Legislature(2011 - 2012)BARNES 124
03/11/2011 03:15 PM House LABOR & COMMERCE
| Audio | Topic |
|---|---|
| Start | |
| HB118 | |
| HB122 | |
| HB155 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 155 | TELECONFERENCED | |
| += | HB 122 | TELECONFERENCED | |
| += | HB 118 | TELECONFERENCED | |
| + | TELECONFERENCED |
HB 118-RESEARCH AND DEVELOPMENT TAX CREDIT
3:26:25 PM
CHAIR OLSON announced that the first order of business would be
HOUSE BILL NO. 118, "An Act relating to a tax credit for
corporate income taxes paid for qualified research and
development expenditures; and providing for an effective date."
3:27:00 PM
CURTIS THAYER, Deputy Commissioner, Department of Commerce,
Community & Economic Development (DCCED), stated that innovation
can be expensive and time consuming. It can also spark a chain
reaction of investments and capital that spills over into every
sector of our economy. Forty other states have recognized that
by establishing a tax credit for research and development in
addition to demonstrating economic benefits, gives them a
competitive advantage over Alaska. This bill, HB 118, would
address this issue by establishing a 20 percent tax credit for
qualified research and development conducted by corporate
taxpayers in Alaska. In effect, the research and development
tax credit would stimulate private sector investment,
entrepreneurial activity, and business expansion in Alaska. It
would bring opportunity and sustain long-term benefits to
Alaska's economy. This bill would allow Alaska corporations to
receive a 20 percent tax credit, not to exceed $10 million per
taxpayer, per tax year. The research and development activities
or the employee payroll must take place in Alaska. In a recent
column in the Juneau Empire, University of Alaska Fairbanks
Chancellor Brian Rogers recognized tangible benefits to
incentivize homegrown research and development. He paraphrased
Mr. Roger's comments that the Governor's proposal on research
and development tax credit has the potential to significantly
boost Alaska's economic development in Alaska. Chancellor
Rogers has long recognized the value of partnering the knowledge
and expertise of university researchers with the needs of
communities and private businesses across the state. The
University of Alaska has a robust research program that has led
to technology development in areas directly relating to the
needs of the state's economy including energy, engineering,
geophysics, petroleum, mining, health sciences, and agriculture.
Mr. Rogers explained how UAF's newly created office of
intellectual property and commercialization could augment these
efforts and facilitate new partnerships that will work to
commercialize intellectual property technology created by UAF's
efforts.
3:29:38 PM
MR. THAYER continued. The UAF's efforts will offer a strong
complement to the Governor's proposal. In most states a healthy
private research and development sector work in tandem with
university research. This has not been the case in Alaska since
very little research and development has occurred in Alaska.
The research and development tax credit could change this
dynamic. Independent research and development could create a
ripple effect that benefits more than just the businesses
involved. He referred to a 2005 Federal Reserve Bank of
Cleveland study which examined economic drivers for state per
capita income. The study indicated the greatest factors related
states' innovation and workforce development. A research and
development tax credit would incentivize innovation and
contribute to specialized work forces. In turn this would lead
to an entrepreneurial activity business expansion in the state
that would bring jobs and economic opportunity to Alaskans.
MR. THAYER related that the bill's details indentify the kind of
research which would qualify for the research and development
tax credits. He said it is more important to look at other
states to review how investing research and development has
enhanced their "business friendly" environment and helped them
maintain a competitive edge. He stated that Virginia has been
at the top of Forbes ten best states for business ranking since
it has recognized that promoting science and technology research
and development has had a positive effect on its economy. He
pointed out that North Caroline has also been honored by the
site selection committee in nine of the past 10 years. Over the
years, North Carolina has provided tax incentives to encourage
research and development and increase technology investments.
The state has remained consistent with its support of research
and development tax credits. He said that North Dakota was the
only state which showed growth through the recent recession and
has been high ranked in business climate polls. Research and
development tax credits are of the tools in its tool box. He
concluded that it is time to place Alaska on equal footing with
other states. This bill, HB 118, has the capacity to create job
opportunities for Alaskans, and spur growth for Alaska's
businesses. It's good for the economy. It's good for Alaska's
families and it needs to be part of Alaska's economic toolbox
when Alaska is trying to recruit businesses to Alaska.
