Okay, I'm going to call this meeting of the House Finance Committee to order.
Let the record reflect that the time is currently 1.33 p.m. on Thursday, February 12th, 2022.
And present today, we've got Representative Allard, Representative Stapp,
Representative Moore,
Representative Bynum,
Representative Schraghi,
Coachere Schraghi.
Representative Coachier, Joseph Sinner,
Representative Jimmy,
Representative Galvin,
and myself Coaching Foster.
And did you have a question or up to them by them?
No sir.
Oh, okay.
I thought you had a technical something maybe.
Oh no sir, but maybe I'll let you take over today.
No chance.
Before we start, folks could please mute your cell phones.
We do have one bill for us today and that's the continuation of House Bill 284.
The bill was introduced last week, and we made it through the first section, which is the sales tax portion.
The Department of Revenue has returned today to finish walking the committee through
the rest of the bill.
We have the entire committee time to finished this presentation.
and we'll jump right into it if we could have up at the table Commissioner Janelle Earls
administrative services director as well for the Department of Revenue and also Brandon
Spanos acting tax director Department
of revenue and finally Dan Stickel chief economist department of
If you could put yourselves on the record and we do have a fairly dense slide deck.
So if maybe we could hold questions until after this next section on,
I believe it's the corporate tax portion.
If we can hold the questions till the end of that and then we'll go to questions
and go the next session.
And then I think there are other two other sections in there that was the fiscal
Note section if anyone had any questions on that if we have time
And that I I
Think we're doing a pretty good job of hitting the high points on the bill
But I know that there is a sectional analysis and if there were questions there happy to jump into that
But, I don't think
Okay, so with that, if they're no questions in the committee
Acting Commissioner Earls. Thanks for joining us
Thank you, Chair Foster and members of the committee.
We are here to, again, for House Bill 284 for the record,
Janelle Earls, Acting Commissioner for
the Department of Revenue and with me is Acting Director Brandon Spanos
and Chief Economist Dan Stickle and I will actually turn it directly over to them today.
to slide 18 to talk about corporate income tax.
Thank you, Commissioner, for the record,
Acting Director, Brandon Spanos,
with the Department of Revenue Tax Division.
And I'm gonna go ahead and start
with corporate-income tax slides,
and then I'll pass the mic over to Dan Stickle,
who will go over the next section
with oil and gas changes in the Governor's bill.
And then we can tag team the fiscal note, or we're going to go over that.
We're gonna start here on slide 19, which is just basically two changes to the corporate income tax proposed in this bill.
And the first is to modernize the sourcing rules, and
then to take the rate down to zero in 2031.
So moving on to slide 20.
Sorry, my mic seems to be cutting in and out.
It provides some history for the corporate income tax,
and it is a little lengthy, but I think it helps
kind of set the stage on where we're at today,
and then what the changes are going forward,
or what are being proposed in the bill.
So first, the tax itself dates, or predates statehood.
It goes back to 1949.
The tax rate was 10% of federal tax liability
for individuals and businesses.
And then the Uniform Division of Income Tax,
Purposes Act, or Yudipa, was drafted and approved
by the National Conference of Commissioners
on Uniform State Laws in an attempt to bring uniformity
to all of the various states.
That was in 1959, and it required a portionment
of of tax rather than just taking a percent
of federal tax.
In 1970, Alaska adopted that,
the Multi-State Tax Commissions Compact,
with some minor changes.
It established standard three-factor apportionment
of property payroll and sales, which we use today,
which is basically how Alaska determines
what slice of the pie we get,
how much of that, how how many companies
income is apporsional to Alaska.
In 1975, Alaska...
Alaska's tax was repealed and re-implemented with major revisions.
We adopted the Internal Revenue Code by reference, so basically instead of defining the
entire income tax in state law, we piggyback off the federal tax code, and that helps to
make things clearer to taxpayers and not have different codes throughout the U.S. in each
state.
was 5.4% plus 4% of a surtax based on Alaska taxable income, not federal tax liability.
This method of attacking our statutes to the federal statute is a rolling conformity as
opposed to static conformity.
Some states do a static conformity which basically means that they're attaching their definitions
Some of our depreciation is tied to federal code in 1981,
which would be static, but otherwise if the federal government makes changes to their tax code, ours is automatically changed, which is the rolling conformity.
We had other major changes come in 1978 through 81.
Alaska was flush with oil money, debate over how to tax oil companies and share wealth with people.
In 1978, we enacted separate accounting on oil and gas.
corporations, still just for C-corps, it was a portion that we were talking about earlier.
And it did not apply to S-Corps or other pass-throughs.
In 1980, Alaska had a lot of oil money and repealed the individual income tax.
And that's how the pass through companies were being taxed.
Non-C corporations do not pay tax on their corporate income or on
their income rather in Alaska.
So accounting was a repealed effective in January 1st of 1982 and set up current worldwide
apportionment which is what we currently have today for oil and gas companies with a 9.4%
There was legal challenge to the separate accounting, which the state ultimately prevailed in 1985 in the Supreme Court.
But the State kept the apportionment methodology for oil and gas companies.
In 2014, our current tax brackets of 9.4 top rate remained and
now applies to income over 222,000 versus previously it was 90, 000.
Sorry, I should have skipped forward a slide on the second portion of that moving
Or no, sorry, that was all on one slide. I saw the 222 there at the end. What did I just mentioned?
So moving on to slide 21 looking at
the current tax situation generally Alaska follows the internal revenue code when determining an entity's tax status
Alaska has no personal income tax, the state's corporate income
tax applies only to C corporations, and for non-patrolling
corporations corporate-income tax is based on water's edge activity or
basically the the United States activity within the U.S.
which means we add up all the income for all affiliated entities in the US
and then we apportion based upon property payroll and sales.
And that's their property, payroll, on sales in Alaska over their
Our corporate income tax for oil and gas
is based on worldwide income.
So they have slightly different apportionment factors.
It's property production and sales plus tariffs.
So that's their property in Alaska
over the property worldwide,
their production in Alaskan over their
production worldwide and their sales
plus tariff in alaska over sales
plus Tariffs worldwide divided by three
that gets you apporshipment.
We apply that to their income
and that's their taxable income or the rather their portion income to Alaska.
Several tax brackets, the top, we have several tax, tax bracket,
the Top Rate is 9.4% for Alaska and
that again is taxable on income over $222,000.
And the next slide shows those brackets.
So this is the brackets for all of the C corporations.
Again, with the top rate of 9.4, which is the fourth highest in the U.S. currently.
Moving on to slide 23
is
the basically the change that's proposed in this bill.
When we talk about modernizing the
corporate income tax, we're talking about moving from
what we currently have for a portionment of
or excuse me, sourcing of sales. So when we talked about those three factors,
property payroll and sales,
how those sales are sourced or where they're sourced to is what we're we
currently use something called cost to performance and we look at where is the
the cost center for those cells so if you're streaming service your cost
center is probably not in Alaska so wherever that your headquartered or your
main cost Center is you are going to
source your sales to that state and and your rate and
your uh sales in Alaska could be zero. So a lot of states have
looked at that old methodology that made sense back in an age
when sales across borders were usually mail order and there
weren't very many of them and they were uh that we use that
cost of performance to source because a lotta the costs for
mail-order were significant in other states and that seemed
Most states have now moved to market-based sourcing,
and rather than looking at where your cost center is,
they look at what your market is.
So a lot of companies are taking advantage
of marketing to Alaskans,
and we feel that it is important
then that their market
is reflected in their sales.
And so rather then looking
at were your costs are,
we look where you're customers are
and the sales are then sourced there.
So rather that having a zero
In your sales numerator, on your portionment schedule, you would have whatever your customer base is for sales in your numerators, which then, of course, creates a slice of the pie, whereas you might not have any slice
of a pie under the cost of performance method.
So that is what's proposed in this bill to modernize the sourcing rules.
Moving on to slide 24.
reported to other states, this is an approach that acknowledges the realities of today's modern world and
how goods and services are often brought and sold online. The cost of performance model no longer makes sense as
sourcing a role to the states.
This proposal does not include a separate carve-out for highly digitized business, but a market-based sourcing approach
in this bill would nonetheless capture the sales of highly-digitized businesses.
when their customers are in Alaska.
So if a business that is considered highly digital
is currently reporting zero sales to Alaska
under market-based sourcing,
they would have to report what their actual market is
and what they sold to their customer in Alaskia.
So they will be included or they
would be taxed under this bill,
just not under a single sales factor.
Moving on to slide 25.
The revenue impact of this change is estimated to be $15 million per year and that is a midpoint
in a range of possibilities.
There would be winners and losers under this approach.
So which companies would pay more under the approach?
Multistate corporations in technology, professional services, finance, transportation and e-commerce
And, these are primarily lower 48 companies with little or no physical presence in Alaska.
