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Corporate Income Tax
2016 Annual Report


Corporate Income Tax Reports





Description

Alaska levies a corporate income tax on Alaska taxable income.

For purposes of computing taxable income, Alaska, like many states, adopts the federal Internal Revenue Code (IRC) by reference, unless excluded or modified by specific Alaska statutes.

For a corporation doing business only in Alaska, its taxable income is federal taxable income with certain Alaska modifications.

A corporation that does business both inside and outside Alaska apportions a percentage of the corporation’s total income to Alaska using a formula. The Alaska percentage or “apportionment factor” is an average of three factors: property, payroll, and sales, inside and outside the state.

When a corporation is part of a group of corporations that operates as a unit to conduct a business, the taxpayer must apportion to Alaska a percentage of the combined incomes of all of the corporations in the “unitary” or “combined” group.

For unitary groups that are not oil and gas companies, Alaska adopts “water’s edge combination.” The combined group generally includes only those corporations with significant U.S. activity.

Oil and gas companies combine on a worldwide basis. Also, oil companies use a “modified” apportionment formula of property, sales, and extraction. The extraction factor is the production of oil and gas in Alaska divided by production everywhere.

Rate

Alaska taxes corporate income at graduated rates ranging from 0% to 9.4% divided over 10 tax brackets.

Returns and Payments

Corporations file returns annually, with the Alaska return due 30 days after the federal tax return is due. Alaska honors the federal filing extensions.

Corporations must make quarterly estimated payments and the total tax is generally due the 15th day of the fourth month after the end of the tax year. There are no extensions to pay the tax. Estimated payments of more than $100,000 and payments accompanying a return greater than $150,000 must be made online or by wire transfer.

* Effective for tax years beginning after Dec. 31, 2015.

Exemptions

Generally, Alaska follows the IRC when determining an entity’s taxable status.

Alaska adopts the flow-through federal provisions that exempt S-Corporations from tax. Federally, S-Corporations are treated as partnerships and S-Corporation shareholders report their proportionate share of the corporation’s earnings.

Certain small corporations are exempt from corporate income tax. These are corporations that have less than $50 million in assets and that meet certain industry requirements.

LLCs

Alaska treats Limited Liability Companies (LLCs) as partnerships if they file as partnerships federally.

Electric and telephone cooperatives pay tax under AS 10.25 and are exempt from the corporate income tax.

Credits

Under Alaska’s blanket adoption of the IRC, taxpayers can claim 18% of all federal incentive credits. Federal credits that refund other federal taxes are not allowed. Multistate taxpayers apportion their total federal incentive credits.

Alaska-specific credits include the Education, Minerals Exploration Incentive, LNG Storage Facility, and Veteran Employment Tax Credit, and Film Production Tax Credits.

For specific information concerning these credits, see the Corporate Income Tax Credits section directly below this section.

Disposition of Revenue

The Department of Revenue’s Tax Division deposits most corporate net income tax collections into the General Fund. For oil and gas corporations only, the division deposits collections from assessments into the Constitutional Budget Reserve Fund.

History

1949 – The Territorial Legislature enacts the Alaska Net Income Tax Act. It is 10% of the federal income tax liability on income earned in Alaska. The tax applies to individuals and corporations.

1959 – Alaska adopts the Uniform Division of Income for Tax Purposes Act (UDITPA) within AS 43.20. This is a model statute that was developed by the states to address concerns of the U.S. Congress that states were collectively taxing more than 100% of the earnings of multistate corporations. UDITPA requires multistate corporations to apportion a percentage of their total income to the state by the apportionment formula of property payroll and sales. The standard UDITPA formula apportions 100% of the corporation’s income among the states where the taxpayer does business.

1970 – Alaska enacts the Multistate Tax Compact in AS 43.19, and becomes one of the early members of the Multistate Tax Commission. The Compact incorporates the standard three-factor apportionment formula of UDITPA. A main purpose of the Compact and the Commission is to promote the enactment of UDITPA, and the uniform application of UDITPA apportionment formula by the states. Uniform application of UDITPA promotes the full reporting of income by taxpayers and avoids the taxation of the same income by more than one state.

