State of Alaska
Fiscal Note
Bill Version: CSHB 37(STA)
2022 Legislative Session
Fiscal Note Number: 7
(H) Publish Date: 2/28/2022
Identifier: HB037CS(W&M)-DOR-TAX-1-23-22 Department: Department of Revenue
Title: INCOME TAX; PERMANENT FUND; EARNINGS Appropriation: Taxation and Treasury
RES. Allocation: Tax Division
Sponsor: WOOL OMB Component Number: 2476
Requester: (H) State Affairs
Expenditures/Revenues
Note: Amounts do not include inflation unless otherwise noted below. (Thousands of Dollars)
Included in
FY2023 Governor's
Appropriation FY2023 Out-Year Cost Estimates
Requested Request
OPERATING EXPENDITURES FY 2023 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028
Personal Services 3,413.1 6,826.1 6,826.1 6,826.1 6,826.1 6,826.1
Travel 25.0 12.5
Services 665.3 2,040.3 2,790.3 2,190.3 2,190.3 2,190.3
Commodities 182.9 72.9 6.9 6.9 6.9 6.9
Capital Outlay
Grants & Benefits
Miscellaneous
Total Operating 4,286.3 0.0 8,951.8 9,623.3 9,023.3 9,023.3 9,023.3
Fund Source (Operating Only)
1004 Gen Fund (UGF) 4,286.3 8,951.8 9,623.3 9,023.3 9,023.3 9,023.3
Total 4,286.3 0.0 8,951.8 9,623.3 9,023.3 9,023.3 9,023.3
Positions
Full-time 69.0 69.0 69.0 69.0 69.0 69.0
Part-time
Temporary
Change in Revenues
1004 Gen Fund (UGF) 825,000.0 550,000.0 550,000.0 550,000.0 550,000.0 550,000.0
Total 825,000.0 0.0 550,000.0 550,000.0 550,000.0 550,000.0 550,000.0
Estimated SUPPLEMENTAL (FY2022) cost: 0.0 (separate supplemental appropriation required)
Estimated CAPITAL (FY2023) cost: 8,500.0 (separate capital appropriation required)
Does the bill create or modify a new fund or account? No
(Supplemental/Capital/New Fund - 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If yes, by what date are the regulations to be adopted, amended or repealed? 12/31/22
Why this fiscal note differs from previous version/comments:
Updated Personal Services, Services and Commodities costs to account for updated FY2023 estimates. Updated Change in Revenues
estimates based on most recent available data and to account for the increase in standard deductions.
Prepared By: Nicole Reynolds, Deputy Director and Dan Stickel, Chief Economist Phone: (907)269-6736
Division: Tax Division Date: 01/23/2022 09:00 AM
Approved By: Eric DeMoulin, Administrative Services Director Date: 01/24/22
Agency: Revenue
Printed 2/25/2022 Page 1 of 4 Control Code: BEYFH
 CSHB 37(STA) - Fiscal Note 7
FISCAL NOTE ANALYSIS
STATE OF ALASKA BILL NO. CSHB 37
2022 LEGISLATIVE SESSION
Analysis
This proposed legislation creates a new broad-based income tax that would apply to resident and nonresident individuals,
trusts, and estates, including partners or shareholders of partnerships or S-Corporations, who derive income from, or
where income is connected with, a source in Alaska. The Department of Revenue, Tax Division (Department), estimates
that there will be approximately 475,000 resident taxpayers and approximately 70,000 nonresident taxpayers. These
estimates are very rough. The tax rate would be 2.5% of the taxpayer's federal adjusted gross income (AGI).
Taxes paid to other states, based on income derived in those states, can be credited from this tax. The proposed legislation
would exclude from the definition of Alaska taxable income a Permanent Fund Dividend (PFD) received by the taxpayer.
The proposed legislation would also allow an individual eligible for a PFD to direct the Department to hold all or a part of
the amount of the PFD to pay the tax due under this bill. This tax will be effective retroactive to January 1, 2022.
Lastly, the proposed legislation would allow for another exception to the requirement that taxpayers file reports and
returns electronically, which will cause an additional administrative burden on the Department.
Revenue Impact
At full implementation, revenue will be approximately $550 million. Assuming that AGI is earned evenly across the fiscal
year, revenue in FY2023 would be approximately $825 million, representing a year and a half of revenue due to the
retroactive effective date. Depending on the timing of tax implementation and estimated payments, it is possible that
some of the revenue projected for FY2023 could be shifted into FY2024. As the impact is proportionate to each
households income, actual impact by household will vary widely. Any impact will be partially mitigated, as state individual
income taxes are deductible from federal taxes. Thus, Alaskans who itemize their federal taxes would reduce their federal
tax liability by the amount of their state tax multiplied by their marginal federal tax rate.
