Have there been any notable recent developments concerning state and local taxation in your state, including any regulatory changes or case law?
The Alaskan oil and gas production tax statute (Alaska Statute 43.55) was substantially revised in 2016 and 2017. The Department of Revenue finalized one set of regulations implementing the newest changes in December 2017 and another in November 2018. Further, in 2018 legislation was passed to pay off outstanding rebatable oil and gas production tax credits through the proceeds of state-issued bonds. The constitutionality of that legislation has been challenged in the Alaskan superior court.
What primary and secondary legislation governs the collection and remittance of taxes in your state?
Title 43 of the Alaska Statutes governs state taxes. Title 29 generally governs municipal taxation, whereas cities and boroughs provide for certain taxes separately through local ordinances.
What government authorities (at both state and local level) are charged with the collection and administration of taxes, and what are the extent of their powers?
The Department of Revenue has the authority to collect and administer state taxes as delineated by statute.
The powers of taxation of political subdivisions (cities and boroughs (ie, counties)) and limitations thereon depend on the category of the municipality—namely:
- home rule city;
- home rule borough;
- general law city;
- general law borough; or
- unified municipality
Home rule cities and boroughs have all of the legislative powers that are not prohibited by law or charter.
General law boroughs assess and collect property, sales, and use taxes set out by ordinance within their boundaries, subject to the Alaska Statutes.
Taxes levied by a city within a borough must be collected by a borough and returned in full to the city levying the tax.
Title 29 of the Alaska Statutes sets out certain limitations on municipalities to levy and collect taxes.
How would you describe the balance between taxes collected at state and local level?
The balance depends greatly on the price of oil; state taxes and royalties are dependent on oil prices.
Tax year and filing deadlines
What is the prescribed tax year in your state and what filing deadlines apply?
The tax year and filing deadlines depend on the specific state or local tax.
How competitive is your state in terms of taxation in relation to other states? What is the government’s general policy and approach to taxation?
Taxation in Alaska is multifaceted and competitiveness varies depending on the industry. Alaska is generally considered to be aggressive in terms of taxes levied on the oil and gas industry and the oil and gas production tax has been amended numerous times over the past decade. The lack of a state personal income or sales tax is generally viewed to be positive in terms of competitiveness.
Corporate income and franchise taxes
How is taxable income determined in your state? To what extent is the state income tax base aligned with the federal income tax base?
Alaska levies a corporate income tax on Alaskan taxable income, which is based on federal taxable income with certain Alaskan adjustments.
How is in-state income apportioned for multi-state businesses? Does your state regulate transfer pricing?
Multistate corporations apportion income on a ‘water's edge’ basis using the standard apportionment formula provided for under the multistate tax compact of property, payroll, and sales.
Alaska has modified apportionment for oil and gas producers and pipeline transportation companies. Petroleum businesses use a modified apportionment formula which is applied to worldwide income. A corporation’s worldwide income is apportioned to Alaska, based on the average of its:
- tariffs and sales;
- oil and gas production (extraction); and
How is nexus determined for corporate income tax purposes?
Alaska takes the position that nexus includes engaging in the generation of income from sources within the state without regard to whether there is a physical presence in the state. The Alaska Supreme Court has held that there must be a minimal connection with Alaska, which is established if the corporation “avails itself of the substantial privilege of carrying on business within the State” (Atlantic Richfield Co. v. State, 705 P.2d 418, 430 (Alaska 1985). Internal quotation marks and citations omitted). However, interest income earned on property in Alaska is not by itself sufficient to establish a taxable or business situs in Alaska (See Alaska Statute 43.20.040(c)).
Is affiliate nexus recognized in your state? If so, to what extent? Has there been any notable case law in this area?
Alaska has not adopted legislation recognizing affiliate nexus.
What are the applicable corporate income tax rates?
Alaska corporate income tax rates range from 0% to 9.4%, among 10 tax brackets.
Exemptions, deductions and credits
What exemptions, deductions, and credits are available?
