Sponsor Statement for SB 345

Apportionment of Business Income

The Alaska Supreme Court ruling in State of Alaska vs OSG Bulk Ships, Inc., (February 20, 1998) effects a new tax on foreign flagged ships and aircraft shipping goods to and from Alaska.

This ruling states that the section 883 exemption from Corporate Income tax for these carriers no longer applies in Alaska. In effect, the ruling makes Alaska the only state taxing the net income of foreign flagged/owned ships, aircraft, railroad rolling stock and communication satellites.

SB 345 amends the section of the Alaska Net Income Tax Act that adopted section 883 into Alaska law expressly stating that nothing in the Alaska tax statutes may be construed as an exception to or modification of, Section 883 of the IRS code.

The purpose of section 883 is not only to prevent the double taxation of foreign income, but to ensure that income earned by U.S. companies is not taxed in other nations. Section 883 upholds a logical concept in international trade.

While some may view this court ruling as a "tax bonanza" , the Legislature must consider the consequences to future trade negotiations, and the chilling fallout this court decision will have on commerce, if left standing.