Gentlemen,
We need help with this. Please start at the bottom of this
letter and read up to the top of this page. We sent this letter to the leadership of both houses of the
legislature, the Governor and Lt. Governor with
comments. No response from anyone.
The tax option is a Federal Corporation tax election that is done
annually. If the election is not taken
the Corporation is taxed at the regular Corporation Tax Rates. If
the election is taken, then the profit is taxed at the stockholder
(personal) level. It is limited to a Corporation with 75
stockholders or less. In
the old days the rule was 20 stockholders or less.
Going back to 1982 the Alaska Personal Income Tax was eliminated by the
legislature. This action
encouraged the tax option status to escape taxation. The problem
is illustrated in this hypothetical: Say a
hypothetical company General Oil Corporation Kuwait with millions of
stockholders decides to form an
Alaska Corporation called General Oil Corporation of Alaska. Since
the parent company is one
stockholder the new subsidiary is eligible for the tax option status and
neither company pays any State
Corporation Income tax.
The remedy is simple. No Federal Tax Option Status for State
Corporation Income Tax period. They all
pay at the existing State Corporation Tax Rates. This could
generate possibly a few hundred million
dollars on existing taxation by simply closing a loophole.
According to the Peninsula Clarion this morning, the Governor's very
unpopular scheme will raise more
than $ 113 million in taxes and fees. Closing the State
Corporation Income Tax loophole could possibly
make his scheme look like "chump change" by comparison to our plan.
In any event Corporations should
be treated equally. The alternative is to repeal the State
Corporation Income tax period!
We would like your help selling the Loophole tax closing scheme to the
legislature.
Bill
Subject:
Closing Existing State Corporation Tax Loop Hole on 5,800Corporations
doing business in Alaska
Bill - Looking at
your e-mail, I think what you are advocating would require a change in the
law. That is something I can't
really help with. Instead you should be contacting the legislature
or other elected statewide officials
that have a role in the process of making laws.
As a personal
observation (not speaking for the administration) I think you
are going to have a tough sell on your hands.
What you are essentially saying is that under current law, small Alaskan
business have an unfair tax
advantage over the big box stores and other national corporations doing
business in the state, and that is
something we need to fix.
Please let me know
if I can be of any further assistance.
Loren Leman
The
issue is with tax option Corporations including LLC's. They do not
pay any State Corporation income tax on their profits because the
income flows to the stockholders (individuals). Those individuals
pay Federal Personal Income Tax at
Federal Rates. Our state does not have a tax on individuals, that
ended in the early 1980's. The problem
is that all Corporations should pay at the existing tax structure on their Alaska operations for parity in
competition with each other. We want this loophole closed.
Please
forward this to Mr. Dickinson so he
can have an e-mail dialog with us.
Bill
Mr. Arnold:
Yesterday I spoke
with Dan Dickinson with the State of Alaska Department of Revenue Tax
Division about your email. We both think you are referring to the
difference between Subchapter S and Subchapter C Corporations in Alaska.
If that is the case, they are required to file tax returns, even though
the tax return may be for zero tax. You noted in your question that these
corporations are exempt from filing, but I think you meant they file zero
tax returns. If I've misconstrued what you are asking, please clarify the
question.
In addition to the vagaries of not having a state income tax, there are
other factors which would account for a large number
of zero tax returns. Some of those reasons are:
1) a number of big corporations which register in all 50 states, but only
do business in a few, will file zero returns in
Alaska
2) corporations such as fishing or mining operations which bonus out all
of the corporation profits at the end of a
fiscal year would file a zero return
3) inactive corporations would file zero returns
4) Net operating loss carry forward corporations would file zero returns.
It is
interesting that Subchapter S corporations tend to be corporations formed
in Alaska. Because of no state income tax - these corporations generally
end up filing zero tax returns. Subchapter C corporations tend to be
out-of-state corporations, some of whom may have to pay taxes, but for one
of the reasons cited above, may end up with a zero tax filing. In any
event about eight corporations pay 99% of the corporate taxes in Alaska
(source: State of Alaska Department of Revenue, Tax Division FY02 Annual Report of Division Operations. Available at
www.tax.state.ak.us
)
If you are aware of
a specific instance of tax inequity, you can direct that question to Mr.
Dickinson at the Tax Division at
269-6620. I've asked Mr. Dickinson to correct me if I've misstated
any facts in this response.
Let me know if you
need further clarification, Mr. Arnold.
Annette Kreitzer
I have asked for
help to respond to your question. Please give me time.
Loren Leman
Dear Lt. Governor Leman,
A few months ago on Radio Kenai,
KSRM (Sound Off) you were a candidate guest for the office you were successful capturing. We
congratulate you. On that show we asked you the question about the
subject supra. At that time you were going
to check with the Department of Revenue and report back. Nothing reported back yet.
As it stands now, 5,800 Federal Tax
Option Corporations doing business in Alaska escape State Corporation Income Tax (with the
revenue impact unknown). They are not required to file a return with the Department of Revenue because
they are exempt. (Alaska Digest 5-03-02 electronic issue-Letters). Other Corporations pay the tax, so
in effect this situation creates non-parity with the Corporations not paying the tax.
By extension, the State Corporation
Tax Code should be amended to read, "all profit corporations doing business in Alaska are subject to
the existing State Corporation Tax structure." The alternative is to
eliminate all State Corporation Income Tax by repealing the entire section
dealing with State Corporation Income Tax. One of the changes
mentioned previously will need to be made in order to achieve tax parity.
What are we going to do about this
unequal situation? We have raised this particular issue previously with several of our State
Legislators. They all said they would look into it, but that was as
far as it went. Now the ball is your court, and we
want to know where this is going? We have also covered the media with this issue to ensure a
meaningful response, one way or the other.
Bill Arnold
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