Which companies would be paying less under this approach?
These would companies be with a physical present in Alaskia, but with few Alaska customers.
So they have Alasca property and payroll,
but most of their products are being shipped out of state.
And then for companies that are solely in
Alaska and other customers are sold in the Alaska, there would no change to them.
Moving to slide 26, the bill proposes to reduce the tax rate to 0 in 2031.
The governor believes that having a lower corporate income tax, rate will increase investment in Alaska.
As I mentioned earlier, currently, Alaska is the fourth highest corporate-income tax in the nation at the 9.4% rate.
By reducing the rate, to zero, he believes we would be more competitive for
Governor's desire to increase business in open Alaska to other new business.
And that brings us to the end of the corporate income tax section of The Bill.
Great, thank you very much.
I've got a question and we'll go to Representative Hannon and Galvin,
buying him and stay up.
Did I miss anyone?
Mr. Spanos is, this section adds a digital online tax or tax system, is that correct?
Mr Chair, it doesn't add a Digital Tax, what it does is it captures sales that aren't currently being captured in the numerator.
is what this is doing very similar to what that bill did and
or and if not, can you explain why I think just to help the public.
I mean us as well, but certainly I
think the Public saw, it was a very.
It was definitely out in the news when that veto was held and so I'm just thinking that
people are probably wondering, you know, how do we reconcile these two things?
So can you talk, speak to that?
Sure.
So that bill did two thing, really.
It does exactly what is proposed in this bill.
So it changes the sourcing from cost to performance to market-based sourcing and that
That's most of what SB 113 was, which is the bill that the governor vetoed.
And when I say most, most the pages of the Bill were for the changes to market-based sourcing.
Then there was just one section of that bill
that also changed the apportionment methodology for what was
titled highly digitized businesses.
a highly digital business, you would rather than having the property payroll and sales
three-factor apportionment formula. You would just have one factor of sales. And that the
governor believed had a constitutionality issue with singling out one type of corporate entity.
And so he along with the other reason he gave was that he didn't want to do
one-off revenue solutions.
He wanted to have an entire fiscal plan.
And so for those reasons, he vetoed SB 113,
but he did see the value.
And I believe in the letter that he wrote with his veto,
he mentioned that there were parts of 113 that
he liked that might propose in a future bill.
And that shows up here in this bill, great.
Thank you very much.
I just want to also recognize that we have in
the room with us, Representative Cologne.
Thank so very, very joining us.
I'm going to the lineup I have here. I've got reps in and of Hannon, Galvin, Bynum, and Stapp,
Representative Hannen.
Thank you, Chair Foster. Mr. Spanos, first I got a question on our current income tax
on slide 21 and the apportionment between non-patrolium and petroleum. And I am just
So our non petroleum corporations that are paying based on water's edge on property payroll and sales, and I, you know, in my district, we get a lot of, say, cruise ship corporation, I assume they're paying taxes, but they have very little property and they may have no sales because you bought that from Disney
Tax that they're paying only on the payroll while they were in literally Alaskan waters and limited to that
Director's Penis
I'm going to punt that one over to my corporate income tax manager because it's been a long time since I've audited corporate
income taxes
Do we have Mike Williams on a line? I don't see Mike. Williams. On the line. Mr.
Williams, are you on? The line I?
Don't pay so so I will attempt answer it
And the reason I don't want to answer specific to cruise ships is that there are sometimes
special regulations on certain industries, and I have to re-familiarize myself with...
cruise ship specifically. But in general, if a cruise
ship is at a port in Alaska or within Alaska water,
so Alaska waters go three miles out from our shore.
And so if ship
is within that three-mile limit, they have property in Alaska.
And, so, while they're in
Alaska Waters,
they would count that property
in the numerator. They would also count the payroll
that they had in
Alaska while in those three
three mile limit. So, that is
in their entire course of their
Every time they leave, it's now outside, and when they come in,
it is in the numerator.
Follow-up?
Follow up?
Would I speculate that if we put them into the same kind of apportionment as we do petroleum
companies and said based on your worldwide activity, but your sales, property and
production that's happening in Alaska, that we would increase our revenue from that?
Through the chair, Representative Hannon,
off the top of my head,
I would think that by making them worldwide,
we would likely dilute the denominator
and it would create less tax
that they would be paying in Alaska.
Okay, and then I have a question off of slide 25.
Representative Hammond.
Thank you, Chair Foster.
So, Mr. Spanos on the fourth bullet decreased taxes
the proposal, companies with a physical presence in Alaska,
but few Alaska customers.
So the only ones I can think of is, say, a fish processor who
is most of the commercially processed fish in
Alaska is probably not sold in Alaskia.
It's sold somewhere else.
Can you help me with other examples of industry where the
Prosthe physical presence is in Alaska, but largely the products not being delivered in Alaskia for sales
Through the chair representative and and that's a good question
I as I was thinking through that myself. I believe there are some
alcohol producers that do a lot of shipping outside of Alaska
Fish is a good example.
Not all of our fishing industry is sea corporations,
so they might not be a tax base anyway,
and even some of those alcohol producers
may not been sea-corporations.
But this was more of a general point
to be made what other states are seeing.
In Alaska, we don't have a lot of manufacturing
that's being shipped outside,
but we just wanted to point out that that would be true
in the case that a sea corporation were doing that.
So follow up, I would be interested in seeing, based on our actual revenue productions,
where we think we would have a decreased tax take under the bill as proposed.
If we're asserting that we are going to have decreased revenue,
I want to really understand where, where were going lose revenue and in evaluation of that policy.
Okay.
Thank you.
brief it is.
Okay, how's finance back on record at 156 p.m. And we've got represent of Galvin next in line
Thank You co-chair fosters for the chair. I have up three
Distinctly different questions if I may and there should be very short answers starting with the first one and that is
I'm going to draw your attention to where it's a slide 25
revenue impact estimated and this is based on the
knew what you called, it's not called commerce anymore.
Something based.
Market based sourcing.
Now the newly titled that, market based
sourcing, that has it at 15 million and that's substantially
different and substantially lower than I believe
the, what we saw in the prior
legislation that was vetoed and it could you explain that I think it's like a one-third roughly of what was
estimated by what you called the same tax so roughly the
same so please explain
that if you would
Director Smannos through the chair
Representative Galvin I'll begin and then I will pass it off to Dan Stickle who could probably explain it better
but the
113 we we had a range
in that bill but we didn't specify what part of that range applied to the
market-based sourcing as opposed to a highly digitized business and it was
roughly one-third. Do you have anything to add to that Dan? Sure, Dan Stickel, Chief
Economist for the record to represent Calvin through the chair just to kind of
Put a finer point on what director acting director Spano stated
So in the Senate bill 113. We had a range for the total revenue impact from about 45 million
Or about 25 million to about 65 million and then the Total revenue the midpoint of that was 45
Million and about one-third of
That was market-based sourcing and at about two-thirds of That Was the highly digitized component
And so there's 15 million is is just the market based sourcing component
Thank you. I do have another question if I may. Another slide in here is slide 26
refers to 2031 being the zero tax effective date and my question around
In 2031 if you have an estimate on that I didn't see that in here
I'm sure to representative Galvin through the chair and we do have a fiscal note section of the presentation
We'd be happy to walk through that looks at that
On page two of a physical note we break out those impacts so for for fiscal year 20 31
There's a half year of impacts because the the tax reduction would take place mid-year
And that estimate for fiscoll
2031 is $145 million for non petroleum and $115 million
for the oil and gas corporate income tax.
Then in fiscal year 2032, which is the first full year of the zero tax rate the the revenue change is estimated at
295 million dollars for non petroleum corporations and
245 million for petroleum
Corporations both of those are based on our fall 2025 revenue forecast. Thank you. So a grand total of
500 and
40 ish million
net loss in corporate tax, is that in for a year two?
Okay, thank you.
That's correct for the fiscal 32.
And this question may be more for
the commissioner.
I appreciate understanding these numbers, which are grand, half a billion dollars then
And my question is, I have looked a lot at different states and corporate taxes.
I appreciate that actually Alaska corporate tax is are high and I understand that.
And I just wondered if there was some consideration around modernizing our corporate
taxes as opposed to eliminating them.
Has there been some thought around that or is it just let's get rid of it?
through the chair to Representative Galvin.
I think a lot of things were modeled,
but the, again, encouraging investment in Alaska
by having those rates drop to zero is what the intent is.
Again, it doesn't repeal,
it just drops the rate to 0
so that it can be looked at later in the future.
Follow-up follow-ups and this is a regarding corporate tax specifically
When you consider ratings and what that does on the national scale
When we're talking to Moody's and all of the other ratings folks we know ratings matters in Alaska
We've done a fine job. Do we think that?
putting in
statute that we are eliminating
corporate income tax, will be helpful to our rating.