The Department's individual income tax revenue model is based on aggregated federal income data for Alaska residents. It
is assumed that income from nonresidents will increase Alaska AGI by approximately 5%. This 5% adjustment is an
estimate of the net nonresident earnings (nonresident income in Alaska less Alaska resident income taxed elsewhere)
developed through consultation with the Alaska Department of Labor and Workforce Development and influenced by
Bureau of Economic Analysis "adjustment for residence" historical values. The model does not address long term
population growth, inflation, or impacts on the economy from implementing an income tax.
In producing this revenue estimate, the existing individual income tax revenue model was adjusted to incorporate
estimated impacts of the personal exemptions and Permanent Fund Dividend exemptions in this bill. This revenue estimate
does not evaluate potential impacts of this proposed legislation on Permanent Fund deposits, income, or transfers to the
General Fund or Dividend Fund.
Implementation Cost
The cost and time required to implement a new broad-based tax is directly related to its complexity. For a more robust tax
such as the one envisioned in this bill, a 12-month implementation process should be expected. The Department is
currently using Version 9 of its Tax Revenue Management System (TRMS). The Department expects to engage FAST
Enterprises, the TRMS contractor, to build an income tax module into TRMS. The $8,500.0 capital project reflects an
estimated initial implementation cost for FAST to add the income tax module and a Fast Identity Verification Services (FIVS)
module.
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 CSHB 37(STA) - Fiscal Note 7
FISCAL NOTE ANALYSIS
STATE OF ALASKA BILL NO. CSHB 37
2022 LEGISLATIVE SESSION
Analysis
After initial implementation, continued maintenance and support by FAST for the individual income tax module is
estimated to be $2.2 million in CY 2024 and $1 million CY 2025 and beyond. Continued maintenance and support by FAST
for the FIVS module is estimated to be $500,000 in CY 2025 and beyond.
Adding a fully functional income tax module is a multi-year process. The initial fast-track need will be to build and
implement a tax withholding system, which will need to be in operation by January 1, 2023. The Department will also need
to adopt regulations by December 31, 2022. Since the bill allows taxpayers to elect to apply their PFD to their tax liability,
the Department will work with FAST to interface the TRMS system with the PFD Division's PFD management system in an
effort to automate the PFD offset provisions of this bill. In addition to the software development, this bill will require a
rapid and robust outreach to the business community throughout Alaska, and this fiscal note includes funding for travel
needs. Additionally, this bill will require integration with national accounting and tax software vendors in order to update
programs such as TurboTax and QuickBooks to incorporate Alaska.
Once the withholding system and PFD interfaces are in place, FAST and Tax Division staff will begin building the tax return
filing and examination modules, with their associated databases, communications, and integration with our existing
imaging, accounting, and collections systems. The legislation creates an annual tax, meaning that the first tax returns will
be filed in January 2024, with a filing due date of April 15, 2024. Taxpayers who request and receive extensions would have
filing deadlines in October 2024. The Department estimates that this bill will generate approximately 410,000 returns. This
estimate is based on the number of Alaska resident individual returns and partnership/S-Corporation returns filed in 2019
as publicly reported by the Internal Revenue Service, multiplied by 15% to adjust for estimated nonresident returns.
As part of the Department's research into the potential costs to administer this tax, we spoke with tax administrators in the
States of Montana and Vermont. Each have population sizes close to Alaska's and impose individual income taxes.
Montana and Vermont employ approximately 102 and 60 people, respectively, to administer each state's individual
income taxes. Using a simple per-capita adjustment, these numbers translate to 68 and 70 employees needed to
administer an individual income tax in Alaska. Given the complexities that come with administering nonresident and pass-
through corporation returns, and the sheer volume of estimated new taxpayers and returns, the Department expects to
need 69 people to administer an individual income tax in Alaska. The new staff would be roughly split between the Juneau
and Anchorage offices. The Department will continue to look for ways to automate administration of this tax and look for
efficiencies.
We expect to replicate the online filing percentages of the PFD Division, currently at approximately 90%. However, the 10%
of paper filers will require manual handling and data entry for approximately 41,000 paper returns out of the 410,000 total
estimated returns. In contrast, in FY2021 the Department processed approximately 2,100 paper returns out of
approximately 37,000 total returns across all tax programs the Department administered.
