Legislature(2023 - 2024)DAVIS 106
03/27/2023 06:00 PM House WAYS & MEANS
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| Audio | Topic |
|---|---|
| Start | |
| Presentation(s): Municipal Taxes | |
| HB109 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| *+ | HB 142 | TELECONFERENCED | |
| += | HB 109 | TELECONFERENCED | |
| *+ | HB 110 | TELECONFERENCED | |
| + | TELECONFERENCED |
ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON WAYS AND MEANS
March 27, 2023
6:00 p.m.
MEMBERS PRESENT
Representative Ben Carpenter, Chair
Representative Kevin McCabe, Vice Chair
Representative Jamie Allard
Representative Tom McKay
Representative Cathy Tilton
Representative Andrew Gray
Representative Cliff Groh
MEMBERS ABSENT
All members present
OTHER LEGISLATORS PRESENT
Senator Robert Myers
Representative Mike Prax
COMMITTEE CALENDAR
PRESENTATION(S): MUNICIPAL TAXES
- HEARD
HOUSE BILL NO. 109
"An Act reducing the corporate net income tax rate; and
providing for an effective date."
- HEARD & HELD
HOUSE BILL NO. 142
"An Act relating to a state sales and use tax; authorizing the
Department of Revenue to enter into the Streamlined Sales and
Use Tax Agreement; and providing for an effective date."
- BILL HEARING CANCELED
HOUSE BILL NO. 110
"An Act relating to the Alaska permanent fund; relating to
permanent fund dividends and the dividend fund; transferring the
dividend program from the Department of Revenue to the Alaska
Permanent Fund Corporation; relating to the duties of the
Department of Revenue; relating to the duties of the Alaska
Permanent Fund Corporation; and providing for an effective
date."
- SCHEDULED BUT NOT HEARD
PREVIOUS COMMITTEE ACTION
BILL: HB 109
SHORT TITLE: REDUCE CORP. NET INCOME TAX RATE
SPONSOR(s): REPRESENTATIVE(s) CARPENTER
03/13/23 (H) READ THE FIRST TIME - REFERRALS
03/13/23 (H) W&M, FIN
03/22/23 (H) W&M AT 6:00 PM DAVIS 106
03/22/23 (H) Scheduled but Not Heard
03/27/23 (H) W&M AT 6:00 PM DAVIS 106
WITNESS REGISTER
NILS ANDREASSEN, Executive Director
Alaska Municipal League
Juneau, Alaska
POSITION STATEMENT: gave a PowerPoint presentation, titled
"Municipal Taxation."
KENDRA BROUSSARD, staff
Representative Ben Carpenter
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: On behalf of Representative Carpenter,
prime sponsor of HB 109, gave a PowerPoint presentation, titled
"Corporate Income Taxes and Economic Growth."
BRANDON SPANOS, Deputy Director
Tax Division
Department of Revenue
Juneau, Alaska
POSITION STATEMENT: Answered questions on the fiscal note for
HB 109.
ACTION NARRATIVE
6:00:36 PM
CHAIR BEN CARPENTER called the House Special Committee on Ways
and Means meeting to order at 6:00 p.m. Representatives Tilton,
Allard, Groh, McKay, McCabe, Gray, and Carpenter were present at
the call to order.
^Presentation(s): Municipal Taxes
Presentation(s): Municipal Taxes
6:01:40 PM
CHAIR CARPENTER announced that the first order of business would
be a presentation on municipal taxes.
6:01:57 PM
The committee took a brief at-ease at 6:02 p.m.
6:02:30 PM
NILS ANDREASSEN, Executive Director, Alaska Municipal League
(AML), gave a PowerPoint presentation, titled "Municipal
Taxation" [hard copy included in the committee packet]. He
notified the committee that he is not a tax expert, and he
stated that questions may be directed to the Department of
Commerce, Community, and Economic Development, Division of
Community and Regional Affairs and the Office of the State
Assessor. He began on slide 2 on the topic of tax authority,
which read as follows [original punctuation provided]:
Tax Authority
Articles IX and X of the Alaska Constitution and Title
29 of the Alaska Statutes establish the legal
framework for municipal taxation.
• The Alaska Constitution delegates the state's
taxation power to only organized cities and boroughs.
• The provision that "no tax shall be levied... except
for a public purpose..." applies to municipal
taxation, too.
• Home rule municipalities are granted broad powers by
the Constitution, which provides that "...standards
for appraisal of all property assessed by the state or
its political subdivisions shall be prescribed by
law..."
• General law municipalities can by law levy a tax or
special assessment and impose a lien for its
enforcement.
• Both home rule and general law municipalities are
subject to limitations on their taxing powers by law.
• AS 29.45.010 authorizes cities, boroughs and unified
municipalities to levy a property tax, which must be
assessed, levied and collected as provided in AS
29.45. Authorizes implementation of sales and use
taxes.
• Based on Article X, Section I of the Alaska
Constitution: "...a liberal construction shall be
given to the powers of local government...," it is
assumed that all real and personal property is taxable
unless it is specifically exempted from property
taxation.