Mr. Stickel?
Dan Stichl for the record to represent him, Galvin, through the chair.
I think to answer that question, you'd really have to look in terms of the broader overall fiscal plan.
And keeping in mind that the 0% tax rate is just one component of
the overall physical, and I that's what the rating agencies would be looking at.
Thank you, if I might just add a comment briefly.
When we look at all of these measures, we're not, to my knowledge, installing very much certainty.
This one is one piece that we had in as certainty, the other piece is because we don't know what the price of anything is going to be.
There is not absolute certainty in those areas, and I just want to make sure that we're aware of that.
We also never know not only the price of oil, but what the market will be, period,
in terms of a demand and such in five, ten years down the line.
So I'm very deeply concerned about this piece moving away.
And then the last, nope, I think I am going to just stop right there.
Thank you very much.
I just want to let folks know that we do now have Mr. Mike Williams online.
He's the corporate tax manager for the Department of Revenue calling in from Anchorage.
So just so folks, no, he is online, okay.
Next question goes to representative Bynum.
Thank you, co-chair Foster. Through the chair, thank you for being here. I wasn't going to get into my
into questions about specific revenues. And I know that we have a fiscal note. We can talk
quite a bit about that later. Sure. Just wanted to kind of get in to some of the conceptual
things that were bringing before us here today. One of
the items that I would put on the slide talked about modernizing our tax code specifically with
Can you tell me briefly what you think the biggest advantage
of modernizing to this system would be for our tax system
and not about the rate, but about actually modernize the method?
Sure. Through the Chair, Representative Bynum.
By modernising the sourcing rules, we are able to move
into a modern age.
online purchases and online sales happening where we're not capturing any of those sales.
The sales are being thrown back to the state of origin where their cost centers are located.
And other states have looked at that and determined that's not really the way the world works anymore.
That the cost center is where.
where the sales should be sourced,
because really those industries
are marketing to Alaskans.
You see the advertisements,
they're marketing their goods,
they are targeting us and they
are selling to us,
and the sale really should
be showing up in our sales factor
so that we can apply attacks
against that income that they
are producing from our residents.
And so, that's how it brings it up to date.
Thank you, Chair Foster.
So from your perspective, are we characterizing this
as modernization, or are characterising this as a new tax?
Through the chair, Representative Bynum,
it's modernizing the tax system.
Now, through the chairs, follow up.
I am in full favour of making sure we have an income tax
structure that's going to drive investment in the state.
What other factors are looking at other than stable taxes
Or in this case, it goes to no taxes, but I would argue that stability is important to
industry.
What other factors have you considered when we're talking about trying to drive investment
in the state outside of modernizing the income tax?
And maybe not a big list, are you considering other items?
proposed fiscal plan, I would have to double-check with him.
Follow?
Follow-up?
Through the chair.
But we would agree that having a low or no based on this plan tax in place would drive
investment and want to have businesses doing business in Alaska.
Yes.
One of the other things I found interesting is that when we were talking about this,
is that our current system has a non petroleum
and a petroleum element within the corporate tax code.
Is that correct?
Correct.
So under our Current Tax Code through the chair,
under a Current tax Code,
we are treating businesses differently
based on the definitions of non-patrolium and petroleum.
Not missing something is a chair representative. I know that's correct and that said just for the record on the prior correct answer
Correct was director Spino's and then this answer is director's wants
Just want to make sure we've got that for good representative by no. Thank you through the chair. So a
Few moments ago when you were giving a district answering
Co-chair Foster's answer with the previous item
that was under consideration that's
was slightly different than the item
that is in consideration in front of us.
You indicated that it was felt that
it is unconstitutional to treat one corporate tax entity
based on a definition of how they do business in Alaska,
that that would be unconstitutional.
Yet we currently do that in our current corporate
tax structure.
So I was hoping that you might want to.
Clarify for me so I have a better understanding of
How we're currently treating entities differently and still maintaining
constitutionality
Correct response through the chair representative bynum. That's a great question
When I was mentioning earlier that the got the reasons for the governor veto
I Was repeating what the Governor had put in his his letter on that veto
But not being from
I'm not an attorney so I can't really speak to why the legal analysis came out the way it did for that veto
But that was the reason that he gave
Thank you
Okay
Next question goes to your representative stout
Thank coach your foster
Through the chair to wonderful revenue folks panel
Commissioner of course Chief Connoms mr. Sticklin
So, REP governance said earlier when you were talking about the revenue from the fiscal
note that the fundamental difference was that you weren't capturing revenue
from digitized businesses and I want to make sure I didn't miss hear that because my understanding
of market-based sources you absolutely would capture, you're just apportioning on the three
factor and because they don't have payroll and property here,
you are only using the sales factor through the chair is that accurate?
That's accurate. So it would capture sales from a multitude of businesses, including highly digitized businesses.
Yeah, fault Mr. Coacher.
Yeah.
So continuing on this kind of line of thought here through the chair.
Take company like Netflix, they don't have any payroll and property here that they sell here.
So this bill currently would captured the sale, but you would only use basically one factor.
out of three. So it's like 33 percent, right? So the numerator would be zero, zero and whatever
they sell because they don't have any payroll property here. And to me that that's what kind
of reduces the fiscal note, because you're not capturing revenue like you would under a single
sales factor like we had in the other version of bill. Is that accurate through the chair?
So through The Chair, I represent a staff,
I want to start by saying I can't talk about any specific taxpayers, so I won't use any
specific names. But if we're talking about a like a streaming service that doesn't
Certainly, having a single sales factor, if they only have sales in Alaska, would give
you a larger apportionment factor than having property and payroll dilute that by two-thirds.
Yeah, fault, Mr. Coacher.
Rob Sinister.
Yes, sorry about that.
I will say a digital sailor without naming names in the future.
Appreciate that!
So, you know, my thought is, obviously, I heard you guys talk in Senate resources,
or, excuse me, the other body's resources committee regarding what would happen if you used a single sales factor.
And I thought that chief economist Stickel basically said that he would be a revenue loser.
And because oil and gas is a portion separately, what
would drive that overall loss?
So basically, if we're getting more revenue from
Basically companies that sell in here digitally that don't have property and payroll.
We're getting less revenue from companies who do have a property in payroll, but that's excluding oil and gas.
What exactly are we talking about through the chair?
Mr. Stickel. Sure for the record dance tickle to represent a staff through the chair. So when we're looking at
Just absent the market-based sourcing
Piece of things we were looking
At the potential for a proposal to go from the current three-factor apportionment factor to a single sales factor
There's a variety of winners and losers among industries
of the the
the sector that would
have the biggest tax increase under a signal sales factor would be these outside companies that are
shipping their goods and services into the state, the highly digitized technology companies.
The industry that would see the big increase by far is the mining industry. There are a major
portion of our corporate income tax. They have a lot of property and payroll in the
state and most of their sales are taking place out of state. So they would say
a pretty significant tax reduction
if we switch to a single sales factory.
Okay, follow up, although.
Yeah, thank you, coach here through the chair, yeah.
That makes sense.
So I'll probably just shift gears here a little bit
rather than kind of keep technical hammering stuff.
So there's a lot of special apportionment.
Rules that are currently in state administrative code. They're not at state statute
So I was always kind of curious on this bill. We heard last year from different unnamed companies that have kind
of those special Portia mints and air you know air transportation water transportation that type of stuff that
By updating these definitions that we could potentially be overriding
There are special portion mint in administrative Code
And I just want to see if you thought that was accurate or inaccurate through the chair
Mr. tax director so mr.. Chair now that I have my lifeline
Available, I think I'd like to call on Mike if I could mister Mike Williams if you're online. Can you put yourself on the record?
Yes for the Record Michael Williams corporate tax manager for The Department of Revenue
Through the chair to representative staff on a question
The purpose of special apportionment regulations are to identify and recognize that not all
industries operate under the same umbrella of what might be the framework in statute.
So these industry regs are helped to help clarify definitions and rules because finance
companies are different than air transportation companies or different then cruise ship companies.
And they don't always fall into the standard umbrella of property payroll and sales and
how they do business.
And to try and codify that in statute would certainly is your prerogative, but it would
make things difficult in future.
Did we need to address specific industry issues?
And that's the whole point of having the industry regulations is to help those industries
umbrella framework doesn't quite fit how they do business yeah fault mr.
rips in the staff yeah no i appreciate that answer it's not the question that i
asked though i understand why you have special
You can't define certain types of wheeled vehicles and stuff in statute, it makes sense to me.
But what I was asking is, does this bill, because it changes language regarding it,
updates the definitions and the multi-state compact.
And we have these kind of special portionments in administrative code.
Just changing the statutes in the bill inadvertently kind
of overwrite those.
things that we have in administrative code, because statute is higher than administrative
code.
