Corporate Income Tax
Historical Overview





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.