Additional travel is largely for public education efforts, as well as the need to train new staff on the tax management
system and the new tax. The cost for Services reflects primarily internal core service rates paid to other state agencies, due
to additional staff within the Tax Division, as well as ongoing maintenance and support costs for FAST. Commodities reflect
the initial outfit for new employees for office and computer furnishings.
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HB037CS(W&M)-DOR-TAX-1-23-22 Page 3 of 4 Control Code: BEYFH
 CSHB 37(STA) - Fiscal Note 7
FISCAL NOTE ANALYSIS
STATE OF ALASKA BILL NO. CSHB 37
2022 LEGISLATIVE SESSION
Analysis
An initial analysis of the staff needs within the Tax Division to implement an individual income tax is as follows:
(1) Deputy Director
(2) Audit Supervisors
(2) Income Tax Specialists
(18) Auditors
(5) Accounting Technicians
(3) IT Analysts/Programmers
(5) Appeals Officers
(15) Tax Technicians
(16) Imaging & Office Assistants
(2) Administrative Assistants
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Statutes affected:
HB0037A, AM HB 37, introduced 02/18/2021: 37.05.565, 37.13.145, 37.10.071, 37.13.010, 38.05.180, 37.13.140, 43.23.045, 37.13.150, 37.13.300, 43.05.045, 43.22.075, 43.05.220, 43.22.015, 43.22.010, 43.22.030, 43.22.045, 43.22.020, 13.36.215, 43.22.025, U.S.C, 43.20.144, 43.22.035, 43.22.040, 43.22.050, 43.22.055, 43.22.060, 43.22.065, 43.22.070, 43.22.080, 43.22.085, 43.22.090, 43.23.005, 43.22.095, 43.22.100, 43.22.105, 43.05.230, 43.22.150, 43.23.025, 43.23.021, 43.23.055, 43.23.240, 43.05.085, 43.20.012, 43.20.013
HB0037B, AM CSHB 37(W&M), introduced 05/19/2021: 37.05.565, 37.13.145, 37.10.071, 37.13.010, 38.05.180, 37.13.140, 43.23.045, 37.13.150, 37.13.300, 43.05.045, 43.22.075, 43.05.220, 43.22.015, 43.22.010, 43.22.030, 43.22.045, 43.22.020, 13.36.215, 43.22.025, U.S.C, 43.20.144, 43.22.035, 43.22.040, 43.22.050, 43.22.055, 43.22.060, 43.22.065, 43.22.070, 43.22.080, 43.22.085, 43.22.090, 43.23.005, 43.22.095, 43.22.100, 43.22.105, 43.05.230, 43.22.150, 43.23.025, 43.23.021, 43.23.055, 43.23.240, 43.23.028, 43.23.048, 43.05.085, 43.20.012, 43.20.013
HB0037C, AM CSHB 37(STA), introduced 02/28/2022: 37.05.565, 37.13.145, 37.10.071, 37.13.010, 38.05.180, 37.13.140, 43.23.045, 37.13.150, 37.13.300, 43.05.045, 43.22.075, 43.05.220, 43.22.015, 43.22.010, 43.22.030, 43.22.045, 43.22.020, 13.36.215, 43.22.025, U.S.C, 43.20.144, 43.22.035, 43.22.040, 43.22.050, 43.22.055, 43.22.060, 43.22.065, 43.22.070, 43.22.080, 43.22.085, 43.22.090, 43.23.005, 43.22.095, 43.22.100, 43.22.105, 43.05.230, 43.22.150, 43.23.025, 43.23.021, 43.23.055, 43.23.240, 43.23.028, 43.23.048, 43.05.085, 43.20.012, 43.20.013
HB0037A, AM HB 37, introduced 01/08/2021: 37.05.565, 37.13.145, 37.10.071, 37.13.010, 38.05.180, 37.13.140, 43.23.045, 37.13.150, 37.13.300, 43.05.045, 43.22.075, 43.05.220, 43.22.015, 43.22.010, 43.22.030, 43.22.045, 43.22.020, 13.36.215, 43.22.025, U.S.C, 43.20.144, 43.22.035, 43.22.040, 43.22.050, 43.22.055, 43.22.060, 43.22.065, 43.22.070, 43.22.080, 43.22.085, 43.22.090, 43.23.005, 43.22.095, 43.22.100, 43.22.105, 43.05.230, 43.22.150, 43.23.025, 43.23.021, 43.23.055, 43.23.240, 43.05.085, 43.20.012, 43.20.013