1975 – The Alaska Legislature repeals the original tax and makes major revisions. Alaska enacts its own tax rates rather than basing the tax on the federal tax liability. Alaska adopts the federal Internal Revenue Code (“IRC”) by reference, unless excluded, or modified by other Alaska statutes. The tax rate was 5.4% of Alaska taxable income with a surtax of 4% based on federal surtax exemptions. For 1975, the surtax exemption was $50,000.

1978 – The Legislature finds that the standard three-factor apportionment formula does not fairly reflect Alaska income for oil and gas corporations. Alaska enacts AS 43.21, and requires oil and gas companies to calculate Alaska taxable income using separate accounting. The oil and gas companies challenge AS 43.21.

1980 – The Legislature repeals the parts of AS 43.20 that impose the individual income tax and retains the exemption for S-Corporations.

1981 – In an effort to stem the growing amount of disputed oil and gas income taxes and related litigation, the Legislature seeks a compromise tax method. The Legislature repeals separate accounting under AS43.21, and enacts AS 43.20.072 (later renumbered AS 43.20.144) the current “modified” apportionment formula for oil and gas corporations. The modified formula drops the payroll factor and adds the “extraction factor.” The Legislature also enacts the current graduated tax rate structure with a maximum rate of 9.4%.

1987 – The Legislature enacts the Alaska Education Credit.

1991 – The Legislature enacts “water’s edge combination” with AS 43.20.073. Water’s edge apportionment does not apply to oil and gas taxpayers, who continue to report on a worldwide combined basis.

1998 – The Department of Revenue wins the OSG Bulkships case. The Alaska Supreme Court holds that AS 43.20 does not adopt the IRC Section 883 by reference. Federally, Section 883 exempts from tax foreign corporations that operate ships and aircraft, and avoids double taxation. The Court says that formulary apportionment in AS 43.19 also avoids double taxation and therefore AS 43.19 is an exception to Section 883. During the next session, the Legislature specifically adopts Section 883 and grants explicit tax exemption to the foreign corporations operating cargo ships, cruise ships, and aircraft in Alaska.

2006 – A voter initiative that subjects cruise ship operators to Alaska corporate income tax passes in August 2006. Prior to the initiative, cruise ship operators were exempt from taxation through the department’s adoption of IRC Section 883.

2008 – The Legislature amends the Education Credit provisions to include cash contributions accepted for secondary-level vocational courses and programs by a school district in Alaska, and by a state-operated vocational technical education and training school.

– The Legislature authorizes tax credits for qualified film production expenditures incurred in Alaska. Tax credits may be sold, transferred, exchanged, or conveyed, and must be used within three years after being granted by the Alaska Department of Commerce, Community, and Economic Development. The maximum of credits claimed by all taxpayers over the life of the credit program may not exceed $100 million.

2010 – The Legislature amends the Education Credit by increasing the maximum credit allowed from $150,000 to $5 million effective Jan. 1, 2011. In addition, the Legislature expands contributions eligible for the credit to include contributions made for construction and maintenance of facilities by state-operated vocational education schools and two- or four-year colleges. The increase in the credit from $150,000 to $5 million expires Dec. 31, 2013. On Jan. 1, 2014, the maximum credit allowed will revert to $150,000.

– The Legislature expands the Gas Exploration and Development Credit, increasing it from 10% to 25% effective Jan. 1, 2010. The utilization limit was raised from 50% to 75% of the tax liability.

– The Legislature authorizes tax credits for expenditures to establish gas storage in Alaska. The available credit is $1.50 per 1,000 cubic feet of gas storage capacity, with a maximum credit available of $15 million or 25% of costs incurred to establish the facility. This is a refundable tax credit.

2011 – The Legislature enacted legislation extending the date that the $5 million annual Education Credit limit expires from Dec. 31, 2013, to Dec. 31, 2020. It is then scheduled to return to $150,000. In addition, the Legislature expanded contributions eligible for the credit to include contributions made after June 30, 2011, to annual intercollegiate sports tournaments, Alaska Native cultural or heritage programs for public school staff and students, and a facility in the state that qualifies as a coastal ecosystem learning center under the Coastal American Partnership.

– The Legislature enacted the Veteran Employment Tax Credit, providing a credit of $3,000 for hiring a disabled veteran, or $2,000 for hiring a veteran who is not disabled.