Alaska generally follows the Internal Revenue Code to determine whether an entity is taxable. Further, it has adopted the flow-through federal provisions that exempt S corporations from tax.Certain small corporations that have less than $50 million in assets and meet certain industry requirements are exempt from corporate income tax.
A number of credits may be applied against Alaska corporate income taxes, including:
- the credit for gas storage facilities;
- the credit for the in-state manufacture of urea, ammonia, or gas-to-liquid products;
- the credit for donations to educational institutions;
- the oil and gas alternative credit for exploration;
- the oil and gas refinery infrastructure credit;
- the gas exploration credit;
- the mineral exploration credit; and
- the veteran employment credit.
What filing requirements and procedures apply? Are there special filing requirements for groups of company?
Corporate income tax returns must be filed annually. The Alaska return is due 30 days after the federal tax return, with federal extensions. Electronic filing is required.Corporations must make quarterly estimated payments. The total tax is generally due by the 15th day of the fourth month following the end of the tax year. There are no payment extensions. Payments with a return greater than $150,000 and estimated payments greater than $100,000 must be made online or by wire transfer.
Corporate franchise tax If your state imposes a corporate franchise tax, please stipulate:
(a) The applicable tax base.
(b) Tax rates.
(c) Any exemptions or deductions.
(d) Filing formalities.
Does your state impose a corporate franchise tax? If so, is it imposed in lieu of or in addition to corporate income tax?
There is no state corporate franchise tax in Alaska.
Personal income taxes
How is taxable personal income determined in your state?
There is no state personal income tax in Alaska.
Under what circumstances is an individual deemed resident in your state for personal income tax purposes?
What are the applicable personal income tax rates?
Exemptions, deductions and credits
What exemptions, deductions, and credits are available?
What filing requirements and procedures apply?
What obligations are imposed on the employer in relation to the collection and remittance of state personal income taxes (eg, withholding)?
Sales and use taxes
What goods are subject to sales and use tax in your state (at both state and local level)?
There is no state sales and use tax in Alaska. Municipalities have broad authority to levy taxes on sales, rent, and services provided within the municipality.
What is the state sales tax rate?
There is no state sales tax in Alaska.
What is the range of local sales tax rates levied in your state?
Local sales tax rates vary. There are no limits on the rate of levy for sales or use taxes for cities and boroughs (ie, counties). Not all cities and boroughs levy a sales tax. The highest combined (city and borough) sales tax rate is 7.5%.
What goods are exempt from sales and use tax?
Exemptions vary by local ordinance. Only a few statutory limitations regarding local sales taxes apply, including as follows:
- Certain space facilities are exempt from local sales taxes.
- Alcohol is not taxable unless other items are similarly taxed.
- Construction contracts awarded to a contractor or subcontractor by a state agency are exempt from local sales taxes.
Other exemptions may be granted by ordinance.
Are any services taxed?
Services are sometimes taxed at the local level.
What filing requirements and procedures apply?
Filing requirements and procedures vary depending on the municipality.
How is the value of property assessed for tax purposes in your state? Which types of property are subject to tax?
Property must be assessed at its “full and true value”, defined by Alaska Statute 29.45.110 as the:
estimated price that the property would bring in an open market and under the then prevailing market conditions in a sale between a willing seller and a willing buyer both conversant with the property and with the prevailing general price levels.
Alaska imposes a property tax on oil and gas exploration, production, and pipeline transportation property. The total tax is 20 mills, a large portion of which goes to the municipalities in which the property is located based on the local mill rates for other properties. Municipalities also levy property taxes on real and personal property, including business property.
What is the state property tax rate?
The oil and gas exploration, production, and pipeline transportation property tax is 20 mills or 2% of the property’s assessed value. Municipalities in which the property is located benefit from a portion of the tax, based on mill rates for other properties.
What is the range of local property tax rates levied in your state?
Local property tax rates generally vary each year depending on revenue demands in light of statutory limitations. Under Alaska Statute 29.45.090, municipalities (ie, cities and boroughs) cannot levy property taxes greater than 30 mills or 3% of the property’s assessed value. A municipality, or a combination of municipalities in the same area, cannot levy property taxes greater than $1,500 per resident.
