SENATE BILL NO. 7 am "An Act relating to the computation of the tax on the taxable income of a corporation derived from sources within the state." 2:04:47 PM Co-Chair Stoltze discussed the meeting schedule. Representative Costello MOVED to ADOPT the proposed committee substitute for SB 7 am, Work Draft 28-LS0104\C, (Bullock, 4/9/13). Co-Chair Stoltze OBJECTED for discussion. DANIEL GEORGE, STAFF, REPRESENTATIVE BILL STOLTZE, addressed the changes in the CS. He communicated that the bill was the companion to HB 68. He explained that the tax bracket for the first $25,000 had been zeroed out in the Senate, which had inadvertently caused tax bracket calculations to add up incorrectly; no relief was reflected for corporations earning over $25,000. The CS added items related to the film tax incentive program beginning in Section 2. The first item was included on page 2, line 29 through page 3, line 6 and prohibited certain content including news, weather, current event programming, industrial and corporate purposes, advertisements and infomercials, political advertisements, and sexually explicit content. He stated that the items were originally prohibited under the current film tax program that would expire on June 30, 2013. He noted that the prohibitions had not been carried forward when the program had been continued the prior year. Co-Chair Stoltze remarked that not carrying the prohibitions forward had been an omission rather than commission. Mr. George addressed the second change to the film tax incentive program (page 3). He pointed to a Legislative Legal Services document (copy on file) that explained the transition language. He relayed that the provision would allow individual productions that qualified under the old program to finish their productions and to continue receiving the film tax credits instead of needing to reapply in the new program. Co-Chair Stoltze asked the department to comment on the language. 2:09:46 PM ROBERTA GRAHAM, ASSISTANT COMMISSIONER, DEPARTMENT OF COMMERCE, COMMUNITY AND ECONOMIC DEVELOPMENT (DCCED), shared that DCCED believed the language provided the necessary transition to allow the film office to complete projects that had received a notice of qualification and were currently underway. She expounded that without the language there would be more than 55 productions that would have to go through a reapplication process; the process would require considerable time and effort. She stated that the department supported the amendment. Co-Chair Stoltze referenced some negative public reaction to legislative efforts and remarked on working to do the right thing despite the comments. He believed the reaction would be forgotten once the bill had passed. Representative Costello asked for comment about the first addition included in Section 2. Ms. Graham responded that Section 2 would exclude five types of productions that had been in the original bill prior to a change made in the previous year. She stated that the items were important to exclude; DCCED supported the exclusion of news and weather programming and sexually explicit films. 2:12:33 PM Co-Chair Austerman asked how the department felt about the benefit of having the film industry in Alaska versus the amount of tax the state credited back to the industry. Ms. Graham answered that the film industry was in its infancy in Alaska. She referenced a 2012 legislative audit that looked at the financial and the operational pieces of the film incentive program, which estimated a return to the state of approximately $18 million. She added that the department's estimate of return to the state was more conservative at approximately $10 million; it included the ground spend in Alaska plus wages earned by Alaskans less the tax credit. She expounded that the program had been successful in its employment of Alaskans and in bringing productions to the state. Co-Chair Stoltze appreciated the department's endorsement. He WITHDREW his OBJECTION. There being NO further OBJECTION, Work Draft 28-LS0104\C was ADOPTED. SENATOR CATHY GIESSEL, SPONSOR stated that SB 7 would update the corporate income tax brackets. She explained that idea for the legislation was a result of a conversation with business owners who had pointed out onerous tax brackets. She explained that the top tax bracket was reached at a taxable income of $90,000. She furthered that the tax brackets had been set in 1981; there had been significant inflation since that time, which had resulted in a tax increase for businesses. She communicated that the legislation's primary benefit was to small and medium sized C corporations. The top tax bracket would move from $90,000 of taxable income to $220,000. The major companies that would be impacted by the bill were construction, transportation, and retail. She stressed that the fiscal note was less than half of 1 percent of the corporate income tax taken in by the state