Senate Finance hears corporate tax shift targeting online sales to Alaskans

The Alaska Senate Finance Committee heard testimony Monday on legislation that would modernize the state's corporate income tax to capture revenue from online sales to Alaska customers.

House Bill 280 would shift Alaska from cost-of-performance to market-based sourcing for corporate tax apportionment, joining 36 other states that already use the approach. The change would generate approximately $15 million in new annual revenue starting with the 2027 tax year, according to staff testimony.

Alaska News previously reported that the House passed HB 280 on April 2 in a 22-17 vote, revising a prior version that Governor Mike Dunleavy had vetoed. The earlier version included a controversial highly digitized business tax that raised concerns about enforcement and potential conflicts with federal law.

Brody Anderson, staff to Representative Neil Foster, presented the bill to the committee. He said the bill amends the current Alaska Multi-State Compact from a cost performance methodology in apportionment formula to a market-based sourcing methodology.

Market-based sourcing taxes companies based on where customers receive services rather than where the company operates. An example would be some of the online locations that are based out of their headquarters in California versus the sale taking place in Alaska, Anderson said. This modernizes the Alaska Multi-State Compact to account for the way sales occur now in the digital age.

The House Finance Committee added three industry exemptions to the bill: broadcasters, financial institutions, and telecommunications providers. The committee also removed the highly digitized business provisions after the Department of Revenue raised concerns about defining such businesses and potential conflicts with federal law.

Brandon Spanos, acting director of the Department of Revenue Tax Division, told senators the department supports market-based sourcing as a more modern approach but remains officially neutral on the bill. The language mirrors provisions in the governor's omnibus tax proposal moving through the legislature.

Spanos explained that the telecommunications exemption troubled the department because it creates an uneven playing field. Under the exemption, telecoms that invested in Alaska infrastructure would pay more tax than out-of-state competitors with minimal Alaska presence. If you can show that the majority of your costs are outside of the state, then you are able to source your sales to another state, Spanos said.

The bill would require a fiscal year 2027 appropriation of $321,700 and two new full-time positions at the Department of Revenue to implement the changes and update regulations. The committee heard no public testimony and set the bill aside for further consideration.

The effective date is January 1, 2027, giving the department time to develop regulations before the new sourcing method applies to tax filings.