Bill Summary – FastDemocracy

State of Alaska
                                                         Fiscal Note
                                                                                        Bill Version:                    CSHB 399(FIN)
 2018 Legislative Session
                                                                                        Fiscal Note Number:              2
                                                                                        (H) Publish Date:                4/16/2018
 Identifier:        HB 399CS(FIN)-DOR-TAX-4-13-2018                       Department:       Department of Revenue
 Title:             CORP. TAX: REMOVE EXEMPTIONS/CREDITS                  Appropriation: Taxation and Treasury
 Sponsor:           FINANCE                                               Allocation:       Tax Division
 Requester: HOUSE FINANCE                                                 OMB Component Number:              2476
 Expenditures/Revenues
 Note: Amounts do not include inflation unless otherwise noted below.                                                          (Thousands of Dollars)
                                                 Included in
                                    FY2019       Governor's
                                Appropriation      FY2019                                      Out-Year Cost Estimates
                                  Requested       Request
 OPERATING EXPENDITURES               FY 2019        FY 2019       FY 2020                FY 2021           FY 2022            FY 2023       FY 2024
 Personal Services
 Travel
 Services
 Commodities
 Capital Outlay
 Grants & Benefits
 Miscellaneous
 Total Operating                            0.0           0.0          0.0                      0.0                0.0              0.0            0.0
 Fund Source (Operating Only)
 None
 Total                                             0.0       0.0                 0.0            0.0                0.0              0.0            0.0
 Positions
 Full-time
 Part-time
 Temporary
 Change in Revenues
 1250 UGF Rev (UGF)                         1,450.0                      2,900.0           2,900.0           2,900.0            2,900.0       2,900.0
 Total                                      1,450.0          0.0         2,900.0           2,900.0           2,900.0            2,900.0       2,900.0
 Estimated SUPPLEMENTAL (FY2018) cost:            0.0               (separate supplemental appropriation required)
 (discuss reasons and fund source(s) in analysis section)
 Estimated CAPITAL (FY2019) cost:                 50.0              (separate capital appropriation required)
 (discuss reasons and fund source(s) in analysis section)
 ASSOCIATED REGULATIONS
 Does the bill direct, or will the bill result in, regulation changes adopted by your agency?           Yes
 If yes, by what date are the regulations to be adopted, amended or repealed?                           01/01/19
 Why this fiscal note differs from previous version/comments:
 This version of the bill limits federal credits to the portion earned by operations in Alaska. The previous version disallowed federal credit
 entirely. This note also makes a correction to the change in revenues because of repealing the capital gains statute. The recent federal
 tax reform act eliminated the alternative capital gains rate, therefore, this bill is not repealing the rate, but cleaning up language. The
 Tax Division discovered the oversight after submitting its first fiscal note (more detail on page 2).
 Prepared By:              Brandon Spanos                                                                     Phone:         (907)269-6736
 Division:                 Tax                                                                                Date:          04/13/2018 12:00 AM
 Approved By:              Mike Barnhill                                                                      Date:
                                                                                                                      OUT OF 04/16/18
 Agency:                   Department of Revenue                                                            REPORTED
Printed 4/16/2018                                                  Page 1 of 2                               HFC 04/16/2 018
                                                                                                                      Control Code: UGsWy
                                                                                                           CSHB 399(FIN) - Fiscal Note 2
                                                  FISCAL NOTE ANALYSIS
STATE OF ALASKA                                                                    BILL NO. CSHB 399(FIN)
2018 LEGISLATIVE SESSION
Analysis
   This bill would make the following changes to the corporate net income tax:
      1. Limits federal credits to the portion earned by Alaskan operations
      2. Disallows the exclusion of foreign royalties from net income
      3. Cleans up language regarding the outdated alternative capital gains rate
      3. Repeals statutes that were part of the Alaska Stranded Gas Development Act. The credits had a statutory sunset
   date that has long since passed (the last credits were allowed to be created in 1994 and carried forward to 1999 at the
   latest).
   The federal Tax Cuts and Jobs Act of 2017 repealed 26 U.S.C. 1201--which was the federal alternative tax on capital gains.
   Alaska statutes currently reference 26 U.S.C. 1201 and set a rate of 4.5 percent as the alternative tax on capital gains
   provided for in 26 U.S.C. 1201. Since that section of the code no longer exists, it is the Tax Division's position that the
   alternative tax on capital gains in Alaska no longer exists and this bill is simply cleaning up that language. This bill was
   drafted before the federal tax reform was passed and the intent was to repeal the preferential rate on capital gains.
   However, now this bill is simply removing outdated language. This bill also ensures that an Alaskan alternative rate on
   capital gains won't be restored if Congress were to restore the alternative tax on capital gains in the future.
   Change in revenue estimates are based on a four year average (our data is the most reliable in the last four years since we
   rolled out our new Tax Revenue Management System). The breakdown for each proposed change is as follows:
      1. Limit federal credits: $1.2 million
      2. Foreign royalties: $1.7 million
      3. Reduced rate on capital gains: $3.4 million (left here to preserve the fiscal impact of the federal
         repeal of the alternative capital gains rate)
      4. Alaska Stranded Gas Development Act: $0
   The revenue estimate for federal credits decreased in this version of the fiscal note by $0.6 million. The reason for the
   decrease is that this CS of the bill limits federal credits to the portion earned by operations in Alaska. The previous version
   disallowed federal credit entirely.
   The tax changes would be effective beginning January 2019. The estimated change in revenues in FY19 is half of the future
   years' estimated changes to account for the mid-fiscal year effective date.
   This legislation would require the Department of Revenue to update its Tax Revenue Management System (TRMS) and
   Revenue Online (ROL) which allows a taxpayer to file a return online. The update would consist of reprogramming both
   systems, updating the return rules in TRMS and testing both systems thoroughly to verify that they function as expected.
   We would also need to update the current tax return forms, make changes to certain regulations, and draft transition
   regulations. The supplemental fiscal note figure of $50.0 in FY19 is to cover the costs of having our contractor update the
   two systems. We do not anticipate any continuing costs or additional staff needs. After the implementation of the
   changes, this legislation would not cause any additional administrative burden on the Tax Division.
(Revised 9/26/17 OMB/LFD)                                                                                             Page 2 of 2
HB 399CS(FIN)-DOR-TAX-4-13-2018                                 Page 2 of 2                                               Control Code: UGsWy
Statutes affected: 
HB0399A, AM HB 399, introduced 02/23/2018: 43.20.021, 43.20.145, 43.20.036, 43.20.042, 43.20.144
HB0399B, AM CSHB 399(FIN), introduced 04/13/2018, passed House 04/23/2018: 43.20.021, 43.20.042, 43.20.145, 43.20.144