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." 1:14:04 AM Representative Holmes MOVED to adopt Amendment 1. Co-Chair Stoltze OBJECTED for discussion. Page 1, line 3, following "Code;": Insert "relating to the assignment of certain tax credits;" Page 1, following line 8: Insert a new bill section to read: "* Sec. 2. AS 43.55 is amended by adding a new section to read: Sec. 43.55.029. Assignment of tax credit certificate. (a) An explorer or producer that has applied for a production tax credit under AS 43.55.023(a), (b), or (l) or 43.55.025(a) may make a present assignment of the production tax credit certificate expected to be issued by the department to a third-party assignee. The assignment may be made either at the time the application is filed with the department or not later than 30 days after the date of filing with the department. Once a notice of assignment in compliance with this section is filed with the department, the assignment is irrevocable and cannot be modified by the explorer or producer without the written consent of the assignee named in the assignment. If a production tax credit certificate is issued to the explorer or producer, the notice of assignment remains effective and shall be filed with the department by the explorer or producer together with any application for the department to purchase the certificate under AS 43.55.028(e). (b) To be effective, the assignment does not require the approval or consent of the department. The assignment must, at a minimum, (1) be made in writing and signed by an officer or legally qualified agent of the explorer or producer making the assignment and the assignee, respectively; (2) identify the explorer or producer making the assignment, the assignee in whose favor the assignment is being made, and the production tax credit application that is the subject of the assignment; (3) define the interest in the production tax credit being assigned, expressed as either an amount in dollars, which may not exceed 90 percent of the credit applied for, or a percentage of the credit to be issued by the department; (4) specify an account with a bank located in the state, with sufficient information for the electronic transfer of funds, to receive any future proceeds from the purchase of the tax credit certificate under AS 43.55.028(e); (5) cite this section and acknowledge that, once filed with the department, the assignment is irrevocable and cannot be modified without the written consent of the assignee. (c) An assignment complying with this section creates a property interest owned by the assignee in the application and any production tax credit certificates issued by the department to the explorer or producer and any future proceeds resulting from the application, in the amount or to the extent set out in the assignment. An assignee may create a valid and enforceable security interest in that property as otherwise provided by law. (d) Notwithstanding any other provision of law, and to the maximum extent permitted under federal laws, an assignment complying with this section shall give the assignee a first priority claim, not dischargeable in bankruptcy, against the proceeds received by the explorer or producer, including its estate, trustee or other representative, resulting from the production tax credit application that is the subject of the assignment under this section, if the assignee has taken the steps necessary under state and federal law to perfect a security interest in the assignment. (e) Nothing in this section affects the terms and conditions otherwise required for an explorer or producer to qualify for a production tax credit or the determination by the department of the amount of credit the explorer or producer is qualified to receive. (f) Neither the state nor the department, or any other agency, officer, or employee of the state, shall be subject to suit or any claim arising out of or in connection with an assignment made under this section, whether by act or omission. (g) The department may adopt regulations to carry out the purposes of this section." Representative Holmes explained that the amendment would allow gas producers the ability to receive credits, which could be pledged as collateral on loans to facilitate additional drilling. The language was vetted through Department of Revenue (DOR) and Department of Law (DOL). The amendment specified hold harmless language for the state. Requirements for credit qualification were not affected for the explorer/producer. 1:16:32 AM BRUCE TANGEMAN, DEPUTY COMMISSIONER, DEPARTMENT OF REVENUE, stated that the department viewed the amendment as "solid." The amendment would help further the goal of opening private equity markets to the smaller investors in the state. Representative Wilson asked if the amendment would allow similar advantages to producers on the North Slope. Representative Holmes believed that the amendment applied only to Cook Inlet and Middle Earth. 1:18:27 AM Representative Gara asked for an estimate of the bill's potential revenue cost for the state. Mr. Tangeman replied that the amendment would not cost the state in revenue because of the existing estimates and projections for tax credits. The projections for tax credits would remain the same with the introduction of a third party. Representative Gara asked if the bill would result in less oil revenue from the exchange of tax credits. Mr. Tangeman replied no and stated that a company must continue to qualify and apply for the tax credit. The change was the inclusion of a third party in the transaction. Senator Micciche added that the tax credits would remain the same. The ability to assign credits for collateral was different with the amendment. The goal was to bring additional gas to Cook Inlet consumers. The fiscal note was zero, but the benefit to smaller producers would be great. 