Alaska lawmakers are going for round two on a bill Gov. Mike Dunleavy vetoed last year. The bill would change the way corporate income taxes are calculated, bringing in tens of millions of dollars in new revenue.
Lawmakers failed to override Dunleavy’s veto of the bill at the beginning of this year’s session.
Backers of the bill say it’s necessary with a tight state budget, and it’s similar to a proposal Gov. Mike Dunleavy included in his fiscal plan.
Rep. Calvin Schrage, an Anchorage independent who co-chairs the House Finance Committee, said at the bill’s first hearing on Friday that it’s an effort to bring the state’s tax laws into the digital age.
"Currently, there is a loophole in Alaska's corporate income tax structure, and that loophole is that if you're a highly digital business that doesn't have a physical presence here in the state, you are not paying taxes to the state of Alaska. You're paying those taxes to other states," Schrage said.
The bill would make two substantial changes to corporate income taxes in an effort to attribute more of Lower 48 companies’ income to Alaska.
The first implements what’s known as “market-based sourcing.” That essentially means that large businesses would pay taxes based on where their customers are, rather than where the company does its work. It’s a change dozens of other states have made and one the governor included in his fiscal plan.
The second component would change the tax rules for so-called “highly digitized businesses.” That’s an effort to extract more tax revenue from companies like Netflix, eBay and others that do most of their business over the internet but don’t have a presence in the state. That change is not a part of the governor’s plan.
Last year, the state Department of Revenue estimated the bill would raise between $25 and $65 million each year.
Rep. Will Stapp, a Fairbanks Republican in the minority who voted for the bill last year but voted against overriding Dunleavy’s veto, said he’d like to see some technical changes. For one thing, he’d rather not make the bill retroactive to the start of this year. But Stapp said he’s open to supporting it after a few tweaks.
"No change in tax structure is perfect," he said in an interview. "But there are impacts that we should actually understand, that the public's going to expect us to kind of understand so we can articulate it."
Even though the bill is similar to an element of Dunleavy’s fiscal plan, it’s not clear the governor would sign the bill if passed. His office declined to comment on the new bill. But Dunleavy has said repeatedly he opposes new revenue measures without stricter limits on how state money can be spent.
