "1997" Delete "2000" Insert "2001" Page 4, line 5: Delete "1997" Insert "1998" Page 4, line 7: Delete "2002" Insert "2003" Number 1066 CHAIRMAN ROKEBERG asked it there were any objections to Amendment 1. Hearing none, he stated Amendment 1 had been adopted. Number 1086 CHAIRMAN ROKEBERG closed the public hearing on HB 187, noting the presence in the bill packet of a questionnaire from the Alaska chapter of the National Federation of Independent Business (NFIB). Chairman Rokeberg asked if there was any further discussion of HB 187. Number 1142 REPRESENTATIVE KUBINA made a motion to move CSHB 187 with individual recommendations and accompanying fiscal note. Number 1149 CHAIRMAN ROKEBERG asked if there were any objections. Hearing none, he stated CSHB 187(L&C) was so moved.
| Document Name | Date/Time | Subjects |
|---|