I'm just curious if the bill does that, maybe inadvertently, through the chair.
Mr. Williams?
Yes.
Well, to the Chair to refer to staff, again, Michael Williams, the fiscal note in the
bill doesn't, it does contemplate that the department will issue regulations, cause there's
flesh out how market-based sourcing works in application and it would quite
be difficult to do that all by statute quite honestly but that there are regulations
to update for market based sourcing and certainly yes we would have to
update some of the industry regulations to conform with market base sourcing.
Just regarding overall, if you were to use a single sales factor, obviously you'd have
to do something when you're the answer regarding mining industry, for example, Alaska.
Are you incentivizing companies to have property and payroll in Alaska by just using a growth
receipt factor?
Or are you not if choose to not incorporate those in the numerator through the chair?
Director
Anyone so through the chair representative staff. I'll take a stab at that the
Intent that most states that went to a single sales factor or either double or triple weighted their sales
Factor was to incentivize property and payroll coming to their state
The last fault mr. Go to send a step
Just this is more I guess theatrical, but do we want people to have property apparel in the state to the Chair?
You don't got to answer that. I'm sure we do appreciate you stating that it was theatrical
The governor certainly does want that yes. Yeah, all right. Thank you
Next question representative mine. Um, thank you co-chair foster and through the chair
Representative step in brief briefly mentioned
regulations and I was just
Curious outside of what we currently have in front of us today if the the governor's
administrative order to reduce
Would have an impact on our current tax structure, at least from a regulatory perspective
Correct your spot us
Through the chair representative bynum, so if I understand the question you're asking does it have a cost to administer regulations
Not a class to minister
Not cost-to-administer, but will it happen impact overall?
is representative step and indicate that there's regulatory places pieces that are not specifically in law and
Through this administrative order. We're trying to figure out how to streamline and make things easier for our
For our businesses and our
Communities to be able to do things and I'm just wanting to know if that administrative Order will have any specific impacts on
our tax payers per se
Trictus metals
Through the Chair, Representative Bynum,
I'm not prepared to speak to the administrative order.
All right, we can talk about that another time.
As a quick follow-up question.
Follow-ups.
Thank you, co-chair Foster.
When we look at this, there's 10 brackets,
basically one being a zero bracket in the current tax code.
Was there a consideration to evaluate the,
I'd say complexity, I guess,
a nine brackets that companies are having to consider as they go through this to
simplify the overall brackets in the income tax structure. Was that something
that was of consideration as we went through
this process of modernizing our tax code?
With its chair representative Bynum as the commissioner stated earlier there were there was a lot of modeling done different options were looked at
I will speak from an administrative standpoint in preparing a tax return having the brackets brackets does not complicate the return
It's it's you put in your income and it the software puts it into the bracket for you
Through the chair just the guess of snarky remark is that I think accountants love complicated tax codes
But I'm an engineer and so we like numbers too
as a quick follow-up question about stability of
Corporate income taxes, Mr. Chair. Representative item. Thank you, co-chair Foster
So one of the things that we talked about earlier was to make sure that. We have stable
Tax structure in place
Obviously, we don't like the idea that we're one of the highest in the country.
I think that definitely impedes having companies want to be here, but I
think instability also creates some concern for companies to want
to come here establish here and provide jobs here.
So, when we look at the overall plan that's in front of us, one
evidence means we talked about putting in the new modernized structure, how there's advantages
into Alaska businesses. We want to try to drive those businesses to come here.
Yet then what we do is as we then in future we take the tax rate to zero.
So all of those businesses that aren't inclined to come here or do business here because of a modernized
structure, the incentive to me seems like that the incentives goes away
because the tax will go to zero, which they're paying now. They're not paying anything.
So I was just hoping to try to get a better idea of how do we anticipate having some stability
to encourage those companies to
come hear when in the future we're just going to put the rate to 0 anyway.
Through the chair representative Bynum
I believe the intent of having going to the market-based sourcing approach is to raise revenue in this interim period
the governor feels that this there's several years where the we need to close a fiscal gap and then
He anticipates new revenue coming online and and that the corporate income tax could go away as part of that
And one follow-up, and I'll be done
so
Again, with the stability issue, when we look further out into the fiscals on this, we're
going to see that we have a bunch of revenue that's going come in immediately, won't get
into how we decide we want to spend that revenue.
But then we will see the revenue is going go away, and then you see a deficit that appears
And I think from a lawmaker perspective,
we have then some really tough decisions
that we're gonna have to make on how to figure out
how make that gap.
And so with the corporate rate going to zero
and having a large deficit out there in the future,
there's very likely conversation about
whether or not this would actually happen.
So.
I'm just concerned that when we talk about trying to make a change like this, that it does create a perception of its potential instability into the future, specifically if the state's going to have a massive deficit.
So I was just wondering if that was something that is taken into consideration when
we are proposing to take this corporate rate to zero.
And how corporations might respond to that potential future instability.
Through the chair to Representative Bynum, I believe you all should have received
the status quo and the future like with this fiscal plan what the
impacts look like out in the
future and I
And I don't believe that there was a massive deficit if you look at the
the
Governor's fiscal plan, but in the status quo one,
there would be, because new revenues,
more revenues would becoming online.
Appreciate that, we'll look at that again,
but my memory recalls is that there is a deficit
in future, I'll have to pull that up
and we will look it, thank you, Ms. co-chair.
I think that's definitely something that we should.
pay some good attention to what I'm hoping to do today is just kind of get the basic concept out
roll this out but I am glad you pointed that out because that's
a big crux of what we're dealing with here and so when we come back then we could we can maybe
have that up on the on screen and walk through those scenarios so with any further questions
Thank you I appreciate that and kind of following some of the same train of
thought I know that one 20 31 comes around we're looking at about a half a
billion dollars from that will be shut off from us and we are looking
at a 15 million so far in what we might still be getting in commerce perhaps
15,000,00 about half-a-billion pretty big difference and sales tax also is
And so I just want to call that out as well.
And I wanted to ask you if, well, first I'm going to make a statement that I've seen previous ten-year forecasts and I think the governor has to come up with a ten year plan every year, and in those they do not include anything related to inflationary costs or spend.
So I just want to make sure that we're aware of that, that that might be part of why you're not seeing a big deficit.
Because we can't consider that
we are not going to be having any changes in terms of the cost of making sure
that our roads are safe, our schools are whole.
We've got a.
A couple billion dollars there to catch up on just with regard to deferred maintenance everywhere, public safety, et cetera.
I mean, as much as we want to incentivize businesses coming here,
I can promise you from what I know from my kids, they don't want come up here because they want have their kids in our schools.
They don t feel great about our roads.
There's a lot of concerns right now.
Really wise as a committee thinking through what would inflationary cost look like down the road not just it's not
You know always so simple and I know our economists here at the table understand that well
But I think that it should be part of the governor's outlook for the next for 10 years down
My question specifically is was their research done before coming up with this cutting off the corporate income tax to know
That we will be capturing
a certain amount of dollars because of new
business coming into Alaska, I mean dollars that the state of Alaska can use to deliver these services.
So it's not just into the economy, but into our state revenue so
that we can pay for these other things.
Because otherwise, we're not going to get these businesses to come and stay.
So I wondered if I know low price of energy matters and I no income tax.
corporate income tax matters, but did we find out from doing some sort of market research
what that this would drive people here and how many and and what
that multiplier effect would be for us?
Mr. Stickle
Chair Dan Stickle for the record to represent Calvin through the chair.
So we haven't modeled specifically the company behavior impact to a reduction in corporate
income tax.
I think we heard from some of the analysis that ISER has done that there would be a behavioral
impact over time as you have a better investment climate that companies would choose to do
business here.
Now we're at some other time to go into more detail on that, and
we can pull OMB up to help provide some information there.
But what was really being looked at there is that there
is a potential for significant additional revenues to the state.
in the 2030s at some point and we're in kind of a low revenue picture now so we have
two major new oil developments coming online the pick a field and the willow field those
initially will come online eligible for certain new production tax benefits but once we get into
Anticipating additional revenue from those fields as well as other new developments
layered on top of that is optimism around the Alaska natural gas
Pipeline and that as a significant element of the fiscal plan as. Well
One final comment then if I may thank you
I appreciate our optimism
Around the 2030s and I'm also going to say that with the many buildings in disrepair
the many schools in disrepair, and all of the teachers we are losing.
It's going to be pretty hard to attract any families to want to come up and
work here and stay here.
They may come out for two weeks out of a month, but
if we don't start really thinking through, I think how we as a finance committee can look at the whole picture,
we're missing the beat.
And I'm seeing it already in my own children.
Thank you.
Thank You.
Let's see here.
We'll go to the next question.
And then after that, we're going to move over
to next section, which is the oil and gas tax section.
And that will give us an hour to spend on that
to at least get the basic concepts out.