– The Legislature enacted the LNG (Liquefied Natural Gas) Storage Facility Tax Credit, granting a credit for costs incurred to establish an LNG storage facility in Alaska. The available credit is equal to 50% of the costs incurred, not to exceed $15 million. This is a refundable tax credit.

– The Legislature passed legislation exempting certain small corporations from the corporate income tax. For tax years beginning after Dec. 31, 2011, corporations that have assets less than $50 million and that meet certain other requirements are exempt from paying corporate income tax. Certain industries are excluded from the exemption.

2013 – The Legislature passed Senate Bill 7 that related to the taxable corporate income and the ability of certain film productions to receive tax credits. In addition, tax brackets for corporations under AS 43.20.011 were amended.

– The Legislature enacted SB 83 that retroactively exempts income received by regional aquaculture associations, and income received by salmon hatchery permit holders from the sale of salmon, salmon eggs or from a cost recovery fishery from corporate income tax beginning June 30, 2007, by amending AS 43.20.012.

– The Legislature passed legislation exempting certain small corporations from the corporate income tax. For tax years beginning after Dec. 31, 2011, corporations that have assets less than $50 million and that meet certain other requirements are exempt from paying corporate income tax. Certain industries are excluded from the exemption.

2014 – The Legislature passed House Bill 278 (CH 15 SLA 14) further expanding qualifying Education Tax Credits to include cash contributions to a public or private nonprofit elementary or secondary school in the state, a nonprofit regional training center recognized by the Alaska Department of Labor and Workforce Development, or an apprenticeship program in the state that is registered with the U.S. Department of Labor under 29 U.S.C. 50-50b for direct instruction, research, and educational support purposes. In addition, tax credits are available for cash contributions accepted for a facility by a public or private nonprofit elementary or secondary school in the state, funding for a scholarship awarded by a nonprofit organization to a dual-credit student for certain educational expenses, for a residential school in the state approved by the Alaska Department of Education and Early Development, or certain qualified childhood early learning and development programs. Tax credits are also available for cash contributions for science, technology, engineering and math (STEM) programs by a nonprofit agency or school district for school staff and for students in grades kindergarten through 12 in the state and for the operation of a nonprofit organization dedicated to providing educational opportunities that foster public service leadership for future generations of residents of the state.

– The Legislature passed House Bill 287 enacting the Qualified In-State Oil Refinery Infrastructure Expenditures Tax Credit that grants a credit of the lesser of 40% of qualified infrastructure expenditures incurred in the state during the year, or $10 million for each in-state refinery incurring qualified expenditures.



Data with additional years.

  Collections Summary

Fiscal Year

 2016 2015 2014 2013

   Oil & Gas Tax (General Fund)

 $(58,835,272) $86,539,119 $313,757,578 $433,729,976

   Oil & Gas Penalties and Interest (General Fund)

 0 8,227,905 (6,134,956) 833,672

   Oil & Gas General Fund Total

 (58,835,272) 94,767,025 307,622,622 434,563,648

   Oil & Gas Constitutional Budget Reserve Total

 32,691,408 13,922,197 28,943,370 106,805,732

   Oil & Gas Total Collections

 (26,143,864) 108,689,221 336,565,992 541,369,380

   Non-Oil & Gas Tax

 89,216,661 134,839,359 102,386,908 109,509,223

   Non-Oil & Gas Penalties and Interest

 1,027,281 1,383,890 (2,517,717) 2,976,911

   Non-Oil & Gas Total Collections

 90,243,942 136,223,249 99,869,191 112,486,134

   CBRF

 3,356,872

   Total Tax
$67,456,950
$244,912,470
$436,435,183
$653,855,514


  Filing Information

Fiscal Year

 2016 2015 2014 2013

   Number of Returns

 18,065 17,142 12,938 16,502

   Number of Taxpayers

 15,761 15,089 11,792 12,104




Corporate Income Tax Credits


Credit for the In-State Manufacture of Urea, Ammonia, or Gas-to-Liquid Products – Effective July 1, 2017, a taxpayer may claim a credit equal to the percentage of royalty paid under AS 38.05.135 on certain deliveries of gas, the percentage equal to the percentage of the ownership interest held by the taxpayer in the in-state processing facility. The credit is not refundable and may not be carried forward to the other tax years.




