SB 237-TAX CREDIT CHILD CARE/UTILITY/HOUSE/FOOD  3:00:16 PM CHAIR BJORKMAN announced the consideration of SENATE BILL NO. 237, "An Act establishing a corporate income tax credit for certain expenditures on child care services, utility rates, residential housing, and food security and availability; and providing for an effective date." 3:00:41 PM FADIL LIMANI, Deputy Commissioner, Department of Revenue, Juneau, Alaska, introduced SB 237 on behalf of the administration and explained that this legislation is also called the Alaska Affordability Act (AAA). He emphasized that this is a top priority for the Governor, who wants to ensure families continue to call Alaska home while attracting more people and families to the state. 3:01:37 PM MR. LIMANI advanced to slide 2 of the SB 237 Bill Overview: [Original punctuation provided.]   SB 237 Bill Overview  This proposed legislation focuses on four key areas: • Childcare • Housing • Energy • Food Security The idea behind this legislation is that it creates a tax incentive for Corporations and businesses to offset their corporate income tax liability for qualified expenditures in those key areas. The Department of Revenue will define the qualified expenditures through regulations. Further, the tax credits are limited to 50 percent of qualified expenditures and may not exceed 50 percent of the Corporation's tax liability for any year. MR. LIMANI pointed out that the state does not have broad based taxes; therefore, the corporate income tax is one of the few levers available to incentivize businesses to develop communities and provide economic development. 3:02:40 PM MR. LIMANI advanced to slide 3, showing FY 2023 general fund (GF) revenue from corporate income tax. He noted that the total is approximately $436 million and pointed out that 70 percent of this is tied to oil and gas. He stated that the $436 million does not include the $7.6 million that is deposited into the Constitutional Budget Reserve Fund (CBRF). 3:03:14 PM SENATOR GRAY-JACKSON referred to the chart on slide 3 and asked why tourism is a negative amount. MR. LIMANI answered that this is due to the carryover from the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and deferred to Acting Deputy Director Mike Williams. 3:03:43 PM MICHAEL WILLIAMS, Acting Deputy Director, Tax Division, Department of Revenue, Anchorage, Alaska, explained that under the federal CARES Act, corporations that had net losses during the years of 2018, 2019, and 2020 were allowed - under federal statute - to carry back those losses for up to five years and claim refunds. There was a process for filing those claims - due to the timing of filing claims and paying out refunds, some of this refund process carried over into FY 2023. The roughly $18 million in negative revenue is attributed to those refund claims. 3:04:37 PM MR. LIMANI advanced to slide 4: [Original punctuation provided.] SB 237 Estimated Revenue Impact  At this time, we don't have clear visibility on the revenue impact as we can't predict taxpayer behavior and how much they may contribute to each of these areas; however, we have run an analysis and determined the maximum revenue impact to the State on Corporate Income Tax Revenue would range from ($238) million in FY25 to ($267) million in FY30. MR. LIMANI explained that the chart on slide 4 looks at the maximum impact on both non-petroleum and petroleum corporate income tax revenue for FY 2025 ($(87.5) million non-petroleum, $(150.1) million petroleum) through FY 2030 ($(126.3) million for non-petroleum, $(140.5) million petroleum). 3:05:39 PM MR. LIMANI advanced to slide 5: [Original punctuation provided.] SB 237 Implementation Cost  The department will need to make minor changes to its Tax Revenue Management System (TRMS) and tax forms to implement this bill. The Tax Division will use existing resources to absorb the costs to update tax forms, TRMS, and other miscellaneous implementation costs. 3:06:21 PM MR. WILLIAMS advanced to slide 6 and discussed the sectional analysis for SB 237: [Original punctuation provided.] SB 237 Sectional Analysis  Section 1: Adds a new section at 43.20.022 which creates a new tax creditthe Alaska affordability tax credit. The amount of the credit is up to 50 percent of a corporation's tax liability. The credit is 50 percent of qualifying expenditures for employer- provided childcare, residential heating and electricity affordability, housing affordability, and food affordability. The bill authorizes the department to adopt regulations that define qualifying expenditures. A contribution claimed as an Alaska affordability tax credit could not also be the basis for a different tax credit or be allowed as a federal tax deduction, which is the basis for computing the Alaska corporate income tax. The credit is nontransferable and cannot be carried forward or backwards. Section 2: The credit takes effect January 1, 2025. 3:07:43 PM SENATOR DUNBAR presented an example of a large corporation that used the tax credit to set up a childcare facility for employees. They offset overhead costs using the tax credit and charge a fee to their employees (a subsidized rate). He asked how this would interact with the tax credit and if the corporation would be prohibited from charging a rate - or if there would be any restrictions on the rate charged to employees. He questioned whether the corporation could potentially make money off of the daycare or if it would be revenue neutral. 3:09:07 PM MR. WILLIAMS said that this is a complex question, some of which would require follow-up. He explained that under Section 129 of the Internal Revenue Code an employer can provide a certain amount of childcare to employees before it is considered "compensation" to the employee. Likewise, the employee can make elected, tax-free deferrals for childcare after a certain amount (typically $5,000) of provided childcare for employer or employee. He stated that anything beyond this could be considered compensation to the employee. If an employer is charging the employee for childcare, up to $5,000 could be excluded but anything beyond this amount would be considered taxable. He stated that there is no prohibition on how much an employer can charge an employee for the daycare (other than market factors). He opined that charging above market prices would not benefit employee retention. 3:10:48 PM SENATOR DUNBAR asked - if the employer is free to continue charging for the daycare while taking advantage of the tax - how 50 percent is the "right number". He surmised that the intention is to tip the daycare into affordability and questioned why not use 20 or 30 percent. MR. WILLIAMS stated that this would be a policy call and added that he does not know what would incentivize corporations to provide this service. 3:11:56 PM MR. LIMANI stated that childcare is a critical need across the state, particularly since emerging from the Covid-19 pandemic. Parents returning to the workforce are facing difficulty finding affordable childcare and often choose to stay home, causing a reduction in the workforce in some areas. He explained that 50 percent was chosen to incentivize corporations and provide affordable childcare for employees. 3:13:01 PM SENATOR DUNBAR stated that, while he understands this, over $200 million is a lot. He pointed out that the Governor vetoed $7.5 million out of Head Start, which functions as daycare for many low-income families. SB 237 would benefit middle-class and upper middle-class families. He acknowledged that childcare support is needed and suggested that adjusting the fiscal note to $150 million would still tip childcare into affordability. The remaining $50 million could be used to expand head start programs. He opined that, without additional data, 50 percent appears to be an arbitrary number. He requested additional data utilizing different percentages and information from other states that have implemented something similar. 3:14:20 PM MR. LIMANI stated that from that perspective - and considering the education component, where there are contributions - the maximum contribution is not reached. He reiterated that the intention of SB 237 is to make it worthwhile for corporations to do offer these services. He stated that even at 50 percent, it is not known whether businesses would entertain the necessary infrastructure to consider this. He indicated that this may be even more difficult to ascertain for energy and housing, which are much more complex and costly than childcare. 3:15:38 PM CHAIR BJORKMAN held SB 237 in committee.