The state should change its tax code to increase corporate income tax collections from out-of-state businesses that sell goods or services to Alaskans, particularly digitized services, according to a legislator promoting the revisions.
“The world has changed,” said Anchorage Sen. Bill Wielechowski. “We’re no longer bricks and mortar.” His legislation would amend Alaska’s income tax code to ensure that online and digital sales are included in calculating how much of a company’s U.S. profit was made in Alaska and should be subject to corporate tax.
A Department of Revenue official testified last week that the legislation could generate between $25 million and $65 million a year for the state.
The bill received its first hearing in the Senate Finance Committee on April 17. No other hearings were scheduled as of early this week.
Under current law, a multistate business calculates its income and taxes owed in Alaska based on the percentage of its sales, property and payroll in the state. If, for example, 20% of its three factors are in Alaska, it would pay corporate income tax to the state on 20% of its U.S. profits.
Wielechowski’s Senate Bill 122 would change state statute to ensure that all sales into Alaska would count toward the tax-calculation formula, even if the company has no presence in the state. The legislation would declare the point of sale as the delivery or use of the goods or services in Alaska, not the location where the out-of-state business is located.
“Why shouldn’t we (Alaska) capture a portion” of the income for taxes, he said in an interview last week.
The state adopted the three-factor tax apportionment formula in 1970, when no one could have known the growth and volume of online and digital sales, the senator said. “We’re losing revenue.”
Most states already have amended their tax codes to include income from online and digital sales in calculating a corporation’s tax liability, Wielechowski said.
In addition, for highly digitized businesses, their corporate income tax liability would be determined solely on the basis of their sales, dropping payroll and property from the formula.
“Through the internet, companies can offer goods and services for sale in Alaska without maintaining any property or employees in the state,” Wielechowski said. Taxing predominantly digital businesses based on their sales and excluding the other two factors would allow Alaska to collect taxes it otherwise would not receive.
The legislation deals only with calculating a corporation’s income and profit earned from sales of goods or services into Alaska — it does not touch sales tax on deliveries into the state, which is up to municipalities.
Wrangell is among almost four dozen cities and boroughs that have joined a cooperative effort managed by the Alaska Municipal League to collect sales taxes on online orders delivered into their communities. The program has been around since 2019, and has grown to now collect about $20 million a year for municipalities, municipal league executive director Nils Andreassen reported April 20.
Wrangell collected about $200,000 in sales tax on online sales delivered into town in the fiscal year that ended June 30, 2022.
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