So with that represented more.
Thank you chair foster. I'll be quick since we've spent a lot of time on this.
Thank You guys for being here and bringing some clarity to this portion of the bill.
I appreciate it. My question kind of goes along the route of just in wrapping this up.
Has the administration or the department thought about some alternative ways
to maintain corporate participation in revenue rather than shifting this to Alaskans?
Through the chair, Representative Moore, if I understand your question,
so this specific bill takes the rate to zero for the corporate income tax,
but it implements a sales tax.
So you're talking about shifting that tax burden over from corporations to residents.
So I will mention that one of the reasons that Governor chose a
component of his bill was because the ICER study determined that it would generate more
revenue from non-residents than other broad-based taxes. And so while the burden will be on residents,
more of the burn, especially with the seasonal rate adjustment, would be shifted to
nonresidence, which most states hope to capture, you know, rather have someone else pay the tax.
But the sea corporation going to zero,
the governor feels strongly that the investment potential
is greater than the, or outweighs the revenue having
to come from both residents and non-residents.
Okay, follow up?
Follow up.
So just to be clear, this is the only,
there is no other alternative options
that you guys have looked into the department
or the administration for any other ways
to not shift complete.
responsibility on Alaskans with this eliminating the the income, I'm sorry, the corporate tax.
Director Spannos.
Through the chair, Representative Moore, thanks for the question.
I would say we have modeled a lot of options like I I
would see all the ones that we could think of and did put those before the governor and
this is the package the Governor chose.
Through The Chair, this the option that you felt was best.
fell was best. Thank you. Okay, we're going to go ahead and move
right on into the next section here. So with that director
Spanos, are you leading us off here? I will lead off by passing
it over to to chief economist Dan Stickle.
Okay. Perfect. Mr. Stickles.
All right. Again, Dan stickle for the record.
So I get to talk about oil taxes, which is my favorite thing.
Slide 28, before we get into the details of the tax proposal,
just a little bit of background as a refresher for the folks watching at home.
So the state, prior to 2006, we had a gross profits tax on oil.
It was known as the economic limit factor.
That was a 12 to 15% gross tax rate adjusted downward by
an economic-limit factor that accounted for
the profitability of different fields.
At the end of the ELF period was in the 7% range.
And then in 2026, we switched to a net profits based tax
with the petroleum profits tax that was revised again just
the next year in 2007 with The Alaska Clear and Equible
Share or ACES package.
And the current tax regime Senate Bill 21
has been in place since 2013.
Slide 29 shows some of the key elements of Senate Bill 21 tax system.
So we have a production tax rate of 35% of production
tax value, that's our definition of net profits.
There is a minimum tax floor of 4% gross value.
Based on the value of North Slope Oil, and then there's credits based on oil production
There's a five dollar per taxable barrel credit for qualifying new oil
Production and up to eight dollars per taxable barrel credits for other oil the so-called legacy oil
production
And then finally an incentive known as the gross value reduction that reduces the tax
Impact of new fields for the first several years of production
Slide 30 is kind of a high-level overview of how the North Slope oil production tax is calculated.
So we start with our gross value at point of production. That's our total value of the oil after subtracting royalties and transportation costs.
Then there's kind-of a side-by-side calculation that's done. We have a production-tax value that has our net profits calculation
that subtracts operating and capital costs at the fields from the gross-value.
That's where the 35% tax rate gets applied as to that production tax value.
And then, on the other hand, there's the 4% of gross value minimum tax floor.
The company takes a higher of that net profits tax, or the gross minimum
tax to determine their tax before credits.
And, then that's were tax credits come in place.
Sliding scale credits for the legacy oil, the non-gross value reduction eligible oil.
This is the zero to eight dollar sliding scale credit.
Then there's a hard floor, and they cannot pay anything less than that 4% minimum tax
no matter what.
However, there is a nuance in the tax code.
If the company chooses not to use any of those sliding-scale credits, it's, a soft floor.
And the companies can use the $5 per taxable barrel credit for a gross value, reduction
the minimum tax floor.
This is relevant under the fall 2025 revenue forecast.
We are expecting most companies to pay at or close to the
minimum-tax floor throughout the 10-year time horizon of the revenue
forecast, some companies are expected to be paying below the
minimum
And this is really just a function of the price
and cost environment that we're in.
We're a relatively modest price environment.
And there's been significant cost inflation
and operating costs on the slope,
as well as significant capital expenditures
that are taking place.
So, what changes in this bill on slide 31, that's fairly simple.
The bill would increase that minimum tax floor from the current 4% up to 6% for five years
from calendar year 2027 through calendar your 2031.
And then the minimum-tax flow would revert to the
current four percent starting in 2032.
There is a provision for a potential earlier revision,
averages more than 650,000 barrels per day for a calendar year than the next calendar
year, the floor would revert early.
In our current forecast, we expect that 650 thousand barrel threshold to be reached after
the Floor would revert anyways, but there is a potential for some tax benefit if companies
were to meet that target earlier.
And then, finally, on slide 32, the bill would create a new 15 cent per taxable barrel fee on all oil produced in the state.
That would be effective with fiscal year 2027.
The fee is based on the current nickel per barrel hazardous release surcharge.
In addition to the production tax when the producer pays their production
tax, no tax credits could be used to offset that and the proceeds of this fee
would be use to provide a sustainable and permanent funding source for
maintenance costs along the Aliasca pipeline corridor so these are not
costs directly related to pipeline itself but related
Dalton Highway infrastructure and maintenance, for example.
Thank you very much, Mr. Stickol. I have sat through a lot of oil presentations
And it's always always very difficult or complex and so I hats off to you for being able to keep this to five slides
And hitting the high points
I think it is always good to kind of get the main point out there and then we can fill the details in afterwards as opposed to
You know being hit with a law of information and trying to wrap it all together
So thank you. We have a question from Repson of Josephson
Yes through the chair
Mr. Stickel the the four to six percent
jump
would would in the case of pick and willow would
Generally not materialize fully because that's GVR oil is that right in other words
It would the six per cent would be penetrated essentially mr. Stickle
represent Joseph sense of the chair, so
In the case of a new entrant developing a field like PICKA
That that new Entrant would be subject to the minimum tax floor, but then would Be able to use
The five-dollar per taxable barrel credit to go below the floor it would, be a soft floor
so it
would
It would raise the value before the application of those credits. I mean you could have a situation where that
no tax after credits before or after the four to six percent floor, the raising the floor
would impact, you know, at what price they would end up paying a tax.
Okay.
Follow-up?
Follow?
You mentioned earlier at the close of the previous section you talked about the governor's
But there's still an allowable, there is no reform to current law,
which would allow for offsets of, I don't know if it's production tax value,
maybe that's what it is.
But essentially, the costs of for example, gas treatment on the North Slope could be offset or let me do it this way.
in legacy fields would be offset and enjoy a deduction from gas treatment in the gas field.
Mr. Stickle. Representative Josephson through the chair. So what I think you're getting at is
we have an oil production tax and a gas production
in the tax calculation and we actually have an entire
exhaustive presentation that we're developing for the other body. We'd be
happy to come back here and
share all of the detailed nuance of that. The gas production tax in a nutshell
though is a gross tax
with a tax ceiling for qualifying gas used in state.
For a company that is producing both
oil and gas on the slope
they can apply all of their lease expenditures against the oil tax side of that calculation.
And so to the extent that a company is producing both the
oil and the gas, and they have additional lease
expenditures related to
the Gas that would otherwise be allowable lease
expenditures, those could offset their oil
tax calculation follow.
We know that the producer, the producers are
Those would be the, it's their gas that would
be produced subject to the least terms, of course,
and our royalty share and all the rest.
So, and we know that their producer's
voil, so what you've just described
without some alteration in course is predictable.
In other words, production of a, Alaska A.K.L.N.G.
Could very likely result in reduction in production tax for the state
Representative Josephson through the chair there's a lot of complexity in in the tax code
And depending on the specific tax situation of the individual producer and prices
The production-tax impact could be a positive it could. Be a neutral it. Could be negative
For the record that was mr. Stickle representative Joseph's and
Now, based on that answer, it's certainly worth studying.
So we know what we're getting into.
Thank you, Mr. Coacher.
OK.
In the lineup, I have Representative Stapp,
Henan and Tom Sheffske.
You're up, Senator Stap.
Yeah, thank you.
Coach, you're foster.
Well, i hope we would not want to not have a gas line,
just because we got a little less government take.
And I think they built one.
That would be kind of sad.
I do think that I have some kind of thoughts on this policy
co-chair so like there's going to be probably four or five
quick questions if that's permissible. Thank you.
Through the chair. How many changes in tax structure you had
that on the previous slide have we kind
of monkied around with this stuff since 2006 through the
chair? I count seven. Are there any more than that?