1:20:36 AM Representative Kawasaki asked about the introduction of the third party. He asked if the certificate could be used against a tax liability. Mr. Tangeman replied that the third party was a lender who would work with the small company. The credit would flow to the third party lender and either remain with the lender as collateral or transfer to the small company. Senator Micciche stated that the tax credit was a real asset that would be used as collateral to reduce the cost of the loan. Co-Chair Stoltze WITHDREW his OBJECTION. There being NO further OBJECTION, Amendment 1 was ADOPTED. 1:22:42 AM Representative Munoz MOVED Amendment 2. Co-Chair Stoltze OBJECTED for discussion. Page 1, line 1, following "Act": Insert "making the income received by a regional aquaculture association or a salmon hatchery permit holder from the sale of salmon or salmon eggs under or from a cost recovery fishery exempt from the corporation income tax;" Page 1, line 3, following "Code": Insert "providing for an effective date by repealing the effective date of sec. 8, ch. 51, SLA 2012;" Page 1, following line 4: Insert new bill sections to read: "* Section 1. AS 43.20.012(a) is amended to read: (a) The tax imposed by this chapter does not (1) apply to an individual; (2) apply to a fiduciary; [OR] (3) for a tax year beginning after December 31, 2012, apply to an Alaska corporation that is a qualified small business and that meets the active business requirement in 26 U.S.C. 1202(e) as that subsection read on January 1, 2012; or (4) for a tax year beginning after June 30, 2007, apply to the income received by a regional association qualified under AS 16.10.380 or nonprofit corporation holding a hatchery permit under AS 16.10.400 from the sale of salmon or salmon eggs under AS 16.10.450 or from a cost recovery fishery under AS 16.10.455. * Sec. 2. AS 43.20.012(a), as amended by sec. 1 of this Act, is repealed and reenacted to read: (a) The tax imposed by this chapter does not apply to (1) an individual; (2) a fiduciary; or (3) the income received by a regional association qualified under AS 16.10.380 or nonprofit corporation holding a hatchery permit under AS 16.10.400 from the sale of salmon or salmon eggs under AS 16.10.450 or from a cost recovery fishery under AS 16.10.455." Renumber the following bill sections accordingly. Page 1, line 5: Delete "Section 1" Insert "Sec. 3" Page 1, following line 8: Insert new bill sections to read: "* Sec. 4. AS 43.20.012(c) and 43.20.012(d) are repealed July 1, 2023. * Sec. 5. Section 8, ch. 51, SLA 2012, is repealed. * Sec. 6. The uncodified law of the State of Alaska is amended by adding a new section to read: TRANSITION; CLAIM FOR CREDIT OR REFUND. Notwithstanding the limitation on the period in which a person may file a claim for credit or refund of a tax paid under AS 43.20, a person that has paid a tax under AS 43.20 on income that is exempt under AS 43.20.012(a)(4), as enacted by sec. 1 of this Act, may file a claim for credit or refund on the tax paid on the exempt income within two years after the effective date of sec. 1 of this Act." Renumber the following bill sections accordingly. Page 1, line 11: Delete "Section 1" Insert "Section 3" Page 1, line 12: Delete all material and insert: "* Sec. 8. Section 45, ch. 51, SLA 2012, is repealed. * Sec. 9. Section 2 of this Act takes effect July 1, 2023. * Sec. 10. Except as provided in sec. 9 of this Act, this Act takes effect immediately under AS 01.10.070(c)." Representative Munoz explained the amendment clarified in statute that regional aquiculture associations or salmon hatcheries were exempt from state corporate income tax. The provision allowed for the repayment of corporate taxes paid due to a federal audit. The audit resulted in an automatic imposition of the state income tax on the federal charge levied against Southern Southeast Regional Aquiculture Association. The hatcheries were always considered exempt from state income tax and were initially established as nonprofit associations with the cost recovery model, which allowed them to derive revenue from the salmon sold. The amendment would confirm the hatcheries' exemption in statute. 1:24:24 AM Co-Chair Stoltze asked what had triggered the hatchery's scrutiny. Representative Munoz replied the IRS audited two nonprofit hatcheries in 2010. Some cost recovery operations were considered taxable by the IRS, which led to arbitration and a settlement with a payment including back payments to 2008 of $2.15 million. The state automatically implemented the corporate income tax on the facility. Co- Chair Stoltze asked if the corporate income tax was triggered by the federal income tax. Representative Munoz replied in the affirmative. 1:25:46 AM Representative Wilson asked how the federal government was involved. Representative Munoz replied that the state continued to challenge the levy of federal taxes. The impact of federal taxes could eventually affect all Alaskan hatcheries, which would ultimately affect the number of fish available for commercial harvest. 1:27:00 AM Vice-Chair Neuman asked Representative Munoz if a bill in another committee addressed a similar issue. Representative Munoz responded that the amendment was proposed to her by Representative Peggy Wilson. SENATOR MICCICHE, stated that he initially declared a conflict with the amendments since the bill originally addressed C corporation look-back taxes. He had come to believe that both amendments fit well into the legislation. He noted that the companion bill was hosted by Representative Costello. 1:29:11 AM REPRESENTATIVE PEGGY WILSON, stated that nonprofit hatcheries had never been taxed in Alaska and she questioned the wisdom of the process. To recover the costs, hatcheries would require more fish, which would affect salmon numbers in Alaska. Co-Chair Stoltze WITHDREW his OBJECTION. There being NO further OBJECTION, Amendment 2 was ADOPTED. Representative Costello discussed the fiscal note from DOR. She stated that the fiscal note showed indeterminate change in revenues. Representative Munoz MOVED to REPORT HCS CSSB 83(FIN) as amended out of committee with individual recommendations and the accompanying fiscal note. There being NO OBJECTION, it was so ordered. HCS CSSB 83(FIN) was REPORTED out of committee with a "do pass" recommendation and with one previously published indeterminate fiscal note: FN1(REV). 1:33:56 AM