HOUSE STATE AFFAIRS STANDING COMMITTEE April 12, 1994 9:30 a.m. MEMBERS PRESENT Representative Al Vezey, Chairman Representative Pete Kott, Vice-Chairman Representative Bettye Davis Representative Gary Davis Representative Harley Olberg Representative Jerry Sanders MEMBERS ABSENT Representative Fran Ulmer COMMITTEE CALENDAR HB 541: "An Act providing for an advisory vote of the people concerning a preferred alternative for increasing revenue available to support state government; and providing for an effective date." MOVED OUT OF COMMITTEE WITH NO RECOMMENDATIONS HB 420: "An Act relating to limited liability companies; amending Alaska Rules of Civil Procedure 20 and 24; and providing for an effective date." MOVED FROM COMMITTEE AS CSSSHB 420(STA) WITH NO RECOMMENDATIONS WITNESS REGISTER JAY HOGAN, Contract Worker House Finance Committee Alaska State Capitol, Room 502 Juneau, AK 99811-0460 Phone: 465-3878 POSITION STATEMENT: Addressed HB 541 REPRESENTATIVE GENE THERRIAULT Alaska State Legislature Alaska State Capitol, Room 421 Juneau, AK 99811-0460 Phone: 465-4947 POSITION STATEMENT: Prime sponsor of CSSSHB 420 LARRY MEYERS, Director Income & Excise Audit Division Department of Revenue P.O. Box 110420 Juneau, AK 99811-0420 Phone: 465-2320 POSITION STATEMENT: Commented on CSSSHB 420 WILDA WHITTAKER, Staff Representative Gene Therriault Alaska State Capitol, Room 421 Juneau, AK 99811-0460 Phone: 465-4947 POSITION STATEMENT: Answered questions on CSSSHB 420 BRIAN DURRELL, Managing Partner Bogle & Gates 1031 W. 4th Ave., Suite 600 Anchorage, AK 99501 Phone: 257-7828 POSITION STATEMENT: Answered questions on CSSSHB 420 BOB MANLEY 324 E. Cook Ave. Anchorage, AK 99501 Phone: 263-8251 POSITION STATEMENT: Answered questions on CSSSHB 420 MARY NORDALE, Attorney Robertson, Monagle & Eastaugh P.O. Box 21211 Juneau, AK 99802 Phone: 586-3340 POSITION STATEMENT: Commented on CSSSHB 420 PREVIOUS ACTION BILL: HB 541 SHORT TITLE: ADVISORY VOTE REGARDING STATE REVENUE SPONSOR(S): FINANCE JRN-DATE JRN-PG ACTION 03/23/94 2937 (H) READ THE FIRST TIME/REFERRAL(S) 03/23/94 2937 (H) STATE AFFAIRS 03/31/94 (H) STA AT 08:00 AM CAPITOL 102 03/31/94 (H) MINUTE(STA) 04/12/94 (H) STA AT 09:30 AM CAPITOL 102 BILL: HB 420 SHORT TITLE: LIMITED LIABILITY COMPANIES SPONSOR(S): REPRESENTATIVE(S) THERRIAULT,Mulder,James JRN-DATE JRN-PG ACTION 01/31/94 2206 (H) READ THE FIRST TIME/REFERRAL(S) 01/31/94 2206 (H) L&C, JUDICIARY, STATE AFFAIRS 02/24/94 2522 (H) SPONSOR SUBSTITUTE INTRODUCED-REFERRALS 02/24/94 2522 (H) L&C, JUDICIARY, STATE AFFAIRS 03/08/94 (H) L&C AT 03:00 PM CAPITOL 17 03/09/94 2676 (H) L&C RPT 1DP 3NR 03/09/94 2676 (H) DP: MULDER 03/09/94 2676 (H) NR: WILLIAMS, SITTON, HUDSON 03/09/94 2676 (H) -ZERO FISCAL NOTE (DCED) 3/9/94 03/09/94 2703 (H) COSPONSOR(S): MULDER 03/18/94 (H) JUD AT 01:15 PM CAPITOL 120 03/21/94 (H) MINUTE(JUD) 03/23/94 (H) JUD AT 01:00 PM CAPITOL 120 03/30/94 (H) JUD AT 01:15 PM CAPITOL 120 03/31/94 3106 (H) COSPONSOR(S): JAMES 03/31/94 (H) STA AT 08:00 AM CAPITOL 102 03/31/94 (H) MINUTE(STA) 04/06/94 3153 (H) JUD RPT CSSS(JUD) NEW TITLE 4DP 1NR 04/06/94 3153 (H) DP: GREEN, JAMES, PORTER, NORDLUND 04/06/94 3153 (H) NR: KOTT 04/06/94 3153 (H) -PREVIOUS ZERO FISCAL NOTE (DCED) 3/9/94 04/07/94 (H) STA AT 08:00 AM CAPITOL 102 04/07/94 (H) MINUTE(STA) 04/12/94 (H) STA AT 09:30 AM CAPITOL 102 ACTION NARRATIVE TAPE 94-46, SIDE A Number 000 CHAIRMAN AL VEZEY called the meeting to order at 9:35 a.m. Members present were REPRESENTATIVES G. DAVIS, B. DAVIS and OLBERG. The meeting is on teleconference with Anchorage and Fairbanks. HB 541 - ADVISORY VOTE REGARDING STATE REVENUE CHAIRMAN VEZEY opened HB 541 for discussion. He noted HB 541 had been heard once before. Number 019 JAY HOGAN, CONTRACT WORKER, HOUSE FINANCE COMMITTEE, addressed HB 541. He stated the House Finance Committee sponsored HB 541 at the request of the majority membership. HB 541 would put before the voters at the upcoming general election, a preference question whether voters would prefer as a revenue raising option, a state income tax, state sales tax or some adjustment to permanent fund dividends. MR. HOGAN