6:05:14 PM
MR. ANDREASSEN addressed limitations on taxation, shown on
slides 3 and 4, which read as follows [original punctuation
provided]:
Limitations on Taxation
Home Rule Municipalities - have all legislative powers
not prohibited by law or charter. AS 29.10.200 lists
all of the sections of Title 29 that act as
limitations on home rule legislative powers.
General Law Boroughs - required to assess and collect
property, sales, and use taxes that are approved and
levied within their boundaries, subject to the
provisions of Chapter 45.
All Boroughs. Taxes levied by a city within a borough
must be collected by a borough and returned in full to
the city levying the tax. This provision applies to
home rule and general law municipalities.
All Municipalities. Specific limitations on the
property taxation powers of all general law and home
municipalities AS 29.45.080/90.
Further within AS 29.45.090 a municipality, or a
combination of municipalities occupying the same
geographic area, may not levy taxes upon value that,
when combined with the value of property otherwise
taxable by the municipality, exceeds the product of a
sliding scale percentage of the average per-capita
assessed value as determined under AS 43.56.010(c),
multiplied by the number of residents of the taxing
municipality.
[slide 4]
• Section 29.45.100 of the Alaska Statutes provides
that limitations on the amount of property tax that
may be collected apply only to taxes for operating
expenses and not to taxes collected to pay for bonded
indebtedness.
• Second Class Cities. A second class city may, by
referendum, levy property taxes as provided for first
class cities. Specific limitations on the property
taxation powers of second class cities are found in AS
29.45.590. A special limitation on taxation by second
class cities is that the city cannot levy property
taxes exceeding 2 percent (20 mills) of the assessed
value of property within the municipality in any one
year. This limitation was increased from 0.5 percent
(5 mills) in 1994.
• Compliance by municipalities within the taxation
limitations in the state statutes is enforced through
the State Assessor's Office under the powers granted
by AS 29.45.103 and AS 29.45.105. Under these
statutes, the Office of the State Assessor may
investigate claims of errors in assessment and
taxation procedures, inspect municipal records and
order correction of any procedural errors discovered.
6:08:17 PM
MR. ANDREASSEN addressed the issue of property tax and pointed
out that slide 5 depicts a map of median property taxes paid in
2020 by county [or borough] throughout the U.S.
6:10:40 PM
MR. ANDREASSEN, in response to a question from Chair Carpenter,
expressed uncertainty whether there is a trend in the U.S of
moving away from property taxes.
6:11:33 PM
MR. ANDREASSEN addressed limitations on property taxes, as shown
on slide 6, which read as follows [original punctuation
provided]:
Property Taxation Limitations
All real and personal property is taxable unless it is
exempted from property taxation.
Municipal property tax required exemptions are
specified in AS 29.45.030.
• Examples: household furniture and personal effects
of members of a household, natural resources in place,
and property used exclusively for nonprofit religious,
charitable, cemetery, hospital, or educational
purposes.
Under AS 29.45.090, no municipality may levy taxes
exceeding 3 percent (30 mills) of the assessed value
of property within the municipality during a year.
This tax limitation has been interpreted by the Alaska
Supreme Court to apply only to property.
Property owned by Alaska Native Claims Settlement Act
(ANCSA) Native corporations is also exempt from
municipal property tax unless the property is leased
or developed.
All taxable real and personal property within a
municipality is included in its Full Value
Determination, which is a key element in the
calculation of state aid to schools.
MR. ANDREASSEN moved to slide 7, which showed a map of land
ownership in Alaska. He pointed out that Alaska is the only
state with a large part of the land mass not subject to a
property tax. Moving to slide 8, he addressed an effective mill
rate and tax base reduction. He pointed out that an effective
mill rate would range from 5.62 in Skagway to 20 in Valdez, with
the average in the state being 11.12.
6:17:45 PM
MR. ANDREASSEN, in response to Representative Groh, explained
that the mill rate in statute is 2.65. This would be required
by local governments who have municipal school districts, and it
applies as part of the property tax or equivalent. He said that
this is applied to the full value of determination, which is the
total assessed, less the mandatory state exemptions.
6:19:15 PM
MR. ANDREASSEN moved to slide 9 and pointed out that the state's
mandatory exemption is valued at $103 million. This is required
in law to be reimbursed by the state but has not been done since
fiscal year 1997 (FY 97). He continued that in 2012 this value
was at $56 million, doubling in 10 years.
6:22:28 PM
MR. ANDREASSEN, in response to Representative Gray, offered
clarification regarding slide 9, noting that "the legislature"
may be the more appropriate term to use rather than "the state."
In response to a follow-up question, he clarified that the
exemptions are only those specified under AS 29.45.030. He
noted that local governments can add additional exemptions.
6:24:30 PM
MR. ANDREASSEN, in response to Representative Allard, confirmed
that if there is a budget at one level and the full tax cannot
be accessed to meet this budget, then the tax rate goes up and
is spread out to other taxpayers. In response to a follow-up
question, he said the reallocation would be within the
municipality.
