As our Legislature continues struggling to find a path to fiscal stability, the fairness of our corporate tax system seems to have largely evaded discussion. Alaska has a corporate income tax, but it does not apply to “pass-through” tax entities like S-corporations, limited liability corporations or partnerships. What this means is that while larger, mostly publicly held corporations — like ConocoPhillips and Exxon — pay Alaska corporate income taxes, a host of other “pass-through” entities, who enjoy state services while doing business here, do not.
Perhaps it is time to examine this exemption and eliminate it. We obviously cannot afford this exemption if we are also dismembering our state’s social safety net, our university and ferry systems, and asking our seniors in Pioneer Homes to absorb huge rate hikes, among many other draconian cuts.
Why is it reasonable to continue this form of corporate welfare? For example, as a state, we unreasonably pay by far the highest health care costs in the country, yet many — if not most — health care providers pay no corporate income taxes to Alaska, because they are structured as “pass-through” entities. The same is true for law firms and other professional service providers.
Hilcorp also falls in this exemption category. So as BP — which pays Alaska corporate income taxes — sells its Alaska business portfolio to Hilcorp, Alaska will lose about $30 million per year in corporate income taxes even though Hilcorp will be stepping into BP’s shoes and performing virtually the same business. This seems illogical.
Since all entities doing business in our state, including “pass-through” businesses, enjoy state services, perhaps they should pay for them. In addition to eliminating a $30 million per year Hilcorp subsidy, a 2004 Legislative Research Report estimated the state would recover another $30 million per year if the state’s corporate income tax applied to other “pass-through” entities. While this study is dated, the principle is not. In this era of fiscal austerity, maybe there should be no more free rides.
— Steven DeVries
Anchorage
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