3:31:57 PM
MR. THAYER referred to a PowerPoint presentation in members'
packets.
3:32:40 PM
REPRESENTATIVE SADDLER asked whether the oil and gas industry
sector would benefit or to identify which industry would most
benefit from the research and development tax credits.
MR. THAYER related that the bill was modeled after a federal
research and development program.
3:33:14 PM
JOHANNA BALES, Deputy Director, Tax Division, Anchorage Office,
Department of Revenue (DOR), answered that could this bill is
targeted for corporations. Oil and gas companies are
corporations and corporate income taxpayers. In some instances
the oil and gas corporations could receive oil and gas
production tax credits as well as a corporate income tax credits
for the same expenditures, but only in very limited
circumstances. She reiterated that the oil and gas credit on
the production tax side are very limited.
3:33:59 PM
REPRESENTATIVE SADDLER related his understanding that the oil
and gas corporation income tax credit and research and
development tax credits could overlap, but it is not likely or
would happen infrequently.
MS. BALES answered yes. She said that oil and gas would not be
allowed any exploration credit or the research and development
tax credits on exploration activities. However, another oil and
gas credit pertains to capital improvements which may allow for
depreciation on the capital improvements if the equipment being
depreciated is used for research and development. Thus, the
research and development tax credits could apply but only in
very limited circumstances.
REPRESENTATIVE SADDLER asked which industry sector would most
likely take advantage of the program.
MS. BALES related that the oil and gas corporations could avail
themselves of the program to offset their corporate income
taxes, but the governor's intent and focus is to bring in new
industries, such as the mid to larger size multi-state
corporations who could use the research and development tax
credits. She reported that 34 other states offer research and
development tax credits. The state hopes to bring in new
industry to Alaska and this is the first step to incentivize.
REPRESENTATIVE SADDLER pointed out that she identified the size
of the industry that may benefit from the program. He asked for
further clarification on the type of industry.
MS. BALES answered the program would likely target the
technology-based industries since that is the focus on the
federal side.
MS. BALES commented that one area the state has had some success
in the past is cold region research. She related that Alaska is
ideally situated and suited for this type of research.
3:36:31 PM
REPRESENTATIVE MILLER asked whether a single company would
qualify for four or six tax credits for the same work.
MR. THAYER answered no. This bill would apply to new research
and development and would reach beyond what has been budgeted.
He pointed out HB 118 contains a "look back" provision for three
years on the records to identify new research and development
for a company.
REPRESENTATIVE MILLER related his understanding that there would
not be any possibility for tax credit or rebate to develop an
existing oil field. In the meantime the oil corporation would
be conducting research to remove heavier oil. He asked whether
both credits would apply.
MS. BALES referred to page 2, line 8 of HB 118. This provision
provides that a person may not claim a credit under this section
for qualified research and development expenditures which were
either deducted in the calculation of tax liability or utilized
for any other credits. Thus, if the corporation was allowed
another corporation income tax, noting that credit is for
corporate income tax, the tax credit could not be utilized
anywhere else. The expenditures are not allowed to also be
deducted and used in the calculation of any other credit against
corporate income tax, she said.
3:38:53 PM
REPRESENTATIVE SADDLER asked for an estimate of how well this
investment tax credit has worked federally.
MR. THAYER responded that the federal research and development
tax credits have been in place for over 20 years. The federal
program keeps getting extended. He reported that a bill is
currently pending. He pointed to other states, such as North
Carolina, have successfully used this to bring in Caterpiller,
Inc. which provided 1,250 new jobs in North Carolina. He
suggested that the state should also review Virginia's aerospace
industry since Alaska is trying to expand its Kodiak Launch
facility and Ft. Greeley with respect to potential missile
defense.