focused on information in committee members' packets that is headed "NEWS RELEASE." He stated this report is the Department of Revenue's best range estimates as to what the taxes or capping of dividends might produce. The personal income tax is estimated at a production of $250-$400 million a year. The sales tax is estimated at $50-$100 million a year. The report gives gross receipts as an option. Another page illustrates the effect of capping the permanent fund dividend. (REPRESENTATIVE KOTT joined the meeting at 9:37 a.m.) CHAIRMAN VEZEY noted REPRESENTATIVE KOTT's arrival. Number 073 REPRESENTATIVE OLBERG moved to pass HB 541 from committee with individual recommendations. Number 075 CHAIRMAN VEZEY asked the committee secretary to call the roll. IN FAVOR: REPRESENTATIVES VEZEY, B. DAVIS, G. DAVIS, OLBERG. OPPOSED: REPRESENTATIVE KOTT. ABSENT: REPRESENTATIVES ULMER, SANDERS. MOTION PASSED CSSSHB 420: "An Act relating to limited liability companies; and providing for an effective date." CHAIRMAN VEZEY opened CSSSHB 420 for discussion. He noted it was heard the previous Thursday. Number 097 REPRESENTATIVE GENE THERRIAULT, sponsor, addressed CSSSHB 420. He noted REPRESENTATIVE ULMER had received information that explained exactly what was happening on a national level with limited liability companies (LLC). He explained part of REPRESENTATIVE ULMER's concern regarded the potential impact to the state's corporate receipts if LLC legislation were to pass. He believed it would be minimal. The business structures impacted would be those currently filing under subchapter S status, or using the partnership form. He did not believe very many corporations or C corporations would be impacted, primarily because LLCs can have no more than one of the following attributes: 1) centralized management; 2) continuity of life; or 3) free transferability of interest. Large publicly held corporations, which pay the "lion share" of the corporate tax in the state of Alaska, would want more than one of those three attributes; therefore, would not be eligible for LLC status. REPRESENTATIVE THERRIAULT commented LLCs would be forming a new business structure that would draw more from the partnership and subchapter S status, which pay no corporate tax in Alaska, than it would from larger corporations. Number 160 LARRY MEYERS, DIRECTOR, INCOME & EXCISE AUDIT DIVISION, DEPARTMENT OF REVENUE (DOR), commented on CSSSHB 420. He addressed the question as to the impact on state revenues with the formation of LLCs. The DOR has provided estimates and their fiscal note is zero for operating costs. He expressed DOR is not opposed to CSSSHB 420, however, they have some concerns. MR. MEYERS explained LLCs are a hybrid between a partnership and a corporation. He noted the DOR projections are based on what they anticipate on new filings of corporations, not conversions of existing corporations. Over the last three years, an average of 1,100 new corporations filed to do business in the state of Alaska. He commented if 10 percent of the new corporations were to elect LLC status, they project to lose $5,500 on the first full year, up to $11,000. He stated this would be the minimum. MR. MEYERS addressed the DOR's concern that Alaska also recognizes subchapter S corporations which are not subject to tax. The flow through operations are usually taxed at the individual level. Alaska does not, however, have an individual income tax. They felt the state was slowly losing revenue streams, for example, by adding LLCs. DOR wanted people aware of this. He noted other states with LLCs in place (approximately 40) have some type of tax mechanism in place, either at the individual level or with subchapter S corporations. Florida and Texas are similar to Alaska; however, they have chosen to tax subchapter S corporations and LLCs. MR. MEYERS questioned the trade off for having LLCs. LLCs are attractive, but are they so much that it is worth paying a small share of taxes for them to be included as a corporation by definition in Alaska statute. Number 222 CHAIRMAN VEZEY questioned the point MR. MEYERS was just