Senate Finance committee hears bill to apportion income from out‑of‑state digital sales to Alaska

Senate Finance Committee members on a June hearing considered Senate Bill 113, an introduction from Senator Bill Wachowski that would change how multistate corporations’ income from sales to Alaskans is apportioned for Alaska corporate income tax purposes.

The bill would replace Alaska’s current “cost of performance” sourcing with market‑based sourcing — sourcing sales to Alaska when the market or use for the sale is in the state — and would adopt a single sales factor for businesses deemed “highly digitized.” The Department of Revenue’s fiscal note cited in committee estimated the two reforms together could raise between $25 million and $65 million in state revenue.

The measure, as introduced, does not change Alaska’s corporate tax rates or brackets; rather, proponents said, it changes only the apportionment formula so that profits from sales that occur in Alaska are counted as Alaska taxable income. Senator Wachowski and his staffer David Dunsmore told members the state’s apportionment language dates to 1970 and was written for a brick‑and‑mortar economy, leaving a potential advantage for out‑of‑state e‑commerce firms that sell to Alaskans but lack property or employees inside the state.

Dunsmore described the two reforms: market‑based sourcing for sourcing sales to Alaska and a single sales factor for businesses that meet the bill’s “highly digitized” threshold, defined in the bill as businesses for which 50% or more of Alaska sales are intangible property delivered electronically, services delivered electronically, services related to computers or internet technology, or tangible personal property sold through the internet. Under the draft language, the traditional three‑factor apportionment (sales, property, payroll) would remain for non‑highly digitized, brick‑and‑mortar firms.

Committee members pressed for clarifications. Senator Kaufman asked whether companies could simply add a fee or otherwise shift costs to Alaska consumers; Dunsmore said he found “no evidence” that corporate income apportionment rules are used to set retail prices and distinguished dynamic or location‑based pricing from the apportionment change. Senator Keel asked whether the 50% test aggregates multiple categories (for example, combining cloud services and retail sales); Dunsmore said the bill treats the threshold as aggregated across the listed categories.

Committee members also questioned the bill’s effective date. Committee discussion recorded the bill’s stated effective date of January 1, 2026; staff explained the date was chosen because many corporate filers use the calendar year and January 1 simplifies implementation.

Department of Revenue staff — identified by the committee as Dale Lianci, tax director, and Dan Stickel, chief economist in the tax division — were present to answer technical questions, but no member of the public offered testimony when the public hearing was opened and closed. The committee did not take final action on the bill at this session; members were invited to submit further questions to the sponsor’s office and the bill was set aside for additional review.

The hearing provided lawmakers with technical clarifications about definitions, the proposed effective date and the Department of Revenue’s revenue estimate; it did not produce a committee recommendation or vote.