A municipality or combination thereof in the same geographic area cannot levy property taxes greater than the product of a sliding scale percentage of the average per capita assessed value as determined under Alaska Statute 43.56.010(c), multiplied by the number of residents of the municipality.
Exemptions and deductions
What exemptions and deductions are available?
All real and personal property is subject to property taxes unless an exemption applies. Alaska Statute 29.45.030 sets out exemptions from local property tax, including:
- natural resources in place;
- household furniture and personal effects; and
- property used for non-profit educational, charitable, religious, hospital, or cemetery purposes.
Undeveloped and unleased property owned by an Alaska native corporation pursuant to the Native Claims Settlement Act is also exempt.
The state oil and gas exploration, production, and pipeline transportation property tax statute (Alaska Statute 43.56) includes certain exemptions, such as intangible drilling expenses and oil and gas reserves in place. Oil and gas exploration, production, and pipeline transportation property taxed under Alaska Stature 43.56 is exempt from local property taxes.
Alaska Statute 29.45.050 sets out certain optional exemptions from local property taxes.
What filing requirements and procedures apply?
Assessments are made as of January 1 of each year. Filing requirements and procedures vary by jurisdiction. State oil and gas exploration, production, and pipeline transportation tax returns must be filed by January 15 each year, absent extensions.
Real estate transfer tax
How is the transfer of real estate taxed in your state (including tax base, rates, exemptions, and filing formalities)?
Unclaimed and abandoned property
Reporting and remittance
Describe your state’s regime for reporting and remitting unclaimed and abandoned property. How is the value of such property calculated? How assertive is your state in enforcing its rights to unclaimed property?
Alaska Statute 34.45 (the Unclaimed Property Act), requires government agencies and businesses to file unclaimed property reports with the Department of Revenue.
‘Unclaimed property’ is any intangible amount owed or held by an organization that remains unpaid or uncashed or has no owner activity for an extended period. Property is generally considered to be abandoned after three years.
Excise and other indirect taxes
What excise taxes are levied in your state, including applicable goods, rates, and filing formalities?
Alcoholic beverages taxThe alcoholic beverage tax is collected primarily from wholesalers and distributors of alcoholic beverages. Taxpayers must file electronic returns and pay the tax monthly by the last day of the month following the month of sale. Rates per gallon are:
- beer—$1.07; and
- beer from small breweries—$0.35.
Commercial passenger vessel excise taxThere is a tax on travel on commercial passenger vessels, usually cruise ships, with 250 or more berths and overnight accommodations in state waters. The tax rate is $34.50 per passenger, per voyage. Commercial passenger vessel owners and cruise ship companies must file returns and pay taxes monthly by the last day of the month following the month in which the voyages ended. Returns must be filed electronically.
Marijuana taxThere is a tax on marijuana sold in Alaska, which is collected from licensed marijuana cultivation facilities. The marijuana tax is imposed when marijuana is sold or transferred from a marijuana cultivation facility to a retail marijuana store or marijuana product manufacturing facility. The tax is $50 per ounce of marijuana flower and bud. The rest of the plant is taxed at $15 per ounce. Taxpayers must file electronic returns and pay the marijuana tax monthly on or before the last day of the month following the month when the transfer or sale took place.
Motor fuel taxAlaska has a tax and surcharge on motor fuel sold, transferred, or used within Alaska. Motor fuel taxes are collected primarily from wholesalers and distributors.
Motor fuel tax rates per gallon are:
- aviation gasoline—$0.047; and
- jet fuel—$0.032.
There is a motor fuel surcharge of $0.0095 per gallon.
Taxpayers must file electronic returns and make payments monthly.
Tire feesThere is a tire fee of $2.50 per new tire on the retail sale of new tires for motor vehicles designed for highway use. An additional tire fee of $5 per tire is imposed on the retail sale of studded tires. The fee is primarily paid by retail businesses that sell new tires. Taxpayers must file electronic returns and pay fees quarterly by the last day of the calendar month following the end of the calendar quarter in which the tire is sold or installed.