from C corporations. She stated that the change was not a significant impact to the state, but that it was significant to the companies; it left more hard-earned money in their hands. Senator Giessel communicated that the bill had received wide support from individuals and many state chambers of commerce throughout Alaska including the state chamber and chambers in Fairbanks, Anchorage, Seward, Chugiak-Eagle River, Juneau, and Wasilla. She referenced a letter of support from the Nana Corporation pointing out that its shareholder businesses would benefit from the change. She stated the change was a principle of reduced government take. She expressed delight about an amendment made in the Senate that would zero out the first tax bracket. She added that the amendment had resulted in the readjustment of some of the numbers included in the bill. 2:17:24 PM Senator Giessel referred to a legislative affairs research paper in members' packets (copy on file). She pointed to a chart on page 3 and stated that the lower half of the brackets showed the current system. She discussed that her colleague in the Senate had stated that the zeroing out of the first tax bracket would impact 14,000 companies that were eligible to pay corporate income tax in 2011. She corrected that only 1,300 companies would be impacted (there were 14,000 companies that fell into the bracket (some were S Corporations and LLCs), but due to various deductions the companies would not all be affected). She reiterated that the bill would leave more hard earned money in the hands of small businesses. 2:19:26 PM Co-Chair Stoltze CLOSED public testimony. Representative Costello discussed a fiscal note from the Department of Revenue (DOR) that showed no fiscal impact to operating expenditures and an annual $5 million loss in state revenue from FY 15 through FY 19. Representative Kawasaki asked for verification that the $5 million change in revenue would result from a decrease in tax filers. He asked if fewer DOR employees would be needed to process taxes if there was a reduction in filers. JOHANNA BALES, EXECUTIVE DIRECTOR, TAX DIVISION, DEPARTMENT OF REVENUE (via teleconference), stated that there would not be fewer filers. The bill affected tax rates only; filers in the zero tax bracket would still be required to file a return. Representative Gara asked for verification that the state would collect $5 million less per year beginning in FY 15 because of the reduction to the tax rate. Ms. Bales replied in the affirmative. She detailed that the bill would adjust the tax rate down; every current tax payer would receive a reduction in their tax liability. She stated that the fiscal note of $5 million was an estimate. There were close to 1,500 tax payers who would see some reduction; some of tax payers would fall into the zero tax liability bracket. 2:22:04 PM Representative Costello addressed a zero impact fiscal note from the Department of Commerce, Community and Economic Development. Representative Costello MOVED to REPORT HCS SB 7(FIN) out of committee with individual recommendations and the accompanying fiscal notes. Representative Gara OBJECTED for discussion. He would be comfortable eliminating taxes for businesses making less than $25,000 per year or lowering the rate for businesses making less than $50,000 per year. He questioned how the state would pay for things if various revenue reducing bills and budget costs were passed; he stressed that $5 million was a significant amount of money. He communicated that he would probably cosponsor the legislation in a different year; however, under the budget circumstances he could not support it. He discussed whether the state was taxing too much and stated that the high bracket only included a 9 percent tax on taxable income over $2,000; below $2,000 was bracketed. He wished he could support the bill, but pointed to items that needed funding including infrastructure, schools, slowing down the depletion of the state's savings (until it was known whether current oil tax legislation was working - if implemented), funding a gasline, energy projects, university buildings, and other. He pointed to two $100 million university buildings currently in need of funding and surmised that there would be more $100 million buildings needing funding in the future. He did not believe the state could afford the legislation. He opined that there were other ways to reduce taxes in a less costly way, such as time limited taxes for new businesses, and eliminating "nuisance" taxes at the low end. Representative Gara WITHDREW his OBJECTION. There being NO further OBJECTION, HCS SB 7 was REPORTED out of committee with a "do pass" recommendation and with one new fiscal note from Department of Revenue and one new zero note from Department of Commerce, Community and Economic Development. 2:26:28 PM AT EASE 2:31:28 PM RECONVENED Vice-Chair Neuman took over as Chair.