Legislature(2023 - 2024)SENATE FINANCE 532
05/03/2023 01:30 PM Senate FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| SB94 | |
| SB122 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | SB 94 | TELECONFERENCED | |
| += | SB 122 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | SB 53 | TELECONFERENCED | |
SENATE BILL NO. 122
"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."
2:31:16 PM
Co-Chair Olson relayed that the committee had heard SB 122
on April 17, at which time the committee had taken public
testimony. The committee had worked with the sponsor and
the Department of Revenue (DOR) and had a Committee
Substitute (CS) to consider.
2:31:37 PM
SENATOR BILL WIELECHOWSKI, SPONSOR, relayed that he was in
support of the changes in the CS.
Senator Kiehl MOVED to ADOPT proposed committee substitute
for SB 122, Work Draft 33-LS0663\H (Nauman, 5/2/23).
Co-Chair Olson OBJECTED for discussion.
2:32:21 PM
KEN ALPER, STAFF, SENATOR DONNY OLSON, explained that the
CS had taken a portion of SB 14, an oil and gas tax bill
that was heard earlier in the week, and put it within SB
122. The portion put into SB 122 was related to non-
corporations and the requirement to pay something
comparable to corporate income tax for all oil and gas
business entities. The section was put within SB 122, which
was also a corporate income tax bill and related to
internet businesses. He noted that the rest of the changes
proposed in the CS conformed to the larger change and made
some technical corrections that had been brought to light
by DOR.
Mr. Alper noted that the first 20 pages of the bill were
amendments to the multi-state tax compact and were the same
as the original version of the bill. The content had to do
with the market-based sourcing provisions, which made sure
that the location of the sale in Alaska was what was used
for the purpose of the sales factor of a corporate portion.
Mr. Alper addressed a Summary of Changes document (copy on
file):
1) Adds Section 2, new AS 43.20.019, which establishes
a 9.4% tax on income over $4 million per year on "oil
and gas entities" other than corporations.
2) Adds Section 3, amending AS 43.20.030(a), the
filing requirement in the current corporate income
tax, to add other oil and gas entities.
3) Adds Section 4, amending AS 43.20.031(i),
describing the accounting method used for companies
with activity both inside and outside the state, to
add other oil and gas entities.
4) Adds Section 9, amending AS 43.20.144(h)(2), to add
other oil and gas entities to the definition of a
"consolidated business."
Mr. Alper noted that he had inadvertently omitted a
description of new language added to Section 11(e) on page
25, line 9. The so-called single-factor apportionment,
which was a core portion of the original bill, stated that
highly digitized entities would use a sales factor rather
than the payroll or property factor. It had been clarified
that the section would not apply to a public utility or
telecommunications company. The companies would continue to
use the three-factor apportionment in current law. He noted
that he would make an amended version of the document for
public record.
2:35:53 PM
Mr. Alper continued to address the Summary of Changes
document:
5) Adds Section 12, amending AS 43.20.340 to add two
new definitions for "entity" and "oil and gas entity."
6) Adds a new subsection to Section 13, an uncodified
applicability section, to confirm that the new tax
sections apply to an oil and gas entity with taxable
income over $4 million from a source in the state, for
a tax year beginning on or after January 1, 2023.
7) Adds Section 14, an uncodified transition section,
to confirm that the 2023 taxes are not due until the
regular due date for 2023 taxes, October 1, 2024.
Because of the retroactivity, any penalties and
interest for late payment are waived.
8) Adds Section 15, an uncodified regulations section,
to authorize the Department of Revenue to draft
regulations that are retroactive to the effective
date.
9) Adds Sections 16 and 17, which have the retroactive
January 1, 2023 effective date for the "oil and gas
entity" tax and an immediate effective date for the
uncodified sections.
Mr. Alper commented that the underlying bill and single
factor apportionment was for the most part unchanged, with
the exception of adding the piece about telecommunications
companies. The main change was adding the oil and gas
entity tax to the legislation.
2:37:59 PM
AT EASE
2:38:41 PM
RECONVENED
Co-Chair Olson invited the sponsor to comment on the CS.
Senator Wielechowski commented that he supported the CS as
it was written.
Senator Wilson spoke to the original bill, which was
related to the multi-state compact. He thought oil and gas
taxes were different, and wondered if the subjects were
related enough.
Senator Wielechowski explained that the bill related to
corporate income tax, and he thought it was more important
for the S-corporation provision to be added. He thought
some would agree with the addition, and some would
disagree. He noted that the committee was discussing the
bill rather than discussing passage of the bill.
Senator Wilson felt that the provision should be separate
item from the original bill.
2:40:43 PM
BRANDON SPANOS, DEPUTY DIRECTOR, TAX DIVISION, DEPARTMENT
OF REVENUE (via teleconference), thought the CS seemed to
do what the sponsor had stated.
