04/09/2012 03:30 PM Senate RESOURCES

           HB 118-RESEARCH AND DEVELOPMENT TAX CREDIT                                                                       
                                                                                                                                
4:49:23 PM                                                                                                                    
CO-CHAIR  WAGONER   announced  consideration  of  HB   118  [CSHB
(FIN) was before the committee.                                                                                              
                                                                                                                                
WYNETTA  AYERS,  director,   Division  of  Economic  Development,                                                               
Department  of  Commerce,   Community  and  Economic  Development                                                               
(DCCED),  Juneau,  AK,  explained   that  HB  118  establishes  a                                                               
research  and development  tax credit  to incentivize  innovation                                                               
and economic  activity in the state.  She said the DCCED  and the                                                               
Department of Revenue (DOR) have  provided a full presentation on                                                               
the bill  in their  packets. It includes  letters of  support and                                                               
additional documentation from the  University of Alaska, a number                                                               
of   seafood  industry   businesses   and  organizations,   small                                                               
businesses,  the financial  services  sector, entrepreneurs,  the                                                               
aerospace  industry and  the minerals  industry. These  show wide                                                               
spread support for  the creation of the  research and development                                                               
(R&D) tax credit in Alaska.                                                                                                     
                                                                                                                                
4:51:19 PM                                                                                                                    
MS. AYERS  said a tax  credit can  have far reaching  benefits in                                                               
not only  the core  industries but new  industries that  might be                                                               
attracted  to the  state in  the increasingly  competitive global                                                               
marketplace.  It  will  also position  Alaska  for  new  business                                                               
investment  and  take  advantage   of  our  climate,  our  global                                                               
position, our natural  resources and human capital  to bring this                                                               
new economic activity to our state.                                                                                             
                                                                                                                                
She said  that 38 other states  already have a R&D  tax credit or                                                               
some  form of  R&D incentive.  By incentivizing  the process  and                                                               
product innovation, the state can  create a business climate that                                                               
will help Alaska businesses grow  and create well-paying jobs for                                                               
Alaskans. HB 118 seeks to  position Alaska's economy and business                                                               
climate for diversification, growth and opportunity.                                                                            
                                                                                                                                
4:52:10 PM                                                                                                                    
JOHANNA  BALES,  Deputy  Director, Tax  Division,  Department  of                                                               
Revenue  (DOR),   explained  the   HB  118  allows   each  Alaska                                                               
corporation a tax credit of  20 percent of qualified R&D expenses                                                               
incurred in  Alaska. It  is only  on an  increased amount  of R&D                                                               
activity in the state. For  instance, if a taxpayer had conducted                                                               
research in Alaska in the  past, the research activity they incur                                                               
going forward  they would be allowed  a credit on would  be above                                                               
the average of  the last three years. If they  spent $1 million a                                                               
year in the  last three years, the average would  be $1 million a                                                               
year.  If  they  spent  only  $900,000 in  the  next  year,  they                                                               
wouldn't be  allowed a  credit, but if  they spent  $1.1 million,                                                               
the  credit  would be  20  percent  of  the increased  amount  of                                                               
$100,000.  Any unused  portion  of the  credit  could be  carried                                                               
forward for seven years if  they didn't have enough tax liability                                                               
to write it off in a particular year. production from last year.                                                                
                                                                                                                                
MS.  BALES said  the research  activities that  would be  allowed                                                               
would be  those in the  federal code, so  all of the  federal tax                                                               
structure would be in place  allowing the state to "piggyback on"                                                               
to  ensure  that  taxpayers are  conducting  qualified  R&D.  The                                                               
purpose would  be discovering  information that  is technological                                                               
in nature, the  application of which is intended to  be useful in                                                               
the development of  a new or improved component  of the taxpayer,                                                               
and substantially all  of the activities constitute  a process of                                                               
experimentation.                                                                                                                
                                                                                                                                
CO-CHAIR  WAGONER asked  about  a company  with  less than  three                                                               
years of history.                                                                                                               
                                                                                                                                
MS. BALES answered  that the period is three  years, because they                                                               
are trying  to entice companies  to come  up here. If  they spent                                                               
$100,000 in the preceding year, it would be divided by three                                                                    
(years).                                                                                                                        
                                                                                                                                
SENATOR FRENCH stated that you can get it after your first year,                                                                
but it's based on a very small amount of money.                                                                                 
                                                                                                                                
MS. BALES agreed.                                                                                                               
                                                                                                                                
SENATOR FRENCH said his packet has an amendment.                                                                                
                                                                                                                                
4:56:08 PM                                                                                                                    
SENATOR WIELECHOWSKI said he had the amendment drafted relating                                                                 
to reporting and analysis of tax credits. This in an opportunity                                                                
to get more information about where credit money is being spent.                                                                
                                                                                                                                
CO-CHAIR WAGONER held HB 118 in committee.