The Alaska Legislature has approved what would be the first state measure to raise significant new revenue in a decade and in the process has unlocked a key section of its own education-funding bill.
On Wednesday, the Alaska House voted 26 to 14 to update the corporate income tax for companies doing business over the internet. The revenue measure is tied to pay for part of House Bill 57, a bipartisan education funding measure awaiting Gov. Dunleavy’s verdict.
“It’s great news,” said Sen. Bill Wielechowski, D-Anchorage, sponsor of the legislation on Wednesday following the vote. “This is a critically needed bill. It can generate some much needed revenue for education funding, and it is not going to result in any new taxes on Alaskans.”
Senate Bill 113 would clarify that businesses that do at least 50% of sales of goods or services online, in Alaska or delivered to Alaska customers, must pay a state tax. Currently, businesses can argue a sale is taking place out-of-state at a company server farm or warehouse, not subject to Alaska taxation. But companies are still subject to taxes in those states where they’re located, so supporters of the bill argue the update to “market-based sourcing” will bring that tax revenue to Alaska.
Wielechowski argued it’s an issue of fairness for Alaskans. “When a sale is made over the internet, they often use our state-funded broadband. When a product is shipped, it comes into our state-funded airports or Port of Alaska. It’s trucked over our state-funded roads, and across our state-funded bridges,” he told the House Finance Committee on Friday.
“And who pays for all this? The people of Alaska,” he said. “While the out of state corporation pays very little, or likely nothing in the case of highly digitized businesses, … this bill fixes this inequity.”
The bill also garnered support from some more conservative Republican legislators, including Sen. Rob Yundt, R-Wasilla, who penned an op-ed published in the Anchorage Daily News. “Today, highly digitized businesses can rake in hundreds of millions of dollars from Alaskans without ever setting foot in our state. They compete directly with our local retailers, undercutting prices and displacing local jobs,” he wrote.
“Because double taxation is illegal, if Alaska exercises its rightful authority to tax companies like Amazon on the income they earn here, they will not be taxed on that income again. This means the tax is already included in the company’s budgets, and prices will not be changed for the seller or consumer.”
Under federal tax law, businesses are taxed based on apportionment, or a formula based on revenue from a company’s property, payroll and sales. Under the legislation, only the sales in Alaska would be factored in for companies that are deemed “highly digitized,” which means more than 50% of their business is done online.
The legislation does not change Alaska’s corporate income tax rates or brackets.
Other Republicans, like Rep. Jamie Allard, R-Eagle River, opposed the tax, raising concerns businesses would shift the cost of the tax and raise prices on consumers. “I think it’s going to impact people greatly,” she said in the House Finance Committee meeting on Friday. “I feel like this is a hidden cost to Alaskans.”
Wielechowski said prices are usually set nationally, and pointed to at least 36 states that already have some form of this locally based corporate income tax. “So the extent that we think our implementing this is going to somehow outweigh the impacts of California doing it and New York doing it — and North Carolina doing it, and Ohio doing it, and Oregon doing it, and all those other states — I know we like to think very highly of ourselves,” he said, to laughs from the committee, “but I just don’t think we have that sort of market impact.”
By updating the law to capture these corporate sales, the bill could generate $25 million to $65 million each year at full implementation, according to a state estimate. It would cost more than $250,000 to administer, the state Department of Revenue said.
Lawmakers have tied the revenue to pay for part of House Bill 57, an education funding bill for next year, which is waiting for a decision from Dunleavy.
Legislators passed the bill in late April, with an estimated $22 million earmarked for reading improvement grants, and $10 million for career and technical education programs — both policy items sought by Dunleavy. But lawmakers made that contingent on Senate Bill 113 also passing.
House Speaker Bryce Edgmon, I-Dillingham, said the legislation would generate much needed revenue for the state.
“I don’t think it’s lost on a lot of members in the Legislature that we’re now entering an era where we’re going to have to look at other revenue measures. And you can interpret this as a first step in that direction,” he said, “whether the governor approves it or not. But overall, I think for other legislators it’s kind of considered low-hanging fruit.”
The last time the Legislature approved a significant revenue measure was in 2015, when lawmakers voted to add a 0.95-cent-per-gallon surcharge to the state’s fuel tax in order to fund spill response and prevention.
The education funding bill is now with Dunleavy, who has until May 17 to sign it, veto it or let it become law without his signature. If he vetoes it, majority leaders say they believe they have the votes to override it.
In the days leading up to the House vote on SB 113, lawmakers complained that Dunleavy’s staff with the Department of Revenue declined to answer questions about the legislation.
“When you have a whole department that’s just saying we’re not going to help you with a piece of legislation, I’ve never experienced that in my time here,” Wielechowski said on Tuesday, ahead of the vote.
SB 113 now goes back to the Senate chamber and then will be transmitted to the governor’s office.
How lawmakers voted:
In favor
Robyn Niayuq Burke, D-Utqiagvik
Jeremy Bynum, R-Ketchikan
Ashley Carrick, D-Fairbanks
Mia Costello, R-Anchorage
Maxine Dibert, D-Fairbanks
Bryce Edgmon, I-Dillingham
Ted Eischeid, D-Anchorage
Zack Fields, D-Anchorage
Neal Foster, D-Nome
Alyse Galvin, I-Anchorage
Andrew Gray, D-Anchorage
Carolyn Hall, D-Anchorage
Sara Hannan, D-Juneau
Rebecca Himschoot, I-Sitka
Ky Holland, I-Anchorage
Nellie Unangiq Jimmie, D-Bethel
Andy Josephson, D-Anchorage
Chuck Kopp, R-Anchorage
Donna Mears, D-Anchorage
Elexie Moore, R-Wasilla
Genevieve Mina, D-Anchorage
Justin Ruffridge, R-Soldotna
Calvin Schrage, I-Anchorage
Will Stapp, R-Fairbanks
Andi Story, D-Juneau
Louise Stutes, R-Kodiak
Against
Jamie Allard, R-Eagle River
Julie Coulombe, R-Anchorage
Bill Elam, R-Nikiski
DeLena Johnson, R-Palmer
Kevin McCabe, R-Big Lake
David Nelson, R-Anchorage
Mike Prax, R-North Pole
George Rauscher, R-Sutton
Dan Saddler, R-Eagle River
Rebecca Schwanke, R-Glennallen
Cathy Tilton, R-Wasilla
Frank Tomaszewski, R-Fairbanks
Jubilee Underwood, R-Wasilla
Sarah Vance, R-Homer