Co-Chair Stedman thought it would be nice to know if the
department supported the bill.
Mr. Spanos had not been informed whether the bill was
supported by the governor and therefore the Tax Division of
DOR was neutral on the bill.
Co-Chair Olson WITHDREW his OBJECTION.
Senator Merrick OBJECTED. A roll call vote was taken on the
motion.
IN FAVOR: Bishop, Kiehl, Hoffman, Olson, Stedman
OPPOSED: Merrick, Wilson.
The MOTION PASSED (5/2). The CS for SB 122 was ADOPTED.
2:42:44 PM
MELISSA PATACK, VICE PRESIDENT AND SENIOR COUNSEL FOR STATE
GOVERNMENT AFFAIRS, MOTION PICTURE ASSOCIATION (via
teleconference), explained that the members of the Motion
Picture Association (MPA) were the major producers and
distributers of movies, television programs, and streaming
series; and were the owners of most of the national
broadcast and cable networks. She emphasized that she was
speaking about the issue of how income was apportioned for
national broadcast and cable networks was about the way to
tax the networks rather than the amount paid. She explained
that market-based sourcing, as proposed in SB 122, taxed
companies on their revenue from customers.
Ms. Patack cited that broadcast and cable networks had
three types of customers and sources of revenue:
individuals that were subscribers to streaming services,
licensing customers, and advertising customers. She
explained that revenue from the customers would go into the
Alaska sales tax factor. She contended that the direct
relationships between the broadcasting cable networks and
customers could be verified and made it easier to
administer the system for the taxpayer and DOR. She noted
that Mr. Alper had described market sourcing as taxing on
the basis of the location of the sale.
Ms. Patack continued her testimony. She considered that the
taxing of broadcast and cable networks on the income earned
from direct customers was consistent with SB 122s market-
based sourcing. She thought the method was the modern
approach that many states had adopted through statute, such
as Illinois and Tennessee. She referenced the audience
method of taxing broadcast networks, which had been adopted
in the 1990s. She asserted that the industry had undergone
significant changes since the adoption of the audience
method and that the method would lead to uncertainty in the
administration of the tax system. She relayed that MPA had
provided suggested language to be added to the bill.
Senator Bishop asked about the recommended changes
submitted by Ms. Patack.
2:46:30 PM
AT EASE
2:49:26 PM
RECONVENED
Co-Chair Olson requested that Mr. Spanos comment on the
testimony offered by Ms. Patack.
Mr. Spanos affirmed that he listened to Ms. Patacks
testimony.
Co-Chair Olson asked Ms. Patack to restate her concern.
Ms. Patack referenced submitting amendment language in a
document from the Motion Picture Association dated April
17, 2023 (copy on file). The language would allow for
market sourcing by customer location for broadcast and
cable networks.
Co-Chair Olson asked Mr. Spanos if he had a copy of the
letter with the suggested amendment language.
Mr. Spanos affirmed that he had seen the letter. He relayed
that the division's position was that nuances had
previously been handled in regulation, which allowed for
pivoting quickly with changes in industry. He thought that
the issue could be handled through regulation. He thought
the regulations Ms. Patck mentioned could be a starting
point and could be modernized. He did not identify anything
in the letter that was problematic.
Co-Chair Olson summarized that Mr. Spanos was indicating
there was nothing in the MPA letter that could not be
handled with regulation.
Mr. Spanos answered affirmatively.
2:52:16 PM
Co-Chair Stedman thought it was possible that regulations
could result in the different implementation than
contemplated in the statute. He suggested that the
committee consider modified language in the bill to ensure
the regulations were in line with what the committee was
thinking.
Senator Wielechowski understood that the department could
fix the problem referenced by Ms. Patack if it chose. He
referenced the question regarding the administration's
support of the bill. He could not speak to whether the
administration supported the bill, but could speak to the
fact that the the highly digitized part of the bill was a
provision suggested by former DOR Commissioner Lucinda
Mohoney to the Fiscal Policy Working Group. The sponsor had
worked with the department to craft the bill language. He
recounted that the former commissioner had testified to the
working group that the governor would support the
provision.
Senator Wielechowski referenced committee discussions
regarding the S-corporation change, and recalled that
former Commissioner Mahoney had testified to the Senate
Finance Committee that the administration was planning to
introduce changes to fix the S Corp loophole. He
recounted that the loophole was created when Hilcorp had
acquired BPs assets. He recalled that the administration
had a similar provision to what was in the bill. He
summarized that there had been indications of support for
both provisions in the bill.
2:55:12 PM
Senator Wilson asked about S-corporations, and commented
that the committee had not heard testimony or presentations
from industry or the Regulatory Commission of Alaska
regarding whether the costs would be passed on and cause
rate changes.
