The Alaska Legislature has approved what would be the first measure to raise significant new state revenue in a decade. The measure, unless blocked by the governor, also would unlock a key section of the Legislature’s education funding bill.
On May 7, the House voted 26-14 to update the corporate income tax for companies doing business over the internet. The revenue measure is tied to a provision of House Bill 57, a bipartisan education funding measure awaiting Gov. Dunleavy’s verdict.
The Senate passed the bill on a 16-4 vote last month.
Rep. Jeremy Bymum, who represents Ketchikan and Wrangell, voted for the legislation. He was one of five members of the House Republican minority to support the measure on May 7. All of the votes in opposition in the House and Senate came from Republicans.
The Department of Revenue has estimated the change in corporate tax laws could raise between $25 million and $65 million a year for the state.
Legislators, in their school funding bill which is awaiting action by the governor, directed that the new revenue could go toward a new grant program to encourage schools to improve students’ reading performance. Creation of the grant program in state law is contingent on passage of the corporate tax measure.
“It’s great news,” Sen. Bill Wielechowski, an Anchorage Democrat and sponsor of the legislation, said after the House 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 online businesses that do at least 50% of their business — whether the sales of goods or services — in Alaska or delivered to Alaska customers must pay state corporate income tax on an apportioned share of their profits.
Currently, businesses can argue that their sales are taking place out of state at a company server farm or warehouse, and therefore their income is not subject to Alaska taxation.
Companies are subject to taxes in those states where they are located, and supporters of the bill argue that the update to “market-based sourcing” will bring a share of those corporate tax revenues to Alaska — not at the expense of consumers, but at the expense of other states.
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 May 2.
“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 Wasilla Republican Sen. Rob Yundt, who penned an opinion column 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.
“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.”
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