trying to make. Number 224 MR. MEYERS clarified if they are willing to have LLCs, would the benefits of being classified as an LLC be valuable enough to be subject to taxation, thereby included in the definition of a corporation rather than a partnership. Number 237 REPRESENTATIVE HARLEY OLBERG stated from his understanding, if Alaska wanted to tax LLCs, they could define them as corporations. Number 243 MR. MEYERS affirmed REPRESENTATIVE OLBERG. Number 247 CHAIRMAN VEZEY asked which statute sets up the corporate tax. Number 248 MR. MEYERS answered AS 43.20.000 (REPRESENTATIVE SANDERS arrived at the meeting at 9:48 a.m.) Number 251 CHAIRMAN VEZEY looked up AS 43.20.000. He read AS 43.20.011. He clarified the change to the corporation definition would be in AS 43.20.340, paren 2. He inquired if this change would be better than adding LLCs to AS 43.20.011, noting the definition of LLCs would have to be added. MR. MEYERS replied DOR felt changing AS 43.20.340 would be the easiest way. Number 270 REPRESENTATIVE THERRIAULT commented he was concerned about what the impact of classifying an LLC as a corporation for the state of Alaska would be to the Internal Revenue Service determination, whether there would be flow through advantages at the federal level. REPRESENTATIVE THERRIAULT believed the DOR estimate of the potential impact was based on an average of how much each corporate entity in the state of Alaska pays in taxes. He assumed DOR took the gross receipts from the corporate income tax divided by the number of corporations to equal the potential amount of tax return from every corporation. He noted this number forgets a large percentage of them are organized under subchapter S which pay no taxes, and a large number of them pay very small taxes. He stated there are a few large corporate taxpayers in Alaska that skew their figures. Therefore, the DOR estimation is an artificially inflated number. He believed if LLCs were classified as corporations, the consequence would be double taxation at the federal level, as well as in Alaska. (REPRESENTATIVE SANDERS left the meeting at 9:51 a.m.) Number 306 REPRESENTATIVE OLBERG stated he would not recommend the committee get into the tax aspect at this point. He commented the committee should allow for the formation of LLCs. He noted since nobody has been doing LLCs for more than a year, no one would know what the consequences are. He was sure if DOR found a problem they would approach the legislature in the future. Number 314 CHAIRMAN VEZEY stated his concern was, as a person engaged in business, he wanted to see a level playing field. Why extend the opportunity to use a corporate shield to limit liability if they are not subject to the same tax structure he is subject to. He noted 9.5 percent off a business's bottom line is a significant number. Number 327 REPRESENTATIVE THERRIAULT pointed out there were a lot of technical changes incorporated into the Judiciary committee substitute. He asked that the committee consider it. CHAIRMAN VEZEY clarified the committee had before them a blank committee substitute of CSSSHB 420, version R. REPRESENTATIVE THERRIAULT explained that a summary of the changes to the Judiciary committee substitute was in the packets. Number 358 CHAIRMAN VEZEY clarified version R, CSSSHB 420, included the changes being proposed by REPRESENTATIVE THERRIAULT to CSSSHB 420, version O. REPRESENTATIVE THERRIAULT said yes. Number 391 WILDA WHITTAKER, STAFF, REPRESENTATIVE THERRIAULT, clarified they went into Judiciary with version K, changes in Judiciary resulted in version O, proposed changes by REPRESENTATIVE THERRIAULT to the Judiciary CS resulted in version R. CHAIRMAN VEZEY moved to the Anchorage teleconference site. Number 411 BRIAN DURRELL, MANAGING PARTNER, BOGLE & GATES, testified via teleconference from Anchorage, on CSSSHB 420. He directed to the DOR fiscal note. He felt the fiscal note drastically overstated any potential negative revenue impact and fails to account for the positive revenue aspects of CSSSHB 420. MR. DURRELL stated the positive aspects a detailed fiscal note might