Legislature Passes Comprehensive Bill Putting Money Back in Economy
SB83 addresses construction income tax, hatchery cost recovery, and oil & gas exploration
JUNEAU-Today, the Alaska Legislature passed a bill addressing taxes in three key sectors of Alaska’s economy. Senate Bill 83, sponsored by Senator Peter Micciche, R-Soldotna, includes three major provisions to help put more money back in the hands of Alaskans and their businesses.
“This bill addresses three key areas important to getting Alaska’s economy moving forward; construction, fishing and energy. It provides solutions for businesses in Alaska being either being unfairly penalized or needing efficiency improvements to better reinvest in Alaska and our economy,” said Senator Micciche.
The first provision ties state ‘look-back’ corporate tax interest rates to federal rates. Contractors taking on large multi-year construction projects such as universities, highways, bridges and schools are required to estimate the total profit over the life of a project and pay state and federal income tax each year on a portion of that profit.
Since the exact profit is nearly impossible to predict in the first year of a project, when the project is finished and the actual profit is determined, the contractor either owes additional taxes or receives a refund based on whether the profit was underestimated or overestimated. Interest is either owed to the State on the additional taxes or a refund is paid by the State. However, the State assesses interest on look-back taxes at the delinquent tax rate, which by law, is an outdated 11-percent. The law ties the rate to the federal rate, which is kept current on a quarterly adjusted basis depending on the amount of the adjusted payment or refund. The bill provides a fair rate for the contractor, while simultaneously protecting the State from having to pay exorbitant rates to the contractor for overpayments.
“Earlier this year, the issue was brought to my attention by Alaska contractors, who despite complying with all tax requirements governing long-term contracts, were being penalized by the State,” said Senator Micciche. “Then, after careful evaluation, I realized the State was being penalized as well. SB83 helps businesses re-circulate those dollars back into the hiring of Alaskans instead of stagnating in state coffers while also ensuring the State pays a fair interest rate as well.”
The second provision makes it clear that the non-profit regional aquaculture associations – Alaska’s hatcheries, remain not subject to state income taxes. Recently, the IRS audited hatchery associations and determined that cost recovery activities may be subject to federal income taxation. State law currently stipulates that activities subject to federal tax are subject to state tax as well. Cost recovery is the practice of harvesting a portion of hatchery fish to pay operating and capital costs. If subject to taxation, these hatcheries will need to harvest additional salmon to cover their expenses, reducing the amount available for sport, commercial and personal use harvest.
“Salmon enhancement organizations complete their mission by operating as non-profit user-pay programs as designed by state legislation,” said Senator Micciche. “By virtue of an automatic trigger requiring the state to charge income tax if federal income tax is assessed, the state would have to tax the programs without the improvements of SB83. In a state with all eyes focused on healthy fish populations, SB83 allows hatcheries to provide more fish for Alaskans.”
The third provision, allows smaller companies working to increase oil and gas production in Alaska more access to funding by permitting earned tax credits to be used as collateral to secure financing at lower interest rates. Alaska banks, currently unable to provide unsecured financing to these companies will have an opportunity to enter this lending market, enabling Alaska private funding to be invested in Alaska projects.
“The third SB83 provision will help small cap petroleum explorers and producers interested in energy exploration in places like Cook Inlet, where success is key to reducing energy costs for utility rate payers,” said Senator Micciche. “The improvement will reduce interest rates from the unsecured rate of approximately 17-percent to 5-percent, allowing more funding for drilling and quicker oil and natural gas production in key markets at no cost to the state.”
Senate Bill 83 now heads to Governor Parnell for his approval.
Posted: April 15, 2013