TAX EXEMPTION: SMALL BUSINESS

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CS FOR HOUSE BILL NO. 113(L&C)

IN THE LEGISLATURE OF THE STATE OF ALASKA

THIRTY-FOURTH LEGISLATURE - FIRST SESSION

BY THE HOUSE LABOR AND COMMERCE COMMITTEE

Offered: 3/10/25
Referred: Finance

Sponsor(s): HOUSE LABOR AND COMMERCE COMMITTEE
A BILL

FOR AN ACT ENTITLED

"An Act relating to a tax exemption for qualified small busines ses; relating to the film 1
production promotion program; creating a transferable tax credi t applicable to certain 2
film production expenditures incurred in the state; and providing for an effective date." 3
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA: 4
* Section 1. AS 43.20.012(a) is amended to read: 5
(a) The tax imposed by this chapter does not apply to 6
(1) an individual; 7
(2) a fiduciary; 8
(3) the income received by a r egional associa tion qualified un der 9
AS 16.10.380 or nonprofit corporation holding a hatchery permit under AS 16.10.400 10
from the sale of salmon or salmon eggs under AS 16.10.450 or fr om a cost recovery 11
fishery under AS 16.10.455; [OR] 12
(4) the income received by a nonprofit corporation holding a p ermit 13
under AS 16.12.010 from the sale of shellfish under AS 16.12.08 0 or from a cost 14
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recovery fishery under AS 16.12.090; or 1
( 5 ) a n A l a s k a c o r p o r a t i o n t h a t i s a q u a l i f i e d s m a l l b u s i n e s s and 2
that meets the active business requirements in 26 U.S.C. 1202(e ), as that 3
subsection read on January 1, 2012, subject to the restrictions set out in (f) of this 4
section. 5
* Sec. 2. AS 43.20.012 is amended by adding new subsections to read: 6
(e) For the purposes of (a)(5) of this section, 7
(1) whether a corporation qualif ies under (a)(5) of this secti on shall be 8
determined on the first day of the tax year for which the corporation claims it qualifies 9
under (a)(5) of this section; 10
(2) all corporations that are me mbers of the same parent-subsi diary 11
controlled group shall be treated as one corporation. 12
(f) The total amount of tax fore gone by the state under (a)(5) of this section 13
may not exceed $2,700,000 each calendar year. If the total amou nt of tax foregone 14
under (a)(5) of this section exceeds $2,700,000 in a calendar year, the department shall 15
allocate the tax exemption in order of returns received that year. 16
(g) The department shall notify a known corporation that qualifies under (a)(5) 17
of this section at least one year before the expiration of the exemption under (a)(5) of 18
this section. 19
(h) In this section, 20
(1) "Alaska corporation" means a corporation that has been 21
incorporated in the state or is authorized to do business in the state; 22
(2) "parent-subsidiary controlled group" has the meaning given in 26 23
U.S.C. 1202, as that section read on January 1, 2012; 24
(3) "qualified small business" h as the meaning given in 26 U.S .C. 25
1202, as that section read on January 1, 2012, and does not inc lude a construction, 26
transportation, utility, or fisheries business. 27
* Sec. 3. AS 43.98 is amended by adding new sections to read: 28
Sec. 43.98.031. Film production tax credit. (a) In cooperation with the film 29
production promotion program, the department shall provide a tr ansferable film 30
production tax credit to a producer for qualified production expenditures. 31
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(b) A tax credit provided under (a) of this section may be sol d, assigned, 1
exchanged, conveyed, or otherwise transferred in whole or in part. 2
(c) A taxpayer acquiring a transferable credit may use the credit or a portion of 3
the credit to offset taxes imposed under AS 43.20 (Alaska Net I ncome Tax Act). Any 4
portion of the credit not used ma y be used at a later period or transferred under (b) of 5
this section. 6
(d) The department shall adopt r egulations necessary for the a dministration of 7
this section. 8
(e) A credit provided under (a) of this section, whether sold, assigned, 9
exchanged, conveyed, or otherwise transferred, in whole or in p art, must be used 10
within three years after being provided by the department. 11
(f) The number of tax credits provided in the aggregate under this section may 12
not exceed $20,000,000. 13
Sec. 43.98.032. Eligibility . (a) A film production is e ligible for a tax credit 14
under AS 43.98.031 if the producer has $100,000 or more in qualified expenditures, as 15
determined under AS 43.98.036, in a consecutive 24-month period. 16
(b) The following productions are not eligible, regardless of the production 17
costs: 18
(1) news, weather, or current events programming; 19
(2) a production produced prima rily for industrial, corporate, o r 20
institutional purposes, and for internal use; 21
(3) an advertisement, infomerci al, or any other production tha t solicits 22
funds, except for a commercial te levision advertisement produce d for national 23
distribution; or 24
(4) a political advertisement. 25
Sec. 43.98.033. Qualification for film production tax credit. (a) A film 26
producer may apply for the film production tax credit under AS 43.98.031 by 27
submitting an application to the film production promotion prog ram. The application 28
must include 29
(1) a script or synopsis of the production; 30
(2) the names of the producer, director, and proposed cast; 31
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(3) estimated start, completion, and filming dates; and 1
(4) other information the film production promotion program ma y 2
require to determine the producer's eligibility for a credit an d the estimated amount of 3
the credit. 4
(b) If the film production promo tion program approves an appli cation 5
submitted under (a) of this sec tion, the film production promot ion program shall issue 6