Mr. Stickle represent staff through the chair. So those of them the major changes to production tax
There's been there's there've been other changes and some of these have been tax increases some
Of them have Been tax decreases. There've Been a numerous numerous modifications to the fiscal system over the time
Fault mr. Coachea representative can you do you have like a number on that and how would that compare to like tax?
Policies and other jurisdictions through the chair
Represented staff through to the Chair
Not prepared to speak to that the other jurisdiction right now
Okay fault mrs. Crotcher representative yeah, thanks
You probably have the same answer through this, through Chief Conema Stickle, but how does our total government take on the industry compared to other tax regimes?
That's just a stickle.
Representative Stapp, the last time we looked at it, it's been several years.
We were kind of within the range of a peer group, that's not something that we've looked recently.
So the reason I asked the question is because I don't I'm going back to slide four in this presentation and it says
To make the tax climate more competitive for business investment
All right, and if we haven't looked at tax changes and other regime excuse me in other jurisdictions
And we have it looked out
Tax change or like what our total government take is in other jurisdictions
Please tell me we've at least looked at like
What type of impact on potential new fields that this policy would have in the event that we increased our
Total government Take through the chair
Mr. Stickle rep represents that through. The chair so so yes, we have an extensive appendix that
We've prepared that looks at impacts on
on government take and some other metrics
and we're also prepared to deliver
full field economic modeling if that would be
to the wishes of the committee.
Yeah, fault in the scroaching.
Representative Scott.
Yeah through the chair, I mean,
that that will be fascinating for me to sit through,
but I'm just curious on a simplicity of that
since you've already done it.
How many fields would probably be less economical
in new production if we were to do this through chair?
Mr. Stickle.
Representative steps with the chair. So again, it's a nuanced answer.
So in terms of increasing the minimum, the
minimum tax floor, that would have an increased tax on some fields and
producers. It would
have no negligible impact on other fields
and producers, so it really depends on the specific field in the economics.
But directionally, it's either going to be neutral or a slight disincentive.
I'll follow Mr. Coach here.
I'm going go a specific example, then, and we'll just ask that.
So we're having a pick on Willow, right?
Both of them are going be some sort of GVR field.
And, you know, these companies, they went to like final investment decision and they're
Put another capital in and they haven't even gotten a drop of oil out of these wells yet
And we're going to tell them that we are going change kind of a fundamental piece in that economic
So what would that what with this policy have done to those two fields through the chair?
Sure, it's just a cool representative staff to the chairs
So speaking specific specifically to The minimum tax floor increase from 4% to 6%
We did look at this based on our our we have a
Lifecycle modeling of both fields that we've put out based on entirely on public information. There's some white papers that
We've released on that
Looking at the pick a field through that analysis. It would have essentially no impact as the reversion
The pick of field under that Analysis would be paying
Basically, the zero tax, while the 6% floor was in place,
they'd be able to use those per taxable barrel credits
to pierce the floor, it would be a soft floor.
And then the increase to the six percent floor
that would revert back to
the four percent once that field
graduated from their GVR eligibility.
And the Willow field would
be under that GVR eligibility
until the, the reversion to the 4% would happen
before they graduated from the GVR eligibility as well.
So not a significant impact on either of those
as long as the repeal happens as proposed by the governor.
Back to the 4% yeah fault miss co-chair. Yeah, regarding the repeal in section 25 the bill
It's page 50 lines 5 and 6
When we're looking at the 6% I don't see anything there that actually repeals or reverses the section
It could be could, be wrong, but I'm just reading through that so I I know
And that would be after jin 127 to chair mr. Stickle
Representative saps of the chair so
have to
We can we can do that later that you on the exact language, but that that is the that
is, the intent of the language is that
the
6% is a temporary increase for five calendar years and then back to the 4% in 2032
And no last fault mr. Coacher. I'm senator. Yeah, I think what your fosters through the chair
How does doing this make us more competitive for businesses?
That's just tickle
Representative sat through the chair. So the the governor's intention is that the overall fiscal plan
creates a more sustainable fiscal feature for the state and then
the
the minimum tax floor increase is transient while the accompanying corporate income tax piece is
Permanent and so when you're looking out over the long term the government take is lower under this plan than it would be otherwise
I have one more follow-up by Leibniz Scutcher.
Robson of Stapp.
Yeah, thank you.
I'll be done this time.
What comes first?
The tax increase or the tax decrease through the chair?
Mr. Stickel.
Representative Stap through
the Chair of the Tax Increase.
Thank you
Okay, next up I've got Representative Hannon and then Tom Schofsky, Representative
Hannen.
Thank You.
Through the
Chair, I think it's Mr Stackel because he's the oil and gas production tax guy.
So on page 32, the new permanent fee of $0.15 per tax will barrel.
I want to make sure that I understand it would be placed in the order of operations before gross value at point of production, correct?
representative hand through the chair.
It actually comes at the end of the order of operations.
So this fee would be, the way the fee
would levied in the tax code is as a surcharge
when the producer pays their production tax.
So at end the entire calculation,
they pay us an additional 15 cents per taxable barrel
and cannot use any tax credits or deductions to offset that.
Okay, so now you anticipated my second and third question in that
So I'm gonna so I wanted to make sure it it wouldn't be coming out of revenue that should be come in the state
So it's coming at the end of the production. That's good
If it were to go into place in FY 27, how much revenue is it anticipated to start generating next year?
Mr. Stickle I represent me hand through the chair and again we have a fiscal note section that provides all these numbers
We're estimating $25 million in fiscal year 27 for the new infrastructure fee.
And then follow up.
Follow up?
We are also creating a new revenue fund, the pipeline infrastructure fund with this.
And you delineated it can be used for Dalton Highway, pipeline maintenance.
Wouldn't be paying into this right. This is just an oil tax per barrel or would eventually gas be
paying in to this the same fee
Mr. Stickle representative hand through the chair. So the fee is
Per taxable barrel of oil in the state
right, okay
Follow-up represent abandoned so that 25 million starting an FY 27
I mean we know that there's a lot of money that we spend on Dalton highway maintenance
We know the pipeline has a
Lot of costs that probably should be invested in we've got a lotta maintenance costs along that corridor
But another
Project will substantially benefit from that investment in that court or but not have to participate in any taxation
Generating the maintenance of that quarter as this is drafted
Representative Han through the chair so the the fee would be generated directly from the oil production
You know the anticipation is that the primary suppliers of gas to the AKL and G project are
Almost certainly going to be the same
Companies that are also producing that oil
All right. Thank you
I've got representative Tom Schuske and then reps in of Galman reps and of Tom Shewski asked an answer
Thank you.
Okay.
Thanks, Representative Galvin.
Thanks.
Just a quick question on the Dalton Highway maintenance.
Do you know roughly what historically we've been putting in to maintain that highway, and
I know we haven't maintained it to the degree we should, but if we could just have a sense
of that with the, so I want to know how 25 million is going to compare to what the need
is.
I represent Galvan through the chair.
I don't have that information.
Okay I have any further questions. Are we prepared to speak to the fiscal notes or would
you like to come back at another time and I realize that once we start down that road
I think that's when you start getting in the modeling and everything and
I don't know if you'd like do that and one fell swoop or if
Mr. Chair, it's entirely up to you.
We're prepared at the will of the committee,
whether you want us to get into that now.
Because it is a fairly large bill,
it has a very lengthy fiscal note as well,
several pages, or I think it four pages.
Most of our fiscal notes are one to two pages
so it it a little bit lengthy,
but I believe we have condensed down to four or five slides.
I could be a lot of questions.
I'll take a repeat of these.
Ready.
Okay house planets back on record at 255 p.m. What I think I'd like to do is
What have been trying to? Do is just get all before we get into the world numbers
I wanted to get the concepts out and one major concept that we also need to talk about a section 35
Which is the condensed conditional language section?
Maybe if we could just touch on that so that you know the public and everyone here kind of knows what that means
And then we could, I wanna give an opportunity
to represent him by them too.
Actually, we'll do that first.
We'll let him just speak to something
that's in the physical notes that he wants to point out.
We can maybe spend more time on it.
Let's see. I think we're actually probably well
We might go ahead and just start on the fiscal notes
And then if we don't get all the way through them we can always come back to them
But at least we'll we will take advantage of the time that we have here
So Representative Bynum, did you want to make your comment now or yes coach our foster? Thank you very much and through the chair
I was just pointing out earlier I'd asked a question talking about stability in the and the
revenue where we would be at and I
Was trying to remember where I
where that information came from, and it came
from the fiscal note, slide deck.
So I was getting a little ahead of myself.
And I'm was pointing to slide 37, which specifically talked
about total UGF impact,
and that's where the number came
from in FY2036, it demonstrates a $620 million negative number
on that, that that what I actually was referring to.