Tobacco taxesAlaska imposes a tax on cigarettes and other tobacco products. The tax is levied on cigarettes imported into the state for sale or personal consumption. The other tobacco products tax is levied on tobacco products (other than cigarettes) imported into the state for sale. Taxes are collected primarily from licensed wholesalers, distributors, and retailers. Cigarette taxes are paid through the purchase of cigarette tax stamps. The tax is 100 mills ($0.10 per cigarette and $2.00 per pack). An additional tax of 12.5 mills ($0.25 per pack of 20 cigarettes) applies to each cigarette imported or acquired from a manufacturer that has not signed the Tobacco Master Settlement Agreement. The tax rate on tobacco products other than cigarettes is 75% of the wholesale price.
Vehicle rental taxAlaska imposes a vehicle rental tax on fees and costs for the lease or rental of passenger or recreational vehicles if the lease or rental does not exceed 90 days. The person working for the business that provides the vehicle collects the tax from the person renting or leasing the vehicle and remits it to the state. The rate for passenger vehicles is 10% of the total fees and costs for renting or leasing. The rate for recreational vehicles is 3% of the total fees and costs for renting or leasing. Returns and taxes are due quarterly by the last day of the month following the end of the calendar quarter in which the business collects the tax.
Other indirect taxes
Are any other indirect taxes levied in your state?
Do any other taxes apply to businesses in your state? If so, please include applicable tax bases, rates, exemptions/deductions, and filing formalities.
Oil and gas production taxAlaska’s oil and gas production tax is levied on the net revenues of oil and gas production from leases or properties in the state, except in the case of:
- the federal and state royalty share; and
- oil and gas used in drilling or production operations or for repressuring.
The calculation starts with the destination value (generally the higher of the sales price or a calculated prevailing value). The costs of pipeline and marine transportation are subtracted from the destination value to obtain the gross value at the point of production. Operating and capital costs for oil and gas exploration, development, or production upstream of the point of production (so-called “lease expenditures”) are subtracted from the gross value at the point of production to determine the net revenue (known as the “production tax value”). Tax rates vary, but the generally applicable rate is 35%, which is applied to the production tax value. Credits may further reduce the applicable tax amount. Estimated payments are made monthly, with a true-up due on or before March 31, along with the annual return for the preceding calendar year of production. Monthly reports and annual returns must be filed electronically.
Mining license taxThe state levies a mining license tax on net income and royalties received from mining in Alaska. Tax rates are as follows:
- $0 to $40,000—no tax;
- $40,001 to $50,000—$1,200 plus 3% over $40,000;
- $50,001 to $100,000—$1,500 plus 5% over $50,000; and
- over $100,000—$4,000 plus 7% over $100,000.
Electronic returns are filed on a calendar-year or fiscal-year basis, depending on when the federal income tax return is made. Filers with a calendar year-end must file the return on or before April 30 of the following calendar year. Filers with a fiscal year-end must file the return on or before the last day of the fourth month following the end of the fiscal year.
Common property fishery assessmentThe common property fishery assessment allows hatcheries to establish a common property fishery and recoup costs through an assessment on fishery resources taken in the area. The assessment is calculated as:
- a percentage of the projected value of salmon returning to the area; or
- a flat rate on each pound of salmon harvested in the area.
The state sets the assessment by March 1 of each year. Buyers are responsible for the collection of the common property fishery assessment and must file an annual return by October 31.
Dive fishery management assessmentThe dive fishery management assessment is an elective assessment on the value of fisheries resources taken by diving. The assessment applies to designated areas and species at rates determined by vote of permit holders. Buyers must file returns and pay the tax quarterly on the last day of the month following the calendar quarter of purchase. Fisherpeople selling to unlicensed buyers or exporting file returns must pay taxes annually by March 31 after the year of sale or export.