Education – AS 43.20.014, 43.55.019, 43.56.018, 43.65.018, 43.75.018, 43.77.045 – Taxpayers are allowed a non-transferrable, non-refundable credit for cash contributions to Alaska universities and accredited nonprofit Alaska two- or four-year colleges for facilities, direct instruction, research and educational support purposes.

The tax credit can also be taken for donations to a school district or state-operated vocational technical education and training school for vocational education courses, programs and facilities. Donations for Alaska Native cultural or heritage programs for public school staff and students, and a facility in the state that qualifies as a coastal ecosystem learning center under the Coastal American Partnership also qualify. Contributions to the Alaska Higher Education Investment Fund established in 2012 qualify.

The credit is 50% of the first $100,000, 100% of the contribution over $100,000 and up to $300,000, and 50% of the remaining amount over $300,000. The total allowable credit per year for all affiliated taxpayers may not exceed $5 million.

Qualifying Education Tax Credits include cash contributions by taxpayers to a public or private nonprofit elementary or secondary school in the state, a nonprofit regional training center recognized by the Alaska Department of Labor and Workforce Development, or an apprenticeship program in the state that is registered with the U.S. Department of Labor under 29 U.S.C. 50-50b for direct instruction, research and educational support purposes.

In addition, tax credits for certain taxpayers are available for cash contributions accepted for a facility by a public or private nonprofit elementary or secondary school in the state, funding for a scholarship awarded by a nonprofit organization to a dual-credit student for certain educational expenses, for a residential school in the state approved by the Alaska Department of Education and Early Development, or certain qualified childhood early learning and development programs.

Tax credits are also available for cash contributions by certain taxpayers for science, technology, engineering and math (STEM) programs by a nonprofit agency or school district for school staff and for students in grades kindergarten through 12 in the state and for the operation of a nonprofit organization dedicated to providing educational opportunities that foster public service leadership for future generations of residents of the state.




Film Production Credit – AS 43.98.030, AS 21.09.210, AS 21.66.110, AS 43.20, AS 43.55, AS 43.56, AS 43.65, AS 43.75 and AS 43.77 – The Film Production Tax Credit, effective July 1, 2013, is a transferable credit for expenditures on eligible film production activities in Alaska. The Alaska Legislature repealed the credit effective July 1, 2015, and the Department of Revenue stopped accepting new projects on that date. The film credits have six-year expiration dates to be used against Alaska tax liabilities; therefore, the Department of Revenue could see credits being taken until 2023 since credits were still being awarded in 2016.




Gas Exploration and Development – A taxpayer may take a corporate income tax credit for 25% of qualifying expenditures incurred in exploration and development of natural gas reserves in Alaska, except for the North Slope. The credit may be applied against 75% of the tax liability.




LNG Storage Facility Tax Credit – A person may claim a credit for costs incurred to establish a LNG (Liquefied Natural Gas) storage facility in Alaska. The available credit is equal to 50% of the costs incurred, not to exceed $15 million. This is a refundable tax credit, subject to AS 43.55.028.




Minerals Exploration Incentive – A taxpayer may claim a credit for eligible costs of exploration activities related to determining existence, location, extent, or quality of a locatable mineral or coal deposit. An approved exploration incentive credit may not exceed $20 million and must be applied within 15 tax years after the credit is approved. Application of the credit is limited to the lesser of 50% of the taxpayer’s mining license tax liability or 50% of its corporate tax liability.




Qualified In-State Oil Refinery Infrastructure Expenditures Tax Credit – A taxpayer that owns an in-state refinery may claim a credit, calculated as 40% of qualified expenditures. The credit may not exceed $10 million for each refinery. The credit is refundable, subject to AS 43.55.028.




Qualified Oil and Gas Service Industry Expenditure Credit – A taxpayer may claim a credit for qualified oil and gas service industry expenditures incurred in the state. The credit is calculated as 10% of qualified expenditures, with the credit not to exceed $10 million. An unused credit may be carried forward for five years.




Veteran Employment Tax Credit – A taxpayer may take a credit for the employment of a veteran. The available credit is $3,000 for hiring a disabled veteran or $2,000 for a veteran who is not disabled.


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