include. Registration and filing fees will generate revenue; however, in the Department of Commerce. Out-of-state business will be attracted. There would be an elimination of any carryover or net operating losses from C corporations or S corporations that may choose to convert to LLC status. There will be general stimulation from new business formation and activity. Most importantly, if any corporations choose to convert to LLC status, they would liquidate; thereby triggering all of the unrealized gains in those corporations and producing significant revenue in the form of taxes. He understood these factors would be difficult to calculate in revenue impact, however, they would all be positive. MR. DURRELL criticized the DOR fiscal note. He questioned the 1,100 new corporations being the basis upon which the revenue loss is calculated. He stated only about 28 percent of the Alaskan corporations presently in Alaska filed tax returns that reflected tax liability. The DOR fiscal note is based upon 100 percent. He questioned the average tax liability used as an assumption in the DOR fiscal note. The large publicly held corporations, which cannot practically organize as LLCs, skew the figure significantly. An average tax liability selected should be on the bottom end of the assumption. He believed 60 percent of the corporations who pay taxes, pay $500 or less. These corporations are the focus. He questioned the percentage of corporations that might organize as LLCs. DOR states between 10 and 50 percent of corporations might choose to organize as LLCs. He emphasized most organized C corporations, even if LLC legislation were passed, would continue to organize as C corporations. He stated businesses most likely to choose LLC status are those who would have otherwise selected partnerships or S corporate status. MR. DURRELL referred to Florida and Texas that have treated LLCs as corporations and taxed them. He emphasized these states are very different from Alaska because they also have an income tax on S corporations. Alaska does not. He stated if Alaska were to tax LLCs, no one will use the structure and an uneven playing field will be created, referring to the difference there would be between LLCs and S corporations. S corporations flow through to the shareholders and would not have taxes applied to them. REPRESENTATIVE OLBERG asked MR. DURRELL to address CHAIRMAN VEZEY's concern that an LLC, not subject to corporate tax in a state with no income tax, would have an unfair advantage in competing with a regular corporation. Number 518 MR. DURRELL answered 3,000 pay C corporations pay corporate income tax. The policy decision was that S corporations do not have to pay a tax. He noted S corporations surpass C corporations in filing returns. LLCs are more akin to S corporations; for federal purposes there is a flow through of profits and losses to the members of an LLC, likewise S corporations have a flow through to the shareholders. He felt it was important to keep the two entities on an even level in terms of taxation. If a tax on LLCs was considered, an S corporation tax would be necessary to keep the playing field level. He pointed out the reason Florida and Texas imposed a tax on LLCs was because they have a tax on S corporations. Number 541 REPRESENTATIVE THERRIAULT commented he believed the DOR estimate was also based on a cumulative function. They begin in 1995 and compound the corporations they believe would have been formed over the years, but now elect the LLC status. The "snowballing effect" of this estimate discounts the fact that most business start-ups do not make it over the long haul. He felt there would not be an accumulation. He stated if there was an impact, it would reach a threshold after a few years when businesses begin to close down because they have not proven themselves to be economically viable. Number 556 CHAIRMAN VEZEY said he was not very familiar with people operating under S corporation status. He did not believe it was an attractive status, therefore not often used. He assumed LLC status would be attractive because of the limited liability