CS FOR SENATE BILL NO. 83(FIN) "An Act relating to the corporation income tax; relating to the computation of interest under the look-back method applicable to long-term contracts in the Internal Revenue Code; and providing for an effective date." Representative Costello moved the bill before the committee. 10:27:28 AM SENATOR PETER MICCICHE, SPONSOR, communicated that in addition to its focus on corporate income tax, the bill was about fairness and simplicity. He detailed that currently for state and federal corporate income tax purposes contractors undertaking large multi-year projects such as highways, schools, and university buildings were required to estimate their total profit on a project and to pay income tax on the portion of the project completed in a given tax year. He stated that it was impossible to predict in the first year of the project what the actual cost or profit would be. He furthered that upon completion of the project and once the profit amount had been determined, the contractor filed look-back taxes (an amended return). He expounded that a contractor either owed additional taxes or received a refund based on whether the profit had been over or under estimated; interest was owed on the additional taxes due or the refund to be paid. Senator Micciche relayed that although the Internal Revenue Service (IRS) code had a specific provision for over and under payments of estimated taxes for the multi-year projects, existing state laws considered the payments to be delinquent and applied an 11 percent interest rate. The state made no distinction between its system of estimating taxes based on a contractor's best knowledge and a tax payer who did not make a timely filing. He believed there should be a distinction. He stated that the bill would tie the interest rate to a recognized index as opposed to the 11 percent interest currently paid by the state and contractors. He noted that the current interest rates charged by the state were outdated. Senator Micciche expounded that the bill would correct the interest issue, simplify the process for contractors, and adopt the IRS bulletin rates for look-back taxes on long- term projects allowing contractors and the state to use the same interest pay schedules for state taxes as the federal system. Currently the interest rate was 2 percent for under payments when the profit had been underestimated and over payments when the state owed money in the amount of $10,000 or less; interest was currently levied at 0.5 percent on amounts greater than $10,000. He relayed that the rate fluctuated and was published quarterly. The CS specified the tax policy would be in effect for the entire 2013 calendar tax year. 10:30:10 AM Co-Chair Stoltze stated that there were two potential amendments. He expressed desire for a more thorough discussion on the legislation and how the amendments would impact it. He thought the second amendment related to helping commercial seiners in Southeast. Senator Micciche noted that the second potential amendment related to hatcheries. He reiterated the bill focused on a fairness issue. He pointed to multiple letters of support from general contractors, the Association of General Contractors, bankers, public accountants, surety and bonding brokers, and others. He emphasized the bill would be good for the state. He relayed that he would review the amendments. He stated that he had worked on the bill all session and would prefer to not include items that may prevent the bill from moving forward in the current year. Co-Chair Stoltze communicated his desire for a deliberative discussion. JOHN MACKINNON, EXECUTIVE DIRECTOR, ASSOCIATED GENERAL CONTRACTORS OF ALASKA, was available for questions. Representative Costello asked for Mr. Mackinnon to comment on the bill. Mr. Mackinnon testified in support of the bill. He stated that an 11 percent interest rate had been in place since the early 1980s. He remarked that his first home loan had been over 10 percent in 1981. The bill brought the rate in line with the current federal rate and made a clear distinction that the returns were amended. He opined that referring to an amended return as a delinquent tax unfairly characterized contractors' and C corporations' efforts to be honest. He furthered that the current system unfairly penalized C corporations, given that they were the only businesses paying taxes to the state. He explained that most contractors were limited partnerships, sole proprietorships or S corporations that paid no taxes. Co-Chair Stoltze recalled that the state had opposed the imposition of the interest rate when it had been litigated against by out-of-state commercial fishermen in the Carlson case. He communicated that the state had gone to the supreme court on the unfairness of the rates. He believed the state was on the record related to its position on the interest rates. 10:35:45 AM IDONNA PIPER NELSON, PARTNER, DAVIS CONSTRUCTORS AND ENGINEERS, ANCHORAGE (via teleconference), spoke in favor of the bill. She relayed that the company had chosen to be a C corporation; it was not objecting to paying the look- back taxes, but wanted to be treated the same way by the state as it was by the federal government. She had begun work on the issue with legislators during the past several years. She thanked the committee and urged the passage of the legislation. Co-Chair Stoltze CLOSED public testimony. Co-Chair Stoltze discussed the amendments and asked sponsors to provide them to his office. SB 83 was HEARD and HELD in committee for further consideration. [Note: The meeting was recessed at 10:41 p.m. until 1:12 a.m. on April 12, 2013 and CSSB 83(FIN) was reported from committee at that time. See April 12, 2013, 1:12 a.m. minutes for detail.] 10:38:28 AM RECESSED 1:53:19 PM RECONVENED