6:25:52 PM
MR. ANDREASSEN, in response to a question from Representative
McCabe regarding the 24 jurisdictions shown on the bar chart on
slide 9, said the exemption is being spread out to all
commercial and residential properties or taxable projects within
a city or bureau. He said that there are 600,000 residents
within these 24 jurisdictions. To a follow-up question, he
indicated that [property] tax does not apply to the 60,000
residents living in a home rule city within an unorganized
borough.
6:28:31 PM
MR. ANDREASSEN returned to the PowerPoint to speak about
property exemptions, as seen on slide 10. He pointed out that
exemptions would shift the tax burden to other taxpayers. He
stated that this is important to understand in context of the
budget process, as the property tax rate would be determined
post budget. Concerning higher and lower rates, he explained
that the proposed legislation would vary based on the total
available base value. He added that currently there is no
difference between residential, industrial, and commercial tax
in Alaska, and the state can offset the rate through the
reimbursement of mandatory exemptions or a circuit breaker
program.
6:31:48 PM
MR. ANDREASSEN, in response to Representative Gray, said the
type of tax in other states depends on the desired outcome. For
example, residential and business taxes would offset costs for
families.
6:32:49 PM
MR. ANDREASSEN discussed sales tax, on slides 11-13, which read
as follows [original punctuation provided]:
Sales Tax
• Alaska Statutes 29.45.650 - 29.45.710 authorizes the
levy of sales and use taxes.
• The statutes give broad authority to municipalities
to levy taxes on sales, rents and services provided
within the municipality.
• Few limitations placed upon municipalities in
regards to levying a sales tax.
• Orbital space facilities are exempt from the levy of
sales tax and
• Alcohol may not be taxed unless other items are
similarly taxed.
• Municipality may not levy a sales tax on a
construction contract awarded to a contractor or
subcontractor that has been awarded by a state agency
or on a subcontract awarded in connection with a
project funded under the construction contract.
• Other exemptions may be granted by a local
ordinance.
• A general law municipality that levies a sales tax
may also levy a use tax on the storage, use or
consumption of tangible personal property; however,
the use tax rate must be equal to the rate of the
sales tax and may only be levied on buyers.
• These limitations do not apply to home rule
municipalities. By statute, there are no limits on the
rate of levy for sales or use taxes for either type of
municipality; however, if interest is charged on
unpaid sales taxes, the interest may not exceed 15%.
[slide 12]
Sales Tax
• Data for 100 municipalities for 2022, 106 is
standard number
• No sales tax applies to 600,260 residents
• Average Rate of 3.8% - highest of 7%
• Six seasonal
• Implied tax base of $7.6 billion (notwithstanding
effect of exemptions)
[slide 13]
Sales Tax
Rate stability over 20 years:
• 57 communities stayed same
• 20 increased by 1%
• 16 had increases of between 1.5% and 4%
28 increased in early 2000s because of lost Community
Revenue Sharing
• Compared to 15 in last decade
As a portion of overall revenue:
• 14 communities above 50%
• 33 communities between 20 and 50%
• 20 communities between 10 and 20%
• 32 communities under 10%
MR. ANDREASSEN added that potentially the tax base would be much
larger with fewer exemptions. In response to Chair Carpenter,
he offered clarification. He talked about a 3 percent to 5
percent middle ground in sales tax in Alaska. He further broke
down the sales tax rate of most cities. He confirmed for
Representative Groh that the impact of a statewide sales tax has
been considered.
6:42:31 PM
MR. ANDREASSEN offered information about South Dakota v.
Wayfair, Inc., 585 U.S. (2018), as seen on slide 14. The case
resulted in eliminating the requirement of a physical presence
for online sales; instead, an economic nexus was created, which
streamlines a statewide, single-level business tax. He stated
that AML has worked with local governments to establish the
Alaska Remote Seller Sales Tax Commission. The commission has a
uniform code with consistent definitions and an online portal
for single registration and filing. He said that this would
apply to communities that sign intergovernmental agreements. He
added that AML would administer the collections.
6:46:20 PM
MR. ANDREASSEN moved to slide 15 and addressed AML's collection
experience, which includes 46 participating communities with
3,000 registered sellers. He stated that remote sales tax
collected in 2022 totaled $20 million, or 8 percent. He moved
to slide 16, which addressed the online sales gross and
exemption. He stated that the exemption in 2022 included a
resale exemption of 29 percent, government expenditures, and
nonprofits.
6:50:06 PM
MR. ANDREASSEN, in response to Chair Carpenter, surmised that
the change between 2021 and 2022 could be attributed to the
program's growth. As more communities are added to the data,
the data may be skewed depending on the tax scale variability.
6:51:29 PM
MR. ANDREASSEN continued discussing sales tax on slide 17. When
implementing a state sales tax, he suggested the following:
local collection of sales tax should be protected, local control
of rates and exemptions should be ensured, and the system of
current governance should be considered. He recommended that
sales tax legislation not be built from old legislation, and a
new system of collection be established. He added that the
local tax burden and a distributional analysis should be
included.
6:53:25 PM
MR. ANDREASSEN addressed the topic of excise taxes, shown on
slide 18 to slide 20. Slides 18 and 19 read as follows
[original punctuation provided]:
Excise Taxes
• Allowed under liberal construction of local
government powers in Constitution.
