Rep. Les Gara

Corporate Tax Loophole Elimination Act Ends Corporate Tax Exemptions for Higher-Profit S Corporations, LLC’s, and Professional Corporations

FOR IMMEDIATE RELEASE
February 11, 2016

Juneau — Alaska has a corporate tax, but over 5,000 corporations are exempt under current Alaska law, despite the fact that many of the corporations are highly profitable.  Today, Representative Les Gara (D-Anchorage) filed legislation to close the loophole, which he contends the state can no longer afford due to a nearly $4 billion budget deficit.  Rep. Gara believes closing Alaska’s corporate tax loophole should be part of a balanced fiscal plan that is fair for all Alaskans.

“Underfunding schools, cutting job training, ending state-funded Pre-K, and cutting the Permanent Fund Dividend in half will hit working class and poor families much harder than those with great wealth,” said House Finance Committee member Rep. Gara.  “A fiscal plan needs to be fair to all, regardless of privilege or wealth.”

Rep. Gara’s legislation is focused on high-profit corporations that currently pay no state corporate tax and just pay a minimal $100 state business license fee.  The bill seeks to include currently exempted corporations if they earn $200,000 or more in annual profits.  Rep. Gara’s bill proposes a modest 6% tax on these corporations, which is significantly less than the maximum 9.4% tax imposed on C corporations in Alaska.  Currently C corporations pay a 9% tax at profits of $198,000.  The top rate is 9.4% if profits exceed $222,000.

According to the Department of Revenue, Rep. Gara’s legislation would not impact Alaska Native Regional or Village Corporations, which are subject to the existing corporate tax law.  Estimates indicate that the change to the corporate tax proposed by Rep. Gara would bring in about $50 million and possibly much more.  However, an analysis by the Department of Revenue is needed.

Finally, if the Governor’s proposed income tax passes, a very minimal tax would apply to high-profit non-C corporations.  The Governor is proposing a roughly 2% – 2.5% tax on income.  Under the Governor’s proposal, owners of non-C corporations would pay income tax on their share of their corporation’s profits.  That’s far less than Alaska’s current 9.4% corporate tax rate. 

“That’s a minimal contribution from corporations that make over $200,000 a year in profits,” said Rep. Gara.  “Fairness requires a more balanced plan that asks those with the greatest privilege and wealth to pay a fair share towards public safety, roads, schools, and basic services.” 

The Corporate Tax Loophole Elimination Act has been filed with the House Clerk’s Office and is available here

For more information, contact Rep. Les Gara at (907) 250-0106.

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