Senator Wielechowski understood that Hilcorp would testify
on Friday, and suggested that Senator Wilson query the
company. He stressed that Hilcorp was currently threatening
to withhold production or development or exploration in
Cook Inlet. He furthered that the state had contracts that
were expiring because Hilcorp was refusing to invest,
develop and produce under the terms of the contract it was
legally obligated to do in Cook Inlet. He thought Hilcorp
should be questioned about whether it would continue to
invest on the North Slope and why investment was reduced
from $847 million in 2014 to $220 million the previous
year. He pondered why the state was providing over $500
million in oil tax credits when Hilcorp was only investing
$220 million. He queried factors such as Hilcorp's rate of
return, internal rate of return, and net present value. He
stressed not basing decisions based on hyperbole and
statements that had no foundation.
Senator Wilson clarified his statements were not in defense
of any entity. Rather, he wanted to know the effects on
users of the system if the S-corporation statutes were
changed.
Senator Bishop suggested that the commissioner or a
designee addressed questions when the bill was considered
in committee in the future. He referenced a fiscal plan
that had been discussed by the administrator. He wanted to
know whether the administration was committed or not. He
was not interested in passing more tax legislation without
a commitment from the administration.
Senator Wielechowski thought Senator Bishop had posed a
great question, and would love to see the administration
come out in support of the bill after previously expressing
support for the provisions. He noted that Hilcorp was not a
utility and therefore was not regulated by the RCA.
3:00:31 PM
DAVID DUNSMORE, STAFF, SENATOR BILL WIELECHOWSKI, wanted to
follow up on Senator Wielechowski's comments addressing
Senator Wilson's concerns. He understood that there were no
regulated utilities that would be non-corporation oil and
gas entities. He cited that the RCA did have oversight over
gas sales agreements between regulated utilities. He
furthered that it would not be possible for the RCA to pre-
judge a proposed contract. In the past the RCA had looked
at market price conditions, and he thought it was unlikely
that the changes proposed in the bill would be a factor in
deliberations.
Senator Wilson understood that Hilcorp was not a utility,
but shared a concern that contractual gas of sales to
providers could change rates of service.
Senator Wielechowski emphasized that Hilcorp had taken out
a lease with terms that required it to explore, develop,
produce, and market gas. He continued that Hilcorp had an
obligation to do so if it could make a reasonable profit.
He noted that gas prices in Cook Inlet went from the lowest
in North America to the highest in North America in the
span of the last decade. He asserted that if Hilcorp was
put in a position of being impacted in the ability to make
a profit, it had the ability to go before the department
and ask for royalty relief. He thought the royalties and
production tax in Cook Inlet were probably the lowest in
the world. He emphasized that Hilcorp should be asked for
specific details.
Senator Merrick was curious if there were any other
entities aside from Hilcorp that would be affected by the S
corporation portion of the bill.
Senator Wielechowski could not answer Senator Merrick's
question because of what he considered "some of the worst
financial transparency laws" for oil and gas companies in
the world. He mentioned testimony pertaining to the
financial transparency laws. He made note of the inability
to determine the companies profits.
Senator Kiehl referenced removing all impact of corporate
income tax from downstream ratepayers, and noted that he
had two C-corporations that provided regulated utility
service in his district. He thought the idea would be a
much bigger statewide change than what was contemplated in
the bill.
Co-Chair Olson noted that the bill would be back up for
consideration later in the week, and there would be an
amendment deadline for Thursday at 6 oclock.
SB 122 was HEARD and HELD in committee for further
consideration.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB 94 DCCED CBPL 042823.pdf |
SFIN 5/3/2023 1:30:00 PM |
SB 94 |
| SB 94 Sectional Analysis vsn R.pdf |
SFIN 5/3/2023 1:30:00 PM |
SB 94 |
| SB 94 23.04.27 ANHB to Senator Giessel re. SB 94 support Profession of Pharmacy - Final.pdf |
SFIN 5/3/2023 1:30:00 PM |
SB 94 |
| SB 94 Sectional Analysis vsn R.pdf |
SFIN 5/3/2023 1:30:00 PM |
SB 94 |
| SB 122 work draft version H.pdf |
SFIN 5/3/2023 1:30:00 PM |
SB 122 |
| SB 122 Summary of Changes version H.pdf |
SFIN 5/3/2023 1:30:00 PM |
SB 122 |
| SB 114 Opposition Letters 2.pdf |
SFIN 5/3/2023 1:30:00 PM |
SB 114 |
| SB 114 Support Letters 3.pdf |
SFIN 5/3/2023 1:30:00 PM |
SB 114 |
| SB 94 Responses to Questions SFIN 05-04-23.pdf |
SFIN 5/3/2023 1:30:00 PM |
SB 94 |
| SB 94 23.05.07 ANHB to Senator Giessel re. Support for SB94- Profession of Pharmacy.pdf |
SFIN 5/3/2023 1:30:00 PM |
SB 94 |