• Extends to severance tax, a type of excise tax
(performance of an act, in this case severing of
natural resources from the place in which they are
located).
• There is no distinction here between home rule and
general law, nor is it subject to voter ratification.
[slide 19]
Excise Taxes - Bed and Rental
Ad Valorem (%) or Flat
• Bed Taxes
• 49 communities
• 4-12% tax rate
• $31 million
• Rental Car Taxes
• Two communities
• 8% rate
• $7.3 million 19
Future Considerations
• Short Term Rentals
• Marketplace Facilitators
• Peer-to-Peer Sharing
• Ultimately about shifting local tax burden to non-
residents, and ensuring local services and
infrastructure in place to support a visitor industry
• Non-specific community development
6:56:07 PM
MR. ANDREASSEN, in response to Representative McCabe, confirmed
the accuracy of the statement that Alaska does not have a state
bed tax. To a follow-up question, he expressed uncertainty on
how a Medicare tax would be categorized.
MR. ANDREASSEN continued to slide 20, showing a map of states
which have the highest "sin tax." Listed was the consumption
tax for alcohol, tobacco, and marijuana.
6:58:32 PM
MR. ANDREASSEN, in response to Representative Groh, expressed
uncertainty concerning a video game tax. He explained that some
taxes in other states are not in Alaska because Alaska does not
have state-level allowance for these taxes.
6:59:42 PM
MR. ANDREASSEN, in response to Representative McCabe's comments
about the substantial taxes from gaming in New York, said that
local governments in Alaska do not tax this way.
MR. ANDREASSEN moved to slide 21, which listed various resource-
based taxes collected between 2013 and 2027.
7:02:34 PM
MR. ANDREASSEN, in response to Representative Allard, confirmed
that he would follow up with the committee on updated tax
information on resources. He moved to slide 22 and pointed out
that at the state level a broad-based tax has the largest
available base because of the following: there are no
limitations based on who owns the land, there are no limitations
based on the land being developed or its value, there are no
exemptions for government and nonprofits, and there are no
exemptions by sales type or service.
7:04:14 PM
MR. ANDREASSEN concluded on slide 23, pointing out the basic
building blocks for communities, which include micro level
evaluation, evaluation of the relative tax burden by community,
and incentivizing what matters, as housing and jobs, education
and childcare, and basic infrastructure. He suggested that
local governments will shift to meet emerging needs by
evaluating the current tax burden, and this will meet new
priorities and focus on community stability and economic growth.
7:06:15 PM
MR. ANDREASSEN responded to a remark from Representative McCabe
concerning that taxation shifts the burden to what society deems
most necessary. He expressed the opinion that there are many
ways to consider taxation. He gave examples, including the
relation of distribution and value.
7:08:32 PM
CHAIR CARPENTER expressed concern on what would help grow the
economy on both the state and local levels. He added that his
perspective is not just in terms of revenue, but also in
consideration of whether the state will "have more jobs."
HB 109-REDUCE CORP. NET INCOME TAX RATE
7:09:40 PM
CHAIR CARPENTER announced that the next order of business would
be HOUSE BILL NO. 109, "An Act reducing the corporate net income
tax rate; and providing for an effective date."
7:10:01 PM
[Chair Carpenter passed the gavel to Vice Chair McCabe.]
7:11:43 PM
REPRESENTATIVE CARPENTER, as prime sponsor, paraphrased the
sponsor statement [copy included in the committee packet], as
follows [original punctuation provided]:
Alaska's economy is lagging that of the nation. Our
GDP (economic) growth over the past decade has been
the worst in the country. Sixty-eight thousand more
people have left Alaska, than have moved here from
other states, over the last decade. In our modern
economy, people are mobile, and will move for
employment opportunities. The House Ways and Means
Committee has been tasked with improving Alaska's
economy. Reducing the cost of doing business in Alaska
is a good place to start.
Corporate income taxes are levied in 44 states, and
twenty-nine states have single-rate corporate tax
systems. While often thought of as a major tax type,
states' corporate income taxes accounted for an
average of just over seven percent of state tax
collections and four percent of state general revenue
in fiscal year 2021. And while these figures are not
high, they are among the reasons corporations decide
where to conduct business.
Alaska's 9.4% corporate income tax (CIT) currently has
the fourth highest tax rate and the highest graduation
of rates in the nation. Only New Jersey, Minnesota and
Illinois have higher rates. HB109 would reduce
Alaska's rates to a single rate and the lowest rate in
the nation for states with corporate taxesfor now.
North Carolina currently has the lowest CIT rate at
2.5% but will phase out its tax by 2030.
Graduated corporate rates are inequitablethat is, the
size of a corporation bears no necessary relation to
the income levels of the owners; low-income
corporations may be owned by individuals with high
incomes, and high-income corporations may be owned by
individuals with low incomes. A single-rate system
minimizes the incentive for firms to engage in
economically wasteful tax planning to mitigate the
damage of higher marginal tax rates that some states
levy as taxable income rises.
A low, flat-rate corporate tax will significantly
level the playing field between C-corps and S-corps
and limited liability companies. Low corporate tax
rates have been proven to increase productivity which
leads to improved economic output for the state.
