Alaskan Ownership Stake Part III: "Open for Business"

Letter to Alaskans from Ethan on "Open for Business"

Background

Alaska has consistently ranked at the bottom of all 50 states for its business climate and the general economic mood in Alaska is starting to turn sour. CNBC recently again ranked Alaska at the bottom of all 50 states for its business climate. Forbes recently echoed that ranking. This issue was raised just this week by the Anchorage Chamber of Commerce. It is a real issue for Alaska and Alaska families.

Based on our current the top marginal rate of 9.4%, Alaska has the 5th highest corporate income tax in the
country, higher that traditionally high tax states such as California, New York, New Jersey and Connecticut.

According to the Spring 2010 Revenue Forecast from the Alaska Division of Tax, excluding income taxes from oil and gas, mining and fishing companies, the remaining corporate income tax under the current structure will generate just $80 million for FY 2011.

Based on Alaska tax data released by the Division of Tax, there were 13,794 corporate tax filers in Alaska in FY2009 and 11,158 (80.8%) of them paid zero tax. Another 1,035 corporate tax filers paid a total of just $28,478 in corporate income tax to the state of Alaska. That is an average tax payment of just $27.51 per tax return. Those businesses pay more for their accountants to prepare the filings than what they pay Alaska in taxes. This is a very inefficient use of business time and state government resources.

Based on current business climate conditions in Alaska, between FY2009 and FY2011 Alaska is expected to see a decline of 41% in corporate tax revenue already, with no change in policy. Something must be done to spur new non-oil, non-mining investment in Alaska. That requires a restructuring and simplification of Alaska's antiquated and non-competitive tax structure.

The 3 Part Plan

1) Simplification: Clear out the underlying tax brackets that currently hit Alaska businesses making less than $90,000 per year. The plan would eliminate all brackets below the current 9.4% bracket.
Existing Alaska Corp. Income Tax BracketExisting Alaska Corporate Tax Rate Proposed New AK Corp. Income Tax BracketProposed new Corporate Tax Rate

2) Repeal and Replace the Tax Rate: To attract new businesses and investment in Alaska we must go from having one of the highest rates in the country to one of the most attractive rates. We propose repealing our 9.4% rate and replacing it with a flat 4.9% rate. This will catapult Alaska towards the top of the list as having the 8th best corporate rate in the country. Since all brackets below the top rate would be eliminated, this rate would kick in only for corporate filers with earnings greater than $90,000 per year. We estimate this will reduce non-oil, non-gas, non-mining revenue from the state corporate income tax by approximately 48% or approximately $38.4 million in less revenue for Alaska using FY2011 figures as a baseline.

3) Incentivize Investment, Job Creation and Incorporation: Encouraging strong investment in Alaska will allow us to more than make up for a loss in revenue of just $38.4 million, (less than 1% of the state's $5 billion budget). For companies subject to the new top rate of 4.9% (those making more than $90,000 per year) we will allow for a credit against their state tax liability if they make any of the following commitments to Alaska in a tax year:

· Your company has at least 100 FTE positions that are filled by Alaska residents. For existing companies with 100 FTEs, you grow employment by 5% over the previous year;

· Your company is at least 10% owned by an Alaska based venture fund, investment fund or some other investment vehicle organized under the laws of the state of Alaska;

· You are an investment fund and you set up your headquarters and your funds are held by a banking institution in Alaska;

· You elect to have all corporate funds and business accounts held and operated by an Alaska bank, even if for payment outside of Alaska;

· Your company's headquarters is established in Alaska and your Primary officers live and work full time in Alaska;

· Your corporate R&D offices and functions are based in Alaska;

· Your corporation's business is based on developing renewable energy or designs technologies to harness and commercialize renewable energy;