a notice of qualification to the producer. The notice of qualif ication must include a 7
determination by the film production promo tion program of the e stimated film 8
production tax credit for which the production qualifies. 9
Sec. 43.98.034. Award of film production tax credit. (a) Subject to 10
AS 43.98.031(f), the film production promotion program, in coop eration with the 11
department, shall determine the amount of the tax credit under AS 43.98.031 available 12
to a producer who has obtained a notice of qualification under AS 43.98.033(b), based 13
on the qualified expenditures of the production under AS 43.98.036. 14
(b) The base amount of a tax credit awarded under this section is equal to 25 15
percent of the qualified expenditures of the production. 16
(c) In determining the amount of the tax credit, the percentag e provided by (b) 17
of this section shall be increased by the film production promo tion program based on 18
the following criteria: 19
(1) an additional 5 percent of qualified expenditures that are w a g e s 20
paid to Alaska residents; 21
(2) an additional two percent of qualified expenditures made i n a rural 22
area; and 23
(3) an additional two percent of qualified expe nditures made i n the 24
state between October 1 and March 30. 25
(d) After completion of the p roduction, the producer shall pro vide the film 26
production promotion program with a production cost report deta iling the qualified 27
expenditures of the production, w ith verification by an indepen dent certified public 28
accountant approved by the film pr oduction promotion program that the costs claimed 29
in the report are qualified expenditures under AS 43.98.036. 30
(e) Subject to (g) of this sec tion, the film production promot ion program, in 31
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cooperation with the department, shall determine the amount of the tax credit based on 1
the information provided by the producer under (d) of this sect ion and shall award a 2
tax credit in cooperation with the department if the producer h as satisfied all 3
requirements under AS 43.98.031 - 43.98.038. 4
(f) The award of a tax credit under this section is conditione d on the 5
producer's and the production's full compliance with all applic able state laws and 6
regulations. At the request of the film production promotion program, a producer shall 7
provide any information necessa ry for the film production promo tion program to 8
determine the producer's and production's compliance with this subsection. 9
(g) In determining the amount of a tax credit awarded under th is section, the 10
film production promotion program may reduce the amount of the tax credit by any 11
amount the film production promotion program considers necessary to allow the state, 12
or a political subdivision of the state, to recover the cost of any damages caused by 13
any act or omission of the producer or production. 14
(h) The film production promoti on program, in cooperation with the 15
department, may withhold the aw ard of a tax credit under this s ection if the program 16
determines that there are file d, but unresolved, legal actions in the state involving the 17
producer or production. 18
(i) To qualify for the tax credit under AS 43.98.031, a produc er shall include, 19
in the end credits of each qualified film, the logo designed un der former 20
AS 44.25.105(b) and the words, "Filmed in Alaska with the Suppo rt of the State of 21
Alaska." 22
Sec. 43.98.036. Determination of qualified expenditures. ( a ) E x p e n d i t u r e s 23
made by a production company in connection with a film producti on approved by the 24
film production promotion program that shall be considered qual ified expenditures 25
must be directly related to th e production and be incurred in t he state. Only 26
expenditures that are ordinary, reasonable, and not in excess o f fair market value and 27
that are for real or tangible property, fees, services, or stat e or municipal taxes shall be 28
considered. Expenditures may include 29
(1) costs of set construction and operation; 30
(2) costs of wardrobes, make-up, accessories, and related services; 31
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(3) costs associated with photography and sound synchronization; 1
(4) costs of lighting and related services and materials; 2
(5) costs of editing and related services; 3
(6) rental of facilities and equipment; 4
(7) leasing of vehicles; 5
(8) costs of food and lodging; 6
(9) costs of digital or tape editing, film processing, transfe r of film to 7
tape or digital format, sound mixing, and special and visual effects; 8
(10) the total aggregate payroll for services performed in Ala ska, 9
including all salaries, wages, c ompensation, and related benefi ts provided to 10
producers, directors, writers, actors, and other personnel that are directly attributable 11
to services performed in Alaska; 12
(11) the costs of the use of an Alaska business for processing qualified 13
payroll and related expenditures; 14
(12) costs of music, if performed, composed, or recorded by an Alaska 15
musician, or released or published by an Alaska business; 16
(13) costs of intrastate travel, if provided by an Alaska business; 17
(14) costs relating to the des ign, construction, improvement, or repair 18
of a film, video, television, or digital production or postprod uction facility or related 19
property, infrastructure, or equi pment, except commercial exhib ition facilities, as 20
determined by the film production promotion program; or 21
(15) other similar production expenditures as determined by th e film 22
production promotion program in cooperation with the Department of Revenue. 23
(b) Production costs that may not be considered qualified expenditures include 24
(1) costs related to the acqui sition, determination, transfer, or use of a 25
