Alaska proposal would modernize corporate sourcing and phase out corporate income tax by 2031

Acting Commissioner Janelle Earls introduced the governor's omnibus tax bill, House Bill 284, to the Senate Resources Committee and asked the Department of Revenue to present its revenue-policy components.

Acting Tax Director Brandon Spanos told the committee the bill would modernize corporate sourcing from a cost-of-performance approach to market-based sourcing to capture sales where customers are located, which he said "is estimated to be around, dollars 15,000,000." He said the change particularly affects multistate technology, professional services, transportation and e-commerce firms that deliver goods or services into Alaska, and that there will be "winners and losers" as reporting shifts between jurisdictions.

Spanos also described a proposed phase-out of the corporate income tax rate, saying, "This bill proposes to reduce the tax rate to 0 in 2031." The administration's stated rationale is to make Alaska more competitive for investment over the long term, consistent with the governor's broader fiscal plan. Department presenters repeatedly cautioned that modeling contains uncertainty and that short- and long-term economic effects differ.

Dan Stickel, the department's chief economist, provided context on prior modeling and fiscal notes. He said earlier work on Senate Bill 113 estimated a $25 million to $65 million range for combined market-sourcing and a highly digitized-business provision, with a midpoint of $45 million; "about one third" of that midpoint—roughly $15 million—was attributable to market-based sourcing, and the remainder to the digitized-business carve-out the governor omitted from HB 284.

Committee members pressed for details about which firms would pay more or less. Stickel summarized department data showing roughly 19,000 corporate tax filers, about 6,000 C corporations (approximately 1,270 of which currently have a tax liability to the state), and roughly 12,000 S corporations that file returns but are not taxed as C corporations. Department witnesses said market-based sourcing will generally increase reported sales to Alaska for out-of-state firms with few in-state physical assets, while Alaska-based firms that sell mostly out of state could see reduced tax.

Law and constitutionality concerns were raised: senators asked why the governor omitted a single-sales-factor carve-out for "highly digitized" businesses. Spanos and Stickel said the governor and the administration considered many options and that some language from prior bills (SB 113) was not included in the executive's draft; they noted uncertainty in modeling and cited the governor's caution about potential constitutional issues as part of the decision to omit that carve-out.

The committee requested the department's supplemental slides and appendix (the presenters said corrected and updated slides would be provided) and held detailed follow-up questions for later. The committee did not vote on any motion related to corporate tax changes during this session.

Next procedural step: the committee paused corporate questions until the end of that section and then moved to the oil and gas portion of HB 284; the hearing concluded with a request that the department supply the corrected appendix and slides to the committee.