or corporate shield. Number 567 MR. DURRELL responded S corporations provide the same liability limitations as C corporations; however, they offer a pass through of profits and losses to the shareholders without taxation by the state of Alaska. He stated S corporations are attractive to closely held businesses that would like to form as a corporation. Number 579 CHAIRMAN VEZEY stated he was most familiar with the construction and mining industry. He commented he was not trying to say there were not S corporations in those industries, but he was not aware of any. Number 583 MR. DURRELL stated forming as an S corporation depends upon a whole host of factors the organizers of the corporation would consider. From his practice, well over half the corporations he deals with elect S status to provide, at the federal tax level, a flow through of the income to the shareholders. They report it on their personal returns. He compared this with the C status, whereby a double tax is in place taxing the corporate and shareholder level. He noted the corporate income tax rate highest marginal rate, is significantly lower than the highest individual rate. For this reason, some businesses may still elect C status. Number 599 CHAIRMAN VEZEY speculated there were no S corporations in the construction industry because it is very dependent upon financial responsibility. Number 606 MR. DURRELL agreed. He stated LLCs would be held by publicly held or large corporations in the mining industry, in lieu of joint ventures. Number 610 CHAIRMAN VEZEY agreed. He questioned how joint ventures were treated tax wise. He had thought they did not normally pay taxes because they pass them through to the partners or corporations. Number 617 MR. DURRELL said correct, and an LLC would work exactly the same for those organizations in a joint venture. The advantage of using an LLC over a corporate venture would be that they would not need to form a wholly-owned subsidiary to serve as a joint venture partner. The corporation could enter into the LLC as a member. Number 623 CHAIRMAN VEZEY noted a C corporation has to be financially viable and well capitalized, depending on the type of work it does. He questioned if an LLC would cumulate retained earnings, thereby avoiding the state of Alaska corporate structure. Paying taxes is the cost of accumulating capital. MR. DURRELL answered now all of the profits and losses would be allocated to the partner and at the federal level, they would pay taxes. The accounting would be much like a partnership, consequently the LLC would not gain retained earnings as a corporation would. MR. DURRELL noted the Judiciary subcommittee addressed the question of LLC entity solvency. How would third parties dealing with an LLC be protected. How could it be assured that the LLC will have the solvency needed to meet its obligations. Distribution formulas were worked on to assure that no funds could come out of the LLC, minimizing the risk creditors being left "holding the bag." Number 650 CHAIRMAN VEZEY clarified the LLCs would have to retain capital to meet their liabilities. MR. DURRELL agreed. Number 653 CHAIRMAN VEZEY inquired about retaining capital to improve the LLCs financial responsibility status. He mentioned, for example, an LLC's ability to acquire surety bonds in its own name. Number 658 MR. DURRELL responded LLCs would have the power to obtain surety bonds; however, it would be up to the bonding company. He believed the bonding may ask for personal guarantees from the primary equity holders in the LLC. Number 663 REPRESENTATIVE THERRIAULT mentioned the Alaska Bankers Association's (ABA) concerns were dealt with in the Judiciary committee. The questioned if LLCs would put lending institutions and suppliers at a greater risk. He noted the Judiciary committee substitute, ABA's suggested language and further modifications were incorporated into CSSSHB 420, version R. He stated the lending organizations would want personal guarantees from LLCs. Number 675 MR. DURRELL referred to Article 9, beginning with AS 10.50.290 and specifically AS 10.50.305, restrictions