film production tax credit under AS 43.98.031; 26
(2) postproduction expenditures for marketing and distribution; 27
(3) production financing, depr eciation, and amortization costs , and 28
other costs that are not cash or cash equivalent expenditures d irectly attributable to 29
production costs incurred in the state; 30
(4) amounts that are later reim bursed or reasonably anticipate d to be 31
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reimbursed, resulting in a reduction in production costs; 1
(5) amounts that are reasonably anticipated to be recovered th rough 2
subsequent sale or other realiza tion of value by disposal of an asset that has been 3
claimed as a qualified expenditure; 4
(6) amounts that are paid to a person or entity as a result of 5
participation in profits from the exploitation of the production; 6
(7) costs incurred in the purchase of real or tangible property for which 7
a qualified expenditure has, at any time, been claimed. 8
Sec. 43.98.037. Recovery of film production tax credit. (a) The film 9
production promotion program, in cooperation with the departmen t , m a y r e v i e w , 10
audit, and bring legal proceedings to recover any amount of a tax credit awarded under 11
AS 43.98.034 from a producer or production to which a credit wa s awarded if the film 12
production promotion program det ermines that the film producer or production is 13
liable for damages to the state, or any political subdivision of the state. 14
(b) Legal proceedings may not be brought under (a) of this sec tion more than 15
one year after the date the tax credit was awarded under AS 43.98.034. 16
Sec. 43.98.038. Definitions. In AS 43.98.031 - 43.98.038, 17
(1) "Alaska business" means 18
(A) a person who holds a current Alaska business license; 19
(B) a person who provides goods or services under the name as 20
appearing on the person's current Alaska business license; 21
(C) a person who has maintained a place of business within the 22
state staffed by the person or a n employee of the person for a period of six 23
months immediately preceding the date the goods or services were provided; 24
(D) a person who is 25
(i) incorporated or qualified to do business under the 26
laws of the state; 27
(ii) a sole proprietorship, and the proprietor is a resident 28
of the state; 29
(iii) a limited liability co mpany organized under 30
AS 10.50, and all members are residents of the state; or 31
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(iv) a partnership under former AS 32.05, AS 32.06, or 1
AS 32.11, and all partners are residents of the state; and 2
(E) if the business is a joint venture, a joint venture compos ed 3
entirely of ventures that qualify under (A) - (D) of this subsection; 4
(2) "department" means the Department of Revenue; 5
(3) "film" includes television, commercials, and videos; 6
(4) "film production promotion program" means the film product ion 7
promotion program created under AS 44.33.231; 8
(5) "producer" means a person who arranges financing for or 9
supervises the production of a film, video, commercial, or tele vision production or 10
pilot; 11
(6) "rural area" means a community with a population of 1,500 or less 12
or a community with a population of 7,500 or less that is not c onnected by road or rail 13
to Anchorage or Fairbanks. 14
* Sec. 4. AS 44.33.231(b) is amended to read: 15
(b) The purpose of the film production promotion program is to 16
(1) work with organizations in the private sector for the expa nsion and 17
development of film production industries in the state; 18
(2) promote Alaska as an appropriate location for film production; 19
(3) provide production assistan ce through connecting film dire ctors, 20
makers, and producers with Alask a location scouts and contracto rs, including 21
contractors providing assistance with permit applications; [AND] 22
(4) certify Alaska film production internship training program s and 23
promote the employment of program interns by eligible productions; and 24
(5) in cooperation with the Department of Revenue, administer the 25
Alaska film production promotion program. 26
* Sec. 5. AS 44.33.231 is amended by adding new subsections to read: 27
(d) Subject to appropriations for the purpose, the film produc tion promotion 28
program shall administer, in coope ration with the Department of Revenue, the Alaska 29
film production promotion program to provide a tax credit under AS 43.98.031 for 30
certain film production expenditures incurred in the state. 31
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(e) The film production promoti on program, in cooperation with the 1
Department of Revenue , may adopt procedures and regulations to carry out its 2
functions under this section. 3
* Sec. 6. AS 43.20.012(a)(5), 43.20.012(e), 43.20.012(f), 43.20.012(g), a nd 43.20.012(h) 4
are repealed July 1, 2035. 5
* Sec. 7. The uncodified law of the State of Alaska is amended by adding a new section to 6
read: 7
APPLICABILITY. AS 43.20.012(a), as amended by sec. 1 of this Ac t, and 8
AS 43.20.012(e) - (h), enacted by sec. 2 of this Act, apply to the tax year of a corporation 9
beginning on or after the effective date of this Act and before the repeal in sec. 6 of this Act. 10
* Sec. 8. The uncodified law of the State of Alaska is amended by adding a new section to 11
read: 12
NOTIFICATION. When the number of tax credits provided under AS 43.98.031(f), 13
enacted by sec. 3 of this Act, in the aggregate and the estimat ed amount of tax credits that 14
could be claimed based on notices of qualification issued by th e film production promotion 15
program under AS 44.33.234(b), together equal $20,000,000, the commissioner of revenue 16
shall notify the presiding officers of each house of the legislature in writing. 17
* Sec. 9. This Act takes effect immediately under AS 01.10.070(c). 18