Fisheries business taxThe fisheries business tax is levied on fisheries businesses and people who process fisheries resources in, or export unprocessed fisheries resources from, Alaska. The tax is based on the price paid to commercial fisherpeople for the resource or the fair market value (if there is no arms-length transaction prior to processing). Tax rates vary from 1% to 5%. Taxpayers must file calendar-year returns and pay the tax by March 31 for the prior year. Taxpayers must subsequently file returns to report post-season bonus payments made to fisherpeople along with additional taxes by the last day of the month following the month of bonus payments.
Fishery resource landing taxThe fishery resource landing tax is levied on fishery resources processed outside of and first landed in Alaska. The tax is based on the resource’s unprocessed value. The tax is collected primarily from factory trawlers and floating processors that process fishery resources outside the state that bring their products into Alaska for transshipment. Tax rates are 3% and 1%, depending on whether the resource is classified as “established” or “developing”. Returns and taxes are filed and paid on a calendar-year basis.
Regional seafood development taxThe seafood development tax is an elective tax on fishery resources using specific gear types.
Fisherpeople pay seafood development taxes to licensed buyers at the time of sale or to the state for resources sold to unlicensed buyers or exported from Alaska. Buyers remit taxes collected from fisherpeople to the state. Buyers file returns and pay the tax monthly by the last day of the month following the month of purchase. Fisherpeople selling to unlicensed buyers or exporting from Alaska must file returns and pay taxes annually by March 31 following the year of sale or export.
Salmon enhancement taxThe salmon enhancement tax is an elective tax levied on salmon sold in or exported from Alaska. Fisherpeople pay the tax to licensed buyers at the time of sale or to the state for salmon sold to unlicensed buyers or exported from the region. Buyers remit taxes collected from fisherpeople to the state and must file returns and pay the tax monthly. Fisherpeople selling to unlicensed buyers or exporting from the region must file returns and pay taxes annually by March 31 following the year of sale or export.
Seafood marketing assessment The seafood marketing assessment is levied on:
- seafood processed or landed in Alaska; and
- unprocessed, exported fisheries products exported from Alaska.
Seafood processors and fisherpeople must file annual returns and make payments by April 1 for the preceding calendar year. The assessment is 0.5% of the value of the seafood products.
Electric cooperative taxThe electric cooperative tax is based on kilowatt hours (kWhs) furnished by qualified electric cooperatives and the length of time that the cooperative has furnished electricity to consumers. Thus, tax is calculated at:
- $0.00025 per kWh for cooperatives that have provided power to consumers for less than five years; and
- $0.0005 per kWh for cooperatives that have provided power to consumers for five years or longer.
Calendar-year returns are due with payment before March 1 for the prior year.
Telephone cooperative taxAlaska levies a telephone cooperative tax on gross revenue of qualified telephone cooperatives based on their revenue and the length of time that they have furnished telephone services to consumers. The rate for cooperatives that have furnished telephone services to customers for less than five years is 1% of their revenue. For cooperatives that have furnished telephone services for five years or longer, the rate is 2% of their revenue. Calendar-year electronic returns are due with payment before March 1 of the following year.
Large passenger vessel gambling taxThe state imposes a tax on operators of gaming or gambling activities based on the adjusted gross income of gambling activities aboard large passenger vessels in the state. The tax rate is 33% of the adjusted gross income. Operators must file calendar-year electronic returns before April 15 of the following year.
Does your state offer any tax incentive schemes to attract businesses and promote investment?
Alternative credit for exploration (Alaska Statute 43.55.025)The alternative credit for exploration is for either 30% or 40% of the cost of drilling an oil or gas exploration well in areas of the state south of the North Slope (68 degrees north latitude) and outside the Cook Inlet. The credit may be:
- applied against Alaskan oil and gas production or corporate income taxes; or
- sold to an oil and gas producer for use against production taxes.
Exploration well data must be provided to the Department of Natural Resources to obtain the credit and may be made publicly available after two years.
Carried-forward annual loss (Alaska Statue 43.55.165(a)(3) and (l)) Taxpayers that incur expenditure for oil and gas exploration, development, or production that is not deductible in calculating oil and gas production taxes generate a carried-forward annual loss that may be used in the calculation of production taxes in a following calendar year.