Corporate income taxes are also volatile, as they are
taxes on production. When corporate income tax rates
get high enough, the business will produce less in
that state. This is because the business, as opposed
to the customers, are the less elastic side of the
market. Customers, the more elastic side of the
market, may decide to no longer buy from the business
at the higher price. Elasticity also increases the
more time passes after a price change. As time goes
on, the corporate income tax will mean that a business
hires fewer workers and/or moves the business out of
the state because the income tax has made the cost of
doing business in the state prohibitively high. As
businesses leave the state, income tax revenue
decreases in the years that follow. This makes revenue
volatility for income taxes relatively high compared
to that of sales and use taxes.
Economically competitive states, like North Carolina,
have been reducing rates, flattening brackets, or
phasing out their corporate taxes. South Dakota,
another Economically competitive State, has no
corporate tax.
7:16:49 PM
KENDRA BROUSSARD, staff, Representative Ben Carpenter, Alaska
State Legislature, on behalf of Representative Carpenter, gave a
PowerPoint presentation, titled "Corporate Income Taxes and
Economic Growth" [included in the committee packet]. On slide
2, she explained the definition of corporate income taxes. She
said that Alaska levies a corporate income tax (CIT) on certain
corporations doing business in the state, under AS 43.19 and
43.20. She continued that corporate tax rates are graduated,
with a maximum rate of 9.4 percent applying to taxable income
above $222,000. She added that S corporations and limited
liability companies which file federally as partnerships are
generally exempt from Alaska's corporate income tax. A non-oil
and gas corporation computes its tax liability based on the
federal taxable income of its water's edge combined report, with
Alaska adjustments. For example, the Alaska tax code allows
special treatment for certain dividends and royalties received
from foreign corporations. She continued that U.S. income is
apportioned to Alaska based on three factors: sales, property,
and payroll, while Alaska taxable income is determined by
applying the apportionment factor to the corporation's modified
federal taxable income. Corporate income tax for oil and gas
corporations is calculated differently and reported separately.
MS. BROUSSARD stated that, generally, a corporation is subject
to tax on its current-year Alaska taxable income, and any net
operating losses may be carried forward indefinitely to offset
future tax liabilities; however, as part of the federal CARES
Act passed in 2020, corporations may carry back net operating
losses from tax years 2018, 2019, and 2020, for up to five years
and receive refunds for previous federal taxes paid. Alaska
adopts most provisions of the federal corporate income tax code,
including the provision allowing the five-year carry back for
net operating losses; thus, the carry back provision applies to
Alaska corporate income tax as well.
7:19:07 PM
MS. BROUSSARD, moving to slide 4, showed the non-oil CIT
revenues as $125 million in fiscal year 2024 (FY 24). She moved
to slide 4 and said the FY 24 petroleum CIT revenue is forecast
to be $320 million. Slide 5 showed taxable income rates as
prescribed in AS 43.20.11 (e). She paraphrased from slide 6,
which read as follows [original punctuation provided]:
Alaska currently has the fourth highest tax rate and
the highest graduation of rates in the nation. Only
New Jersey, Minnesota and Illinois have higher rates.
This bill would reduce Alaska's rates to a single 2%
rate and the lowest rate in the nation for states with
corporate taxesfor now. North Carolina currently has
the lowest CIT rate at 2.5. They will phase out its
tax by 2030.
7:20:25 PM
REPRESENTATIVE GROH, concerning slide 5, questioned why the
rates on the table are different than what is in the proposed
bill. He pointed out that the slide shows a maximum rate of
$90,000 or more, but in the proposed bill the rates go up to
$222,000 or more.
REPRESENTATIVE CARPENTER responded with the acknowledgement that
the proposed bill and slide do not match, and he offered to
follow up to the committee.
7:21:27 PM
MS. BROUSSARD moved to slide 7 to show a map illustrating
corporate income tax rates in every state. The color gray
represents no such taxes, while states with this tax are yellow
to red, representing lower to higher taxes, respectively. She
pointed out that Alaska is shaded red, with the fourth highest
rate in the nation. She paraphrased from slide 8, which read as
follows [original punctuation provided]:
Graduated corporate rates are inequitablethat is, the
size of a corporation bears no necessary relation to
the income levels of the owners; low-income
corporations may be owned by individuals with high
incomes, and high-income corporations may be owned by
individuals with low incomes. A single-rate system
minimizes the incentive for firms to engage in
economically wasteful tax planning to mitigate the
damage of higher marginal tax rates that some states
levy as taxable income rises.
7:22:18 PM
MS. BROUSSARD moved to slide 9 and explained the proposed
legislation. She stated that if the taxable income is less than
$25,000, then the tax would be zero. If the taxable income is
$25,000, then the tax would be two percent of taxable income.
She moved to slide 10 and pointed out that the proposed
legislation would not change income tax education credit in AS
43.20.014. Addressing why the proposed legislation is needed,
she moved to slide 11, which read as follows [original
punctuation provided]:
Alaska's economy is lagging that of the nation. Our
GDP (economic) growth over the past decade has been
the worst in the country. Sixty-five thousand more
people have left Alaska for, than have moved here
from, other states over the decade. In our modern
economy, people are mobile, and will move for
employment opportunities. The House Ways and Means
Committee has been tasked with improving Alaska's
economy and reducing the cost of doing business in
Alaska is a good place to start.