on distribution. Number 678 CHAIRMAN VEZEY continued to question if an LLC would cumulate retained earnings or build a working capital base of its own. Number 681 BOB MANLEY, testified via teleconference from Anchorage. He addressed questions on CSSSHB 420. He said CSSSHB 420 is a flexible LLC statute. When an LLC is formed, it may elect to be taxed as a partnership, basically the same as an S corporation. As an alternative, the LLC can assume additional corporate characteristics and be taxed as a corporation. He noted retained earnings are basically a C corporation concept. It is expensive to retain earnings in an S corporation because, regardless if the money is taken out, the shareholder still pays taxes on the earnings. He felt this is why corporations who want to retain earnings take advantage of the lower federal corporate income tax on corporations and suffer the double taxation. TAPE 94-46, SIDE B Number 000 MR. MANLEY continued... MR. MANLEY stated LLCs would be used as replacements for S corporations or partnerships. Some people will elect LLC status for the flexible operating system over C corporation status; however, those businesses will still treat the LLC as a C corporation for tax purposes. Number 017 CHAIRMAN VEZEY commented that reassured his concerns. He questioned how the switch would be made between the two different ways to treat an LLC. Number 021 MR. MANLEY responded the complication is imposed strictly by the federal income tax code. Determining whether an entity is a partnership or a corporation for tax purposes is variable for the IRS. For example, an entity could be a trust for state law purposes, but the IRS may still decide it is a corporation for tax purposes. MR. MANLEY stated the IRS has four characteristics to identify corporations: 1) limited liability; 2) centralized management; 3) free transferability of interests, or 4) continuity of life. If the organization has two or less of these characteristics, it would be a partnership for tax purposes. If the organization has more than two, it is taxed as a corporation. Therefore, when forming an LLC, the organization already having limited liability, would have to decide which two of the other characteristics it wanted. Electing two additional characteristics would make the LLC be taxed as a C corporation. Number 069 CHAIRMAN VEZEY called for a recess at 10:28 a.m. The meeting was reconvened at 10:35 a.m. Members present were REPRESENTATIVES G. DAVIS, OLBERG, B. DAVIS and SANDERS. CHAIRMAN VEZEY stated MR. MANLEY had been commenting on the guidelines used by the IRS to establish the applicable tax structure. He felt MR. MANLEY had not said anything that really applied the state of Alaska's corporate tax structure. Number 081 MR. MANLEY agreed. He replied, it was his understanding that the state of Alaska simply adopts the classification established under the federal rules and guidelines. He was sure DOR could make its own independent statutable determination because the rules are exactly the same. He noted this is how entities taxation structures are determined. Likewise, Alaska adopts the same S classification system, whereby under certain circumstances an entity can elect to have itself taxed similarly to a partnership, avoiding the double taxation. MR. MANLEY emphasized S corporations are not taxed in Alaska. He referred to Mr. Meyers' testimony and stated he was pointing out a new source of revenue. The critical point is, if S corporations are going to be taxed, LLCs also need to be. He stated taxing LLCs and not S corporations would be unreasonable because no one would organize an LLC. CSSSHB 420 would never be used and no extra tax revenue would be generated. Number 120 CHAIRMAN VEZEY clarified Alaska follows federal guidelines to determine whether an entity is subject to corporate tax. MR. MANLEY agreed. Number 130 MR. DURRELL pointed out there is an incorporation by reference statute in Title 43. Number 134 MR. MEYERS joined the table again. He stated the testimony had been correct, whereby they would adopt by reference, the internal revenue code. He clarified each