NEWS: Rep. Gara Files Legislation to End Tax Loophole for Profitable Corporations

Rep. Les Gara

Most Profitable Corporations in Alaska Currently Allowed to Avoid Paying Any Alaska Corporate Tax

January 17, 2017

Anchorage – Representative Les Gara (D-Anchorage) is sponsoring legislation to end a loophole in current law that lets most profitable corporations avoid paying any of Alaska’s corporate tax.  Rep. Gara believes HB 36 could be a key piece in the comprehensive and sustainable fiscal plan needed to address Alaska’s ongoing fiscal crisis.

“It is corporate welfare to let high-profit corporations avoid paying our corporate tax.  That’s especially true when individuals with far less wealth are being asked to help pay to fill the projected $3 billion deficit,” said Rep. Gara.  “The way you organize a corporation shouldn’t have any bearing on whether you can avoid paying taxes.  Highly profitable businesses should chip in more than just a $50 business license fee, which is all they pay now, even if they earn a million dollars, five million dollars, or even more in profits in Alaska.” 

The legislation Rep. Gara is sponsoring would continue to exempt companies making less than $200,000 a year in profits, and that are not currently covered by Alaska’s corporate tax law. 

“The goal of the bill is only to close the tax loophole for high-profit corporations,” said Rep. Gara.

The current corporate tax applies only to publicly traded C-corporations, and Alaska Native and Village corporations to the extent they have profits.  Most corporations and other businesses are exempted from this tax because they are formed as S-corporations, limited liability corporations, professional corporations, and other non-publicly traded business forms.

An estimated 6,000 corporations avoid paying any corporate tax through this loophole.  That includes high-profit engineering firms, oilfield service companies, real estate companies, doctors, lawyers, and many other businesses in Alaska.  While the state keeps the business names of companies paying no corporate tax confidential, public documents show Hilcorp, which operates roughly 20 oil and gas fields in Alaska, enjoys this exemption because it files as a privately held corporation.

The “Corporate Tax Loophole Elimination Act” would only tax businesses currently avoiding Alaska’s current corporate tax if they earn more than $200,000 a year in profit.  Specifically, the legislation seeks to only tax the profit above $200,000. 

“A fiscal plan that burdens hard-working Alaskans and benefits for-profit corporations is not fair and does not qualify as either comprehensive or sustainable,” said Rep. Gara.  “If we are all in this together then the wealthiest Alaskans can’t tell Alaskans with less wealth that the biggest burden should be felt by those who struggle to pay their bills and raise their children.  We can’t allow an entire segment of the economy to skate away free and clear from helping us weather this fiscal crisis.” 

Rep. Gara’s proposed legislation includes a modest tax rate of 5 percent for corporations with profits above $200,000 and a 7.5 percent tax rate on profits above $500,000.  The top tax rate would be 9.4 percent.  It would only apply to corporations with profits above $1 million a year.

The current tax rate on publicly traded corporations, under the existing corporate tax, is higher than what Rep. Gara is proposing for corporations currently exempted from the law.  Currently, a 9.4 percent tax applies for covered corporations with profit levels of $222,000 per year.  The current rate for corporations covered by existing law is reduced at lower profit levels.  Rep. Gara’s bill would leave the existing rates for corporations covered under current law unchanged.

HB 36 will receive committee assignments when the 30th Alaska Legislature convenes in Juneau on January 17th. 

For more information, please contact House Majority Coalition Press Secretary Mike Mason at (907) 444-0889.


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