7:23:37 PM
MS. BROUSSARD moved to slide 12 and expressed the opinion that
Alaska is not doing well economically, as the state's gross
domestic product (GDP) growth is the worst in the nation. She
pointed out that people are leaving the state, as seen on the
graph on slide 13. Slide 14 read as follows [original
punctuation provided]:
Corporate income taxes are levied in 44 states, and
twenty-nine states have single-rate corporate tax
systems. While often thought of as a major tax type,
states' corporate income taxes accounted for an
average of just over seven percent of state tax
collections and four percent of state general revenue
in fiscal year 2021. And while these figures are not
high, they represent a substantial increase over prior
years, and are among the reasons corporations decide
where to conduct business. Corporate income taxes
accounted for 2.26 percent of general revenue in FY
2020.
7:24:39 PM
MS. BROUSSARD, moving to slide 15, said that Alaska's CIT is at
9.4 percent. Slide 16 and slide 17 read as follows [original
punctuation provided]:
People pay all taxes. When the government levies a tax
on a corporation, the corporation is more like a tax
collector than a taxpayer. The burden of the tax
ultimately falls on peoplethe owners, customers, or
workers of the corporation.
[slide 17]
The corporate income tax is popular in part because it
appears to be paid by rich corporations. Yet those who
bear the ultimate burden of the taxthe customers and
workers of corporationsare often not rich. If the
true incidence of the corporate tax were more widely
known, this tax might be less popular among voters.
7:24:55 PM
MS. BROUSSARD moved to slide 18 and suggested that a low flat-
rate corporate tax would level the playing field between C
corporations and S corporations and limited liability companies.
She explained that low corporate tax rates have been proven to
increase productivity, leading to improved economic output;
however, as time goes on, a corporate income tax could result in
a prohibitively high cost for doing business in the state.
Businesses would then leave the state, and income tax revenue
would decrease. She explained that this would make a high
revenue volatility for income taxes, relative to sales and use
taxes. She continued onto slide 20 and reiterated that
volatility would be created because corporate income taxes would
tax production. She warned that when corporate income taxes are
too high, businesses will produce less in the state. Concerning
markets, she said that businesses are on the less elastic side
than consumers, because at the higher prices, consumers may
decide to no longer buy from businesses. After a price change,
she suggested that elasticity would also increase with time.
7:26:57 PM
MS. BROUSSARD, moving to slide 21, said the figure shown
illustrates the volatility of state tax revenue. On slide 22,
she elaborated that economically competitive states, like North
Carolina, have been reducing rates, flattening brackets, or
phasing out corporate taxes. She noted that South Dakota has no
corporate tax. She expressed the opinion that this is because
taxes have economic consequences.
7:27:49 PM
REPRESENTATIVE MCKAY pointed out on slide 21 that South Dakota
has no CIT, but according to a previous presentation made to the
committee, the state does have a tax. He offered the
understanding that the revenue generated was about $1.8 billion
with a tax on goods and services.
REPRESENTATIVE CARPENTER responded that the question draws a
point directly on the committee's discussions around a fiscal
package, which would reorder thinking on state finances and
revenue generation for the state government. He spoke about
growing economic activity and said the state's CIT policy is a
hurdle for investors coming to the state. He elaborated that a
complete fiscal package addressing the hurdle by shifting the
burden of the tax to a broader economic factor would reorder how
the state is receiving money. He continued that this would
improve the state's ability to grow the economy. He explained
that, as the non-government economy grows with a sales tax, the
state revenue would increase. He explained that, if the non-oil
economy grows and generates more revenue, without CIT there
would be no connection to the state revenues. He deduced that a
broad-based tax coupled with a decrease in the CIT rate would
have the net effect of making Alaska a more advantageous place
to invest in. He stated that the proposed legislation is a CIT
rate reduction bill, and it is being presented in the context of
a fiscal plan with more than one action.
7:31:15 PM
VICE CHAIR MCCABE suggested that in the end the people pay the
tax, and if CIT is too high, the people would still pay one way
or another. If the tax were to be lowered, he suggested that
businesses would come to the state, and as businesses grow the
people would pay a sales tax.
REPRESENTATIVE CARPENTER commented that consumers ultimately pay
the tax, whether it is CIT, sales tax, or income tax. He said
that CIT is not a direct tax on a person; however, it is a tax
someone is paying because the consumer pays it.
7:33:07 PM
REPRESENTATIVE ALLARD said that, even if people were enticed to
come to the state, and the CIT is too high, the consumer would
pay.
REPRESENTATIVE CARPENTER suggested that the term "sin tax" is
used for a reason. He explained that the theory is if there is
a tax on what is unwanted, there will be less of the unwanted
thing; therefore, if the state is taxing corporate investment at
a high rate, then the state is likely to get less. He further
said that if the state is trying to encourage corporate
investment, the tax should be reduced, and then the state would
reap the benefit of more business activity. He suggested that
if the tax burden is replaced with a broad-based tax, it should
not be a tax so narrow that it negatively impacts economic
growth. If CIT is reduced and the lost revenue is replaced with
a broad tax, he suggested that the benefit would be a
possibility for economic activity where there was none before.