Community development quota (Alaska Statue 43.77.040)Taxpayers that harvest a fishery resource under a community development quota may claim a credit of up to 45% of fishery resource landing taxes for contributions to Alaska non-profit corporations that are dedicated to fisheries industry-related expenditures.
Credit for in-state manufacture of urea, ammonia, or gas-to-liquid productsCorporate income taxpayers may claim a credit equal to the percentage of royalties paid to the state on gas delivered to the facility based on the taxpayer’s gas ownership interest in the in-state processing facility. The credit is not refundable and cannot be carried forward to other tax years.
Gas exploration and developmentA taxpayer may take a corporate income tax credit for 25% of qualifying expenditures incurred in the exploration and development of natural gas reserves in Alaska, except for the North Slope. The credit may be applied against 75% of the tax liability.
Liquefied natural gas storage facility tax creditA person may claim a corporate income tax credit for costs incurred to establish a liquefied natural gas storage facility in Alaska. The available credit is equal to 50% of the costs incurred, up to a maximum of $15 million.
Minerals exploration incentiveTaxpayers may take a credit based on costs of exploration activities relating to determining the existence, location, extent, or quality of a mineral or coal deposit. The credit cannot exceed $20 million and must be applied within 15 tax years from its approval. The credit is limited to the lesser of 50% of the taxpayer’s:
- mining license tax liability; or
- corporate income tax liability.
Per barrel creditsThe oil and gas production tax statute (Alaska Statute 43.55.024(i)) provides for a $5 per barrel credit for each barrel of taxable oil produced on the North Slope that qualifies for the gross value reduction under Alaska Statues 43.55.160(f) and (g). Alaska Statue 43.55.024(j) provides for a sliding scale credit of $1 to $8 per barrel based on the gross value of oil that does not qualify for the gross value reduction. These credits may be applied against a tax levied under Alaska Statue 43.55.011(e).
Qualified in-state oil refinery infrastructure expenditures tax creditA taxpayer that owns an in-state refinery may claim a credit against corporate income taxes, calculated as 40% of qualified expenditures. The credit cannot exceed $10 million for each refinery.
Qualified oil and gas service industry expenditure creditTaxpayers may claim a credit for qualified oil and gas service industry expenditures incurred in the state. The credit is calculated as 10% of qualified expenditures and cannot exceed $10 million. Unused credits may be carried forward for five years.
Salmon and herring product developmentTaxpayers may claim a credit against the fisheries business tax on salmon and herring expenditures, which promote the development of salmon and herring products.
Small producer credit (Alaska Statue 43.55.024(c))Taxpayers which produce less than 100,000 British thermal unit equivalent barrels of Alaska oil and gas per day are eligible for a small producer credit. When average oil and gas production is no more than 50,000 barrels per day, the credit is $12 million per year. When production exceeds 50,000 barrels per day, the credit phases out on a straight-line basis to zero at 100,000 barrels per day. The credit may be applied against oil and gas production taxes and cannot be transferred or carried forward.
Veteran employment tax credit Taxpayers may take a credit of $3,000 for the employment of a disabled veteran or $2,000 for the employment of a non-disabled veteran.
What tax compliance procedures and best practices should businesses operating in your state be aware of?
Compliance concerns vary substantially by industry at the state, city, and borough level. Corporations whose business involves or relates to oil and gas production or transportation should be aware of the special corporate income tax rules for petroleum businesses. Companies involved in or relating to oil or gas exploration, production, or pipeline transportation should be aware of the state oil and gas property tax, as it does not just affect oil and gas operators.
What strategic planning considerations should businesses operating in your state bear in mind to optimize tax efficiency?
The Department of Revenue, as well as cities and boroughs, frequently—and often aggressively—conduct audits. Taxpayers should be aware of the numerous different taxes in the state that are unique by industry to help ensure compliance. Deadlines and procedures for appealing audit assessments vary by tax type and jurisdiction.