HOUSE BILL NO. 398 "An Act relating to the allocation and apportionment of income of a public utility for purposes of the Alaska Net Income Tax Act; and providing for an effective date." 1:40:12 PM BRODIE ANDERSON, STAFF, REPRESENTATIVE NEAL FOSTER, relayed that the bill addressed foregone revenue. He read from a prepared statement: HB 399 is accumulation of work to address foregone revenue and provide the state with the ability to potentially capture new revenue. A brief history on how this piece of legislation was introduced. In 2014, legislation was passed that required a both Department of Revenue and Legislative Finance to create a report on Indirect Expenditures and the amount forgone revenue not captured by the State. The first Indirect Expenditure Report was submitted in 2015. In that report it identified a list of indirect expenditures within Department of Revenue that should be terminated. Then last year during the FY18 budget process, the House Finance Subcommittee for the Department of Revenue reviewed these indirect expenditures and recommended that House Finance Committee offer legislation that eliminates these indirect expenditures. HB 399 repeals certain credits and exemptions from the recommendations offered in both the Indirect expenditure report and the Sub-committee. The indirect expenditures repealed in HB 399 were selected for repeal for following reasons: The indirect expenditures did not meet legislative intent, had limited benefit or wasn't used, or their conforming purpose has changed. House Bill 399 repeals the following indirect expenditures: ? Federal Tax Credits ? Foreign Royalty Exclusions ? Reduced Rate for Capital Gains ? Credit associated with the Stranded Gas Act The combined total of the potential new revenue is up to an estimated $6.9 million dollars according to the fiscal note in front of the committee. 1:43:15 PM Mr. Anderson reviewed the sectional analysis (copy on file): Section 1 AS 43.20 Adds new section Sec. 43.20.146 Removes the exemption of multistate public utilities from water's edge reporting within the Multistate Tax Compact. Section 2 Uncodified Law Adds new section Applicability Section 1 does not take effect under AS 43.20 (Alaska Net Income Tax Act) until the effective date. Section 3 Uncodified Law Adds new section Transition: Regulations shall change to implement the legislation but not be adopted before January 1, 2019. Section 4 Effective Date Sections 1 and 2 take effect on January 1, 2019 Co-Chair Foster asked to hear from the Department of Revenue. Representative Wilson asked if the bill included nonprofits. BRANDON S. SPANOS, DEPUTY DIRECTOR, TAX DIVISION, DEPARTMENT OF REVENUE, answered that the bill would not apply to nonprofits. Representative Wilson provided a scenario where a telephone company operated in Alaska and New York. She asked whether the taxes paid would be split between both states. Mr. Spanos answered in the affirmative. He explained that the amount Alaska would receive was based on property, payroll, and sales. 1:46:14 PM Representative Ortiz shared that he had a local utility in his community owned by the city. He asked if the bill would impact the utility. Mr. Spanos answered that utilities owned by the municipality had a tax-exempt status. The bill would not apply to those entities. Co-Chair Foster spoke to utilities doing business in multiple states. He stated that typically corporations should follow the "three factor apportionment income formula". The bill would eliminate the exemption from three utilities that currently did not follow the formula resulting in all utilities following the same formula. He asked if his understanding was accurate. Mr. Spanos answered that it was partially accurate. He clarified that the statute allowed the utility to choose a different formula and the bill standardized the same formula for everyone. Co-Chair Foster OPENED and CLOSED public testimony. 1:48:48 PM Co-Chair Foster relayed amendments would be due by 5:00 p.m. 1:49:06 PM AT EASE 1:49:20 PM RECONVENED Co-Chair Foster related that the committee was comfortable with moving the bill out of committee. Co-Chair Seaton noted the bill had a new zero fiscal note from the Department of Revenue (DOR). Co-Chair Seaton MOVED to REPORT HB 398 out of committee with individual recommendations and the accompanying fiscal note. Representative Wilson OBJECTED for a clarification that the fiscal note was indeterminate for state revenue. There being NO further OBJECTION, it was so ordered. HB 398 was REPORTED out of committee with no recommendation and with one zero fiscal note from the Department of Revenue. 1:50:33 PM AT EASE 1:51:07 PM RECONVENED