7:35:25 PM
VICE CHAIR MCCABE questioned whether corporations are taxed on
all income, even when doing business in another state.
REPRESENTATIVE CARPENTER responded that the state would tax
corporations just on its operations within the state.
7:36:57 PM
REPRESENTATIVE GRAY said that according to Forbes in 2021,
Alaska was last in GDP growth while South Dakota was ranked
forty-seventh. He asked whether ranking forty-seventh is the
goal.
REPRESENTATIVE CARPENTER responded that moving up one in the
ranking would be an improvement. He expressed that the goal is
not just to move up three percentage points, rather it is to
look for some positive direction, since the status quo is not
doing this.
7:37:50 PM
MS. BROUSSARD, continuing the presentation, explained that the
next few slides address the result of the Tax Cuts and Jobs Act
of 2017. She said slide 23 shows data on tax cuts from 2017.
On slide 24, she pointed out that GDP grew higher in the U.S.
than Europe. Data on slide 25 showed that poverty and
unemployment rates went down after the tax cuts. Slide 26
showed that U.S. real median income went up after the tax cuts,
while unemployment rates for Hispanics went down. Slide 27
showed that U.S. unemployment went down after 2017, as did the
rate for those with less than a high school diploma. She moved
to slide 28, which showed that more money was generated after
2017. She moved to slide 29 to show a graph on the Organization
for Economic Cooperation and Development (OECD) corporate tax
rate versus OECD corporate tax revenues as a percentage of GDP
from 1981 to 2018. She explained that the rate went down while
the percentage went up. Slide 30 showed that six-month real GDP
growth rates annualized, comparing the administrations under
President Ronald Regan and President Barack Obama. She
concluded on slide 31, stating that the goal of HB 109 would be
to make Alaska yellow on the map.
7:40:12 PM
REPRESENTATIVE GROH asked about the comparisons in Alaska's
brackets and CIT in other states. He stated if two businesses
both make $10,000 in profit, while one is located in Hawaii and
the other in Alaska, under current law, he questioned which
business would pay more in CIT.
REPRESENTATIVE CARPENTER said that the CIT rate in Hawaii is 6.4
percent, while the top tax bracket in Alaska is 9 percent. He
expressed uncertainty as to the tax graduation in Hawaii.
REPRESENTATIVE GROH clarified that for Alaska, the figure would
be zero, while in Hawaii the business would pay $440; therefore,
the taxes would be lower under the proposed regime. As for a
business generating $60,000 in revenue, the business would pay
about half the taxes than in North Carolina. He pointed out
that the Alaska brackets are not the highest at every level.
For example, if a business makes $700,000 in Alaska and a
business does the same in Iowa, the taxes on the business in
Alaska would be lower than in Iowa. Regarding the proposed
legislation, he expressed uncertainty whether there has ever
been a fiscal note which has this sort of loss in revenues while
adding 25 percent to the deficit. He requested an explanation
of the fiscal note.
REPRESENTATIVE CARPENTER responded that there are companies in
the state paying 9 percent tax, while the largest corporations
are the ones fitting the tax rate bracket. He stated that there
were 21,152 CIT payers in 2022. He stressed that the point of
reducing the bracket from 9 percent to 2 percent is not about
the rates companies are paying within the brackets, rather it is
about all companies paying a flat two percent; therefore, all
companies would be benefited except the ones paying 2 percent to
begin with. He said that the proposed legislation would mean a
reduction of $300 million in revenue this fiscal year.
REPRESENTATIVE CARPENTER, regarding the fiscal note, pointed out
that the FY 24 appropriation column shows a $169 million
reduction in the budget, and in the out years starting with FY
25, a $328 million reduction in revenue to the state. He
expressed the opinion that the state would have to "grapple"
with this if CIT were reduced. He suggested the proposed fiscal
package would reduce taxes in one area, and it would pick up
taxes in a different area. He continued that the shift would
have a corresponding positive impact on economic growth.
Conversely, if the state were to reduce to just CIT, the deficit
would grow. He continued that if the state were to reduce CIT,
and the state experienced economic growth into the future, the
state would see a corresponding positive impact to the economy
because of this change.
7:47:24 PM
VICE CHAIR MCCABE asked, with the fiscal note estimates, what
will happen without outside factors, like a new company coming
into Alaska. He argued that a hypothetical savings cannot be
represented by corporations foreseeing a lower CIT. He
continued that fiscal notes show what will happen right now
without outside intervention. He suggested that fiscal notes
are cut and dry, and do not show the hidden benefit or cost.
REPRESENTATIVE CARPENTER concurred that fiscal notes are just
the numbers. He pointed out that the change between the
reduction in revenue from FY 25, FY 26, and FY 27, for example,
would go from $328 million to $333 million to $350 million,
respectively. He stressed that CIT is volatile, so it is
unknown what exactly would happen. He deferred further
explanation to the Department of Revenue.