We don't need to get into it now, I can wait.
Obviously, when we go through all of the fiscal notes, including the touch of fiscal
notes.
But I just, for the record, wanted to point out that specifically where that question came
from and the information that I was pointing to on that, sorry, did not have that readily
available when the question was asked.
And if you have any comments on this now, happy to take that.
Otherwise, we can move on to the next item, Mr. Stickel.
Sure.
We'll speak a little bit more when we get to this.
When we produce the fiscal note, we're
showing the estimated revenue impact of the tax changes
in the bill relative to our official revenue forecast.
So the official Revenue forecast does
have some increasing revenue into the 2030s
with production from new fields, as I mentioned.
And what we are showing in fiscal
note is the delta between that official
And this bill where you see that yes, there's a there is an impact of the corporate income tax elimination
Thank you. Okay, thanks
Through the chair, I think we'll start with the commissioner on on the slide mentioned by my colleague from ketchup can I
Guess I treat these negative numbers in the out years as
Is the governor not wishing because this would be the next governor or perhaps two governors from now
The governor
Not wishing to burden
Those governors with this sort of deficit, but I know he's talked about how it's important to revisit
Where we are year by year in fact one of his
provisions is the sunset
major departments of government, and I sort of appreciate that, but it's not tidy. It's untidy.
You wouldn't plan a retirement with this sort-of outlook. You would want something more structured,
and i'm concerned about that. Again, I can only interpret that he's
not saying that governor will have to cut $620 million, or is he?
Is he saying that governor will need yet again another major supply of revenue?
How do I interpret that? Commissioner Earls?
Through the chair to representative
Josephson
the negative numbers that you see on the fiscal note revenue summary that negative amount is offset by
new revenues coming in from production taxes that
or in gas line as Chief Stickle had spoke to.
I must say, Representative Josephson.
Chairman Foster, I'm concerned not so much
about the former, but the latter.
I mean, you understand that I have sort of earned a right
to be very cautious because we were told about revenue
from a carbon injection and carbon offset
featured in the ICER report and
Maybe we're impatient. Maybe that's still coming, but
Particularly given that I ten years ago saw billions of dollars of revenue from a gas line and now I see
Half a billion if we are fortunate. I
Just don't I just not
Something I can rely on
The the revenue firm pick and willow may be a different story
But I'm just concerned that the governor hasn't finished the job
And that I, if I were he, I would want to say this is swept up, this
is cleaned, and I'm really leaving it not immediately but soon for future plans for those governors
without being saddled and burdened by these other numbers, just to comment.
Thanks.
Great.
Thank you.
Thanks, I do have one additional question and it refers back to our previous slide deck
I've wondered if do you are is planning for per barrel surcharge revenues to be in addition?
to the existing Dalton maintenance funds which are resulting in the improvements or is it just
Supplanting those current appropriations mr. Stickle
I'm sure Dan Stickel for the record to representative Galvin through the chair.
So I would defer to Office of Management and Budget on what the plan is for other funds.
As far as our role in Department of Revenue, we administer the new fee and then we would
place it into the newly created designated fund.
Okay, and through the chair, if I may, could we ask for that information to get back to
us if you could work with the other department?
I think it would be helpful for us to know.
I know it's sliding up from 25 all to 32 throughout time based on your prediction, but I
think we should have a little certainty around that to whether it is adding in or it removing
And I don't see anybody with OMB here on the line. I assume so with that I'll have my staff reach out to O&B
So thank you with bat
If you could maybe just touch on
The conditional conditional language, which is section 35
So it's the last page of the bill and it is page 56 of your PowerPoint presentation
And if you can just catch on that
So the
Mr. Spence yes through the chair again Brandon Spanos for the record
the
35 makes enactment of the bill conditional upon the passage of a version of HP 275 or similar bill
And I apologize that I don't have those bills right in front of me, but I but one of those is the one percent
Spend caps
And then there's a HB 274 or similar bill and version of HJR 30
So the again the one bill is setting a cap of 1% spend the the other bill
All right sunsets the
the different
Agencies for the
Legislature to look at determine whether that agency should still continue into the future and then hjr 30 is
Doing a couple of things that combines the funds for
Our
Thank you our permanent fund and and also
Would memorialize a 50% of the well, I does three things at caps or rather sets a 5% draw and then
Allows for 50 percent of that draw to be paid as a dividend to residents
Okay, and so just to summarize, I think it was the constitutionalizing, the 50-50 split on the one bill,
the spending cap, then the other one was a sunset of agencies, reg review.
I believe is what the name for that is.
And so, just so the public knows, this bill that's before us now,
It would only the conditional language requires that the other three bills or similar bills
Also be passed in order for this one to go into effect is is my understanding
So I just wanted to make sure that folks knew that representative Bynum
Thank you coach air foster and just specifically
I wanted it to be clear that when we talk about the condition language that it's requiring that these bills pass might that's my what we
Were just talking about
but two provisions of
this required the resolution to go forward
for the constitutional amendment.
It's my understanding that the only provision
that we have here is that that would pass
in through the legislature,
but that wouldn't necessarily be contingent
on the fact that has to to the vote of the people
and that people may reject that.
It is possible, I'm not saying that they will,
I am just saying it's possible that could.
You know, we haven't really talked about what the implications are of if that were to occur.
And what, the intent of this whole bill is to do,
it'd be nice, kind of nice to know and understand what that contingency would be,
assuming that this all passed as a package, and then the constitutional components failed.
How would that would ultimately impact the intention of what we're trying to hear with this bill?
Any takers?
Commissioner Earls
Through the chair to representative Bynum
I'm going to have to
dig into more aspects of HJR 30 and get back to you. Thank you
Well, I am looking here it looks like if we were to tackle some of the fiscal notes
It looks, like maybe that
first section of the fiscal notes section is only pages 34,
35, 36, 37, so only four pages.
And then after that is the Fiscal Mode on Expenditures.
Maybe if you could just go ahead and we'll go to a question
with Robson of Galvin, and then we will just address
those for the first part of fiscal note
so that we can come back later.
So with that, Rob's in Galvan.
So we heard kind of an interesting question from co-chair Josephson around the revenue
pieces and how we were going to recoup 620 million and the answer was that in part this
is part of a bigger puzzle to be inclusive of revenues from the gas line and if I may
the gas line isn't in here but because to me it's important that we understand the broader context
I haven't heard about any revenues from gasline so if you have if that's permissible
I would like to hear very briefly if your where that comes from and if
you haven it firstly if
information.
And Rob, Sam Galvin, actually, I think that's a good discussion, as you noticed I mentioned
earlier that I love starting with a big picture, trying to get some context rather than starting
with the little tiny things and then working our way up.
It's good to have the big pictures first and so we can certainly spend the remainder of
our time kind of addressing those bigger issues and start getting into the finer details.
Sure, Dan Stickel for the record to represent Galvin through the chair so I can speak generally
to the to The Gas Line Modeling and again, we have
Some information's been provided on the on The fiscal plan this
This time omnibus tax bill is one component of the larger fiscal Plan
broadly speaking relating to Gasline Model and we Have a team of economists on in
in Department of Revenue, as well as Department
of Natural Resources.
We've been working collaboratively
with the Gasline Development Corporation and the governor's
office.
We have a very sophisticated set of gasline modeling,
lots of assumptions and runs that we've done there.
We do have baseline scenario that
we have used for internal purposes.
We haven't.
To my knowledge, we haven t put that out
as a public document yet at this point.
The governor's fiscal plan includes that baseline scenario around the AKLNG project
and then the state revenues that would be associated with that and those would include
revenues from property tax, production tax both on gas and potentially additional oil
production that will come along with the gas line and royalties from both oil and gas.
Thank you a quick follow-up so essentially you're not privy or you haven't been given
permission yet to share details but that you are sharing you did get some insight to that
and so I'm looking at slide 37 and based on what you know about mostly the missing piece
gas line. We already know about fields and other things. You have a lot more certainty
around that because they've already started drilling. A lot of those are 10 years in advance.
You kind of have ascents, I suppose, with some certainty.
You still don't know the price of oil and all of that or what the demand will be.
And we have lot uncertainty, of course, about the market and price
started the project. So the level of uncertainty to me seems fairly high, but I appreciate that
there's been some modeling. And now you're looking at 2034. It looks like it's the first time period
where we really feel like, oh, dear, we're seeing a pretty massive hole, although I would also argue
certainly a level of uncertainty there too,
but certainly by the time of 2034 is that gas line,
as I haven't heard of when we know
that that'll even be complete, let alone started.
And so I'm really asking for a bit more
even though you can't give me precise numbers,
but to understand that we see this coming into play
is important.