state that has passed LLC legislation has sought a ruling by the IRS of what the tax status would be for federal purposes. He noted most states have followed the IRS decision, and Alaska would follow suit. (REPRESENTATIVE KOTT rejoined the meeting at 10:39 a.m.) Number 149 CHAIRMAN VEZEY stated Alaska statutes set up a corporate tax structure that defines a corporation as "an association, a joint stock company, or an insurance company." He questioned the meaning of this definition. He felt it meant a corporation could be anything a person wanted it to be. He inquired how DOR presently determines who to assess a corporate tax to and if they are notified of their potential liability. Number 168 MR. MEYERS answered the DOR corporate tax structure is based on the entity first registering as a corporation. The corporation then elects an option. For example, subchapter S corporation. From information received from Department of Commerce, DOR expects to see a corporate return. DOR can only track through the Department of Commerce. DOR includes other areas where it expects to see a return file. The process will be similar with LLCs. They do sometimes track through the IRS. Number 195 CHAIRMAN VEZEY asked how the DOR finds out if the entity is filing a federal corporate return. MR. MEYERS answered the DOR has an exchange of information agreement with the IRS. IRS records are correlated with DOR records. Number 202 CHAIRMAN VEZEY recognized CSSSHB 420 as a complex issue. He asked what happens if an entity forms as an LLC and selects two and one-half, or three of the four characteristics. Would they still be an LLC, but treated as a corporation for tax purposes. MR. MANLEY answered correct. He directed to CHAIRMAN VEZEY's question about associations. He explained association is a term of art, therewith it is basically taxed as a corporation. The Kintner regulations set the long characteristics and definitions at treasury ranks 301.7701-1, 2 and 3. Number 240 MARY NORDALE, ATTORNEY, commented on CSSSHB 420. She stated from 1984-1986, she had been Commissioner of Revenue. On many occasions she had been required to sign fiscal notes dealing with subject matter, which was a matter of conjecture. She commented on MR. DURRELL's and MR. MANLEY's comments, with respect to the estimates contained in the fiscal note, were accurate. DOR is always criticized for underestimation and if they overestimate, they stimulate additional questions and considerations. She felt DOR significantly overestimated the impact. MS. NORDALE expressed CSSSHB 420 is another mechanism for capital formation. She stated CHAIRMAN VEZEY dealt with the problem of capital formation through the pure corporate form, with regard to retained earnings. An LLC, partnership and S corporation are all other methods. She felt Alaska needed the capital formation LLC status would offer. LLCs would have significant impact on the development of infrastructure for residential and other commercial developments. LLCs would induce the mining industry and other joint venture entities into feeling more secure about investing within the state. MS. NORDALE pointed out, even though there may insignificant loss in corporate tax revenue, there will be a growth in business which will offset the loss. She urged the committee to pass CSSSHB 420. Number 290 CHAIRMAN VEZEY, hearing no further questions, asked the pleasure of the committee. He recognized version R of CSSSHB 420, must be adopted. Number 295 REPRESENTATIVE OLBERG so moved. Number 304 CHAIRMAN VEZEY asked the committee secretary to call the roll. IN FAVOR: REPRESENTATIVES VEZEY, KOTT, B. DAVIS, G. DAVIS, OLBERG. ABSENT: REPRESENTATIVES ULMER, SANDERS. MOTION PASSED REPRESENTATIVE OLBERG moved to pass CSSSHB 420, version R, from committee with individual recommendations. Number 310 CHAIRMAN VEZEY asked the committee secretary to call the roll. IN FAVOR: REPRESENTATIVES VEZEY, KOTT, B. DAVIS, G. DAVIS, OLBERG. ABSENT: REPRESENTATIVES ULMER, SANDERS. MOTION PASSED ADJOURNMENT CHAIRMAN VEZEY, having no more business before the committee, adjourned the meeting at 10:50 a.m.