7:50:29 PM
BRANDON SPANOS, Deputy Director, Tax Division, Department of
Revenue, stated that he wrote the fiscal note and economists
performed the revenue impact analysis. He said the starting
point on the revenue impact was the revenue sources. He
elaborated that 2 percent would be applied to all and the
graduated rates would go away. He explained that the figure is
estimated to go up every year because CIT, under current law,
shows growth; therefore, HB 109 would create a reduction in CIT.
VICE CHAIR MCCABE reiterated whether the fiscal note estimates
would assume no new corporations coming to Alaska.
MR. SPANOS responded yes, in that the division did not analyze
the impact of new companies coming to the state because of a
lower tax rate.
VICE CHAIR MCCABE asked if it is possible to perform the Monte
Carlo method on such a topic.
MR. SPANO answered that the division would need to know the
assumptions. He said it has contracted with a company named
Chainbridge to do analysis, and there is an associated cost. If
there is funding in the budget, the division could request an
analysis. He said another option is to analyze recently reduced
CIT rates in other states to see the tax effects.
VICE CHAIR MCCABE responded that he is not requesting economic
modeling at this time.
7:53:46 PM
REPRESENTATIVE GRAY pointed out that 70 percent of the state's
CIT comes from oil, as the state receives $320 million in oil
and gas taxes. He asked whether the GDP growth would increase
if the state cut the revenue from oil. He further asked if
there is a mechanism for the state to reduce CIT for all non-oil
businesses to 2 percent and keep the current $300 million in
revenue from oil and gas.
REPRESENTATIVE CARPENTER responded that, to the extent the
legislature can set the rates, this is something which could be
considered. He advised that he is not suggesting this, as it
would be unfair to single out specific corporations. He
suggested that there may be other ways to do this. He continued
that the oil and gas sector is challenged with growth in Alaska,
and growing the non-oil private sector economy is the goal. He
pointed out that most Alaskans work in the non-oil private
sector, and this is where most opportunities are. He considered
that many Alaskans work in the oil and gas sector, and he
expressed the desire not to penalize this industry to grow
another portion of the state's economy. Furthermore, he
expressed the opinion that the oil industry should not be
singled out to pay more in taxes because it is already heavily
taxed.
REPRESENTATIVE GRAY referred to California's high state tax. He
said that the state's CIT rate is 8.84 percent, and it charges
every company a flat rate. He continued that, according to
Forbes, California was 3rd in GDP growth in 2021. He pointed
out that while this state is highly taxed, it still manages to
be in the top three for GDP growth for a decade.
REPRESENTATIVE CARPENTER responded that a CIT reduction would be
one part of the plan. Furthermore, Alaska has different
disadvantages compared to California, namely, the cost of
electricity. He said that economic growth in Alaska is more
than just reducing CIT, it is also providing economic activity
with a reduction in the cost of energy.
8:00:38 PM
REPRESENTATIVE GROH asked Mr. Spanos about the other factors
companies should consider, other than CIT, when opening a
business in Alaska.
MR. SPANOS answered he is a tax administrator and is not
qualified to answer the question.
REPRESENTATIVE GROH expressed concern about "giving away" more
than $3 million in tax revenue.
8:02:41 PM
REPRESENTATIVE CARPENTER expressed the opinion that the state
would not be giving away $320 million in tax revenue. He
clarified that a CIT reduction would have a corresponding impact
on the state's private sector economy. He expressed the belief
that Alaskans would like to see this happen. He suggested a
conversation on how to address the deficit question.
8:03:47 PM
VICE CHAIR MCCABE announced that HB 109 was held over.
8:03:54 PM
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Ways and Means meeting was adjourned at
8:03 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB0109A.PDF |
HW&M 3/27/2023 6:00:00 PM HW&M 4/3/2024 6:00:00 PM |
HB 109 |
| HB 109 Bill Sponsor Statement.pdf |
HW&M 3/27/2023 6:00:00 PM |
HB 109 |
| HB 109 Sectional analysis.pdf |
HW&M 3/27/2023 6:00:00 PM |
HB 109 |
| HB109-DOR-TAX-03-17-23 Fiscal Note.pdf |
HW&M 3/27/2023 6:00:00 PM |
HB 109 |
| HB 109 Presentation.pdf |
HW&M 3/27/2023 6:00:00 PM |
HB 109 |
| HB0110A.PDF |
HW&M 3/27/2023 6:00:00 PM HW&M 3/29/2023 6:00:00 PM |
HB 110 |
| HB 110 Sponsor Statement PFD Bill.pdf |
HW&M 3/27/2023 6:00:00 PM |
|
| HB 110 Sectional Analysis PFD statute.pdf |
HW&M 3/27/2023 6:00:00 PM |
|
| HB110-DOR-PFD-03-24-23 Fiscal Note.pdf |
HW&M 3/27/2023 6:00:00 PM |
|
| HB110-DOR-APFC-03-24-23 Fiscal Note.pdf |
HW&M 3/27/2023 6:00:00 PM |
|
| HW&M Municipal Taxes - Alaska Municipal League Presentation.pdf |
HW&M 3/27/2023 6:00:00 PM |