3:39:58 PM
REPRESENTATIVE THOMPSON moved Amendment 1 labeled 27-GH1951\A.1,
Bullock, 2/17/11, which read as follows:
Page 2, line 12:
Following "year,":
Insert "if three or more taxpayers claim the
credit authorized under this section during the
immediately preceding year,"
Delete "names"
Insert "number"
Page 2, lines 16 - 25:
Delete "Notwithstanding AS 40.25.100 and
AS 43.05.230, a taxpayer claiming the credit under
this section consents to
(1) the public disclosure of its name and
status as a beneficiary of the credit;
(2) inclusion of the amount of the credits
granted to it under this section and the number of
employees conducting the research and development for
which it claims the credit in the cumulative total
calculated by the department for reporting purposes;
and
(3) report on the impact of the credit on
research and development for each year that the credit
is claimed."
CHAIR OLSON objected.
3:40:27 PM
MR. THAYER explained the purpose of Amendment 1 is to protect
confidentiality of the taxpayer. In response to Chair Olson, he
related that the amendment was necessary due to a drafting
error, which was discovered by the Department of Revenue (DOR).
CHAIR OLSON removed his objection. There being no objection,
Amendment 1 was adopted.
3:42:36 PM
BILL POPP, President; Chief Executive Officer, Anchorage
Economic Development Corporation (AEDC), stated that Alaska is
in significant competition with other communities and other
states. He pointed out that the AEDC competes daily with over
4,000 economic development organizations. In the "world of
incentives" a targeted incentive can be powerful to attract
homegrown investments. He explained the AEDC has worked on
research and development projects for industries, including the
cool supply chain, automotive, renewable energy, military
technical, aviation, life science, biotech, and medical
industries. This type of tax credit can be beneficial for
projects often caught in the "valley of death" or in the early
start-up phases in which companies attempt to go beyond the
initial concept phase and move to the prototype phase. Another
important part of the research and development tax credit is
that the credits can help attract research and development
venture capital. This is a very difficult proposition in Alaska
and the tax credit can not only leverage the money the credit
will be applied against, but could generate additional funds
which go beyond that by reducing the risk for the venture
capitalists to become involved in the research and development
startup. He urged support for HB 118.
3:45:05 PM
DAN WHITE, Associate Vice Chancellor of Research, University of
Alaska Fairbanks (UAF), stated that he has been charged to lead
the Office of Intellectual Property and Commercialization at the
University of Alaska Fairbanks. The UAF's goal is to move
technology from the university to the private sector. Applied
research and development used in the private sector gives
businesses a competitive advantage in the global market. The
critical link in economic development is enhanced when
businesses can invest in the research and development itself.
This bill would allow the state to provide a significant
incentive to businesses to take advantage of emerging
opportunities. This bill would contribute to the university's
mission to conduct research and development as well as to help
move research and development forward in the private sector for
long-term economic development. He offered his belief that this
would be particularly true if this bill results in businesses
and industry funded research at the UAF since this could bridge
the two and lead to economic diversification for the state.
ALLAN JOHNSTON, Vice President, Wedbush Morgan Securities,
stated that he is a very strong supporter of the tax credit. He
offered his belief that the tax credits will not be the solution
but represents another tool. Currently, the biggest hurdle in
Alaska is how to build a culture of empowerment. This bill
represents an investment for tomorrow. He said it seems like
just yesterday when Ken Thompson who was President of ARCO
Alaska, Inc. ran television advertisements depicting a female
engineer with a tubular water separator. She indicated that the
technology saved the industry over $100 million dollars. He
described the pride that comes from changing things within the
community instead of waiting for things to happen. Currently,
Alaska seems to be waiting for things to happen. He highlighted
the collective importance of research and development tax
credits to help empower people to make changes. He
characterized this bill as a good start. He stated that he will
also work to support other tools like the ones this bill offers,
as well.
3:48:55 PM
CHAIR OLSON, after first determining no one else wished to
testify, closed public testimony on HB 118.
REPRESENTATIVE JOHNSON remarked that it is about time. Alaska
has been lacking in research and development. He offered his
belief that Alaska has lost intellectual property due to a lack
of opportunities for research. He reiterated that it is about
time.
REPRESENTATIVE JOHNSON moved to report HB 118, as amended, out
of committee with individual recommendations and the
accompanying fiscal notes. There being no objection, the CSHB
118(L&C) was reported from the House Labor and Commerce Standing
Committee.