Sure, let's just tickle represent Galvin through the chair. So to be clear our official revenue forecast does not include any revenue from
The gas pipeline the convention that we have used and this has been a long-standing convention is that
We will revisit that assumption once there's a final investment decision
So we've we been very conservative on the gas line in the revenue
Now, if the gas line, assuming the Gas Line does proceed with kind of some of the timelines
that have been discussed, potential for a Phase 1 discussion or Phase One investment
decision sometime this year, and then proceeding to the full gas pipeline project in our modeling
There will be significant incremental revenue to the state from the gas line project
That'll actually start coming in early in the 2030s, and so that's where you know the governor felt that it was
appropriate to have a phase down as some of the other tax proposals
Thank you and coach your foster
These are the sort of questions that I know we're all wrestling with and so much uncertainty when we know some of the small communities are already worried about losing property tax revenue potentially that's still not yet worked out either and then we also don't know the pricing of or what we were told at one point was
We can do all of this without you to the state of Alaska.
You do not need to put any money into the gas line.
We've got this covered for all
of the things that permitting is pretty much done,
and I appreciate that.
But that means to me also,
we may not get much of a take from it also.
is all relevant in this conversation,
because if there is some sense that we're going to help,
we are going get some of that as a wrap around
to fill in some these gaps that you see here.
I think that have a lot of discussion
that is part of the bigger picture.
I do want to make sure that
we were at the table getting our fair share for Alaskans
so that it's not something that were, at
the end of day,
either paying for or suffering from decisions that we didn't make that would help make sure we got
that fair share to keep our lifestyle our way of life continuing here and so thank you for allowing
this questioning because I do think it's critical. Thank you. We'd like to also recognize that
we have with us Representative Ruffridge. Thanks for joining us. I did see reps of January but I
Okay, Representative Jimmy.
Thank you, Coach Refoster.
I just wanted to ask, have you guys followed a model like showing other states
this kind of work where it shows ten years down the road to promise,
to make it more enticing to companies to come and work with lower tax rates?
Is there other state?
Doing this as well
Mr. Stickle or Spanish mr. Spanos through the chair
Representative Jimmy
We as part of the analysis for this package we didn't specifically look at other states
However in general, yes, we do meet with our counterparts pretty regularly and and try to understand what their tax structures look like
and
That's some of the information we bring back to the governor to when he's looking at different options on how to close the fiscal gap.
As well as incentivize investment in Alaska.
And so the Governor did look at other states specifically related to
the corporate tax rate and compared Alaska to those states.
And he felt like our rate was too high, ultimately he decided that it was better to go all the way to zero.
But there was a comparison done with the other states as far as specifically to the oil and gas.
You know, the gas pipeline is quite unique to Alaska.
I don't know that a lot of other States are struggling with anything quite like that, getting gas to market.
But as Mr. Stickle mentioned earlier, we haven't done an analysis of the
oil & gas for several years related to other jurisdictions.
Okay, I don't over up there by them. Yes. Thank you co-chair fostered through the chair
Just really quick overview
Obviously what we you know, we're going over here is the bill in front of us and and the considerations that we have for each one of these sections
You know so our my questions
I won't speak for the other members are specifically related to the item that is in-front of me here
We have
This bill is a 56 page bill
I have a three page scenario, a four page fiscal note,
a 58 page slide deck that we've been going through,
and three other bills plus,
or three bills total plus a resolution to consider.
I'm wanting to know if available to us
is a report and an analysis
that goes over some of the questions that
we have asked.
Number one,
Alaskans that are eligible for the permanent fund dividend going to be overall impacted by this bill
Did it evaluate them by region
Number two, how are Alascans, that aren't eligible yet
Or not eligible at all for permanent funds dividend, going, to, be impacted, by, this, bill
Number three, How are
corporations that are currently operating in Alaska going to be impacted by the
corporate tax structure changes. Number four, how are corporations outside of
the state going be to impacted this bill? And then ultimately number five, what is
going to be and you've mentioned some of those
And how that will impact the finances of the state, so I'm really looking for an overall comprehensive report that evaluated all of
Those things so that we have a better understanding of that ideas that went into this
Obviously
Well, first of all does that evaluation and report exist and if so will it can it and will be made available to us
So that, we can have it in conjunction with all this information
Help us make a more informed decision and if if it one is not prepared or ready. Do we intend on doing that?
and then
Finally, I would say that you know
It's a real challenge when we look at all of these things and trying to get them all done in this short period of time
I know that there's been many discussions
Over the years on this
But many of us have not been here for many years, so you're not this my second second year
and I'm being presented with this fiscal plan
that's being proposed as a fiscal plans.
So having that background information
or detailed analysis before something like this
comes forward would be very helpful.
So the question is, is there something available
and if not, will there be something forthcoming?
And I was just about to say,
I think that a great question,
it's the crux of everything
that we're trying to wade through, I thing.
And I was just about to say that might be the perfect ending point.
We do have one more question, but I want to give you the opportunity to, you know,
say anything you'd like to see with regard to that.
And, and,
but, I suspect that it's probably going to take a little bit of maybe putting something
together to get us, maybe something in writing or, or come back and tell us it.
But anyway, if you've got an answer,
I guess.
Commissioner Earls through the chair to representative Bynum. I would have to defer to our
Economic research group on everything that's been prepared.
I don't know that it's all in one document, but I believe there are many elements of
five or six pieces of what you
Requested, But we can get back to you in writing
I'm Santa Bina
Yes, thank you, Coach, your foster.
Yes. Specifically, I mean, we have a package here in front of us,
and I understand that, you know,
you can reach from all different data sources to come up with all kinds of different ideas,
but these have all been packaged together.
And so my anticipation or expectation would be is that be able to evaluate what is in
front us as a full package based on detailed information.
that was used to put this together.
And the impacts of all of those areas, plus more.
I mean, I mentioned all the areas of impact,
but that would be very, very helpful,
not just for myself, but for the public
that's also scrutinizing what's in front of us.
So, thank you, co-chair.
And I suspect you'll put something in a writing
as we've seen with some of the other questions we have.
I think this is some.
You know, I think this is something that you could probably spend a lot of pages on trying to address.
I would love to see something maybe as more of a summary initially, and then you can have a
lot back up detail, but just, you know to kind of get to the simple answers. I realize there are
if we could kind of get the basics out on the table
and then whatever backup information would be needed
to back up that, you know,
could certainly be maybe more of an appendices type thing.
But I'm open to however we want to do it.
Representative Josephson, do you have a question?
Yes, and another thing at a future hearing,
if you're not prepared now to respond to is,
I last, when I spoke, broached to the question
the deficit in the fiscal note in
the out years, 10 years from today.
The response was that we hope to have
new resource development and therefore
new revenue in a form of tax and royalty.
But I've been reminded that the two 10-year plans
that have issued from OMB in
the last two to three months,
are so different because of the adjustment on spending
that is hoped for in the spending cap provision
of The Governor's fiscal plan.
So, just December 11th, which was very recent,
the agency operations, the governor anticipated
on December 1th were 5.95 billion in 2036.
That's about 6 billion in 10 years.
And under the new 10-year outlook,
those same funds are 5.1 billion,
a difference of about 800 million.
So now resource development doesn't just have to rise,
it has to raise substantially to cover that deficit.
And of course it begs the question,
am I saying we couldn't live within our means,
plus 1% I am saying that, I think.
There's no evidence that that could happen, particularly given all the things that Representative
Galvin talked about, all of the ongoing harm to deferred maintenance, to lack of inflation
adjustment in K through 12, the list is so long.
And so I need some further explanation of how additional resource development can cover
That additional eight hundred million dollars to in the event. I
Mean is the cap. He's proposing statutory or constitutional. Let's start with that
Christian Earls through the chair to representative Josephson it is a
statutory change
Yeah, I would need thank you.
I just
Need more explanation of that and I was hoping mr. Stickle
it seemed like you were about to give us,
and I know they're out there.
I've seen them revenue projections from AKL and G.
We had them in SB 138.
Of course, they didn't materialize,
so I'm not sure where their value was,
but the revenue department then,
Mr. Butcher, and, I think, Ms. Rodale,
had slide decks showing
$3 billion about a billion of that was for local governments
Effectively, and I it'd be great to see where we are on a Kell and G
And and it may seem like that's that 10 gential from this
But I think it's seminal. I thing it is part of the whole in understanding whether we should
Give to future legislatures and governor
A burden that that is projected by this governor of deficit. Thank you
Do we have any comments otherwise I'll wrap up any okay, anything further from the committee
we are at the ending point of our meeting and
Very much appreciate it. I know this is a very complex
issue and and there's probably a lot more work that needs to
be done. I think there's a lot of questions. Appreciate your time. With that, our next
schedule meeting is tomorrow at 1.30pm and at that meeting we will be hearing the introduction
of House Bill 280. That is the digital tax compact as well as House bill 289 supplemental
budget. And so if there is nothing else to come for the committee, we'll be adjourned