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Governor Signs Comprehensive Bill Putting Money Back in Economy

Governor Sean Parnell signs Senate Bill 83, legislation addressing taxes in three key sectors of Alaska’s economy.

Governor Sean Parnell signs Senate Bill 83, legislation addressing taxes in three key sectors of Alaska’s economy.

PHOTO: Courtesy of Senator Peter Micciche's Office

SB83 addresses construction income tax, hatchery cost recovery, and oil & gas exploration

ANCHORAGE-Today, Governor Sean Parnell signed legislation 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 put more money back in the hands of Alaskans and their businesses. 

“I am extremely proud of this legislation because it will help improve Alaska’s economy in three key areas:  construction, fishing and energy,” said Senator Micciche.  “This bill fixes issues where Alaskans were unfairly penalized or needed efficiency improvements in order to reinvest their profits here in Alaska.”

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  However, until SB83, the State assessed interest on look-back taxes at the delinquent tax rate, which by law, is an outdated 11-percent. This new 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 non-profit regional aquaculture associations such as Alaska’s hatcheries, are not subject to state income taxes.  Recently, the IRS audited hatchery associations and determined cost recovery activities may be subject to federal income taxation.  Until now, state law required activities subject to federal tax to be 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 would have 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.  “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.  Thanks to SB83, Alaska banks will now have an opportunity to enter this lending market, enabling Alaska private funding to be invested in Alaska projects.

“Exploration by small producers in places such as the Cook Inlet is critical for reducing energy costs for Alaskans,” said Senator Micciche.  “The improvement will reduce interest rates from the currently unsecured rate of about 17-percent to 5-percent which will allow more funding for drilling and quicker oil and natural gas production in key markets at no cost to the state.”

Senate Bill 83 will take effect immediately.

For more information, please contact Larry Semmens in Senator Peter Micciche’s office at 907-283-7996.

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