Gara proposes tax on S-corporations

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The focus of most Alaska lawmakers in the first three weeks of the legislative session has been on cutting the state’s budget.

But Anchorage Democratic Representative Les Gara wants to make sure that these cuts don’t fall too heavily on working-class and low-income people.

Gara has instead proposed a bill that would apply a 6 percent tax on the owners of businesses that aren’t currently taxed by the state.

These businesses are called S-corporations and their owners report the business income as personal income.

“Most corporations in the state pay no tax whatsoever,” Gara said. They pay a $100 license fee, even if they make $10 million a year in profits. That doesn’t make sense.”

Governor Bill Walker’s proposed budget would affect these business owners. That’s because they would be required to pay a personal income tax of between 1 and 2 percent.

Gara says that rate isn’t high enough.

“That doesn’t work. The corporate tax is 9.4 percent Two percent is almost nothing for a corporation that makes over $200,000 a year, or over $1 million dollars a year or over $5 million dollars a year.”

House Speaker Mike Chenault, a Nikiski Republican, agrees the legislature could consider taxing S-corporations.

But he adds that the burden of state taxation has rested on certain businesses – especially the oil industry – for more than 35 years.

Anchorage Republican Representative Lance Pruitt says most legislators want to focus their efforts on finding savings in government spending. Finance subcommittees have been analyzing each section of the budget.

“That’s the difference in philosophy. I think Rep. Gara believes we can tax our way out of this, and we can’t tax our way out of this. That’s why it’s so important, the job that the subcommittees are doing right now.”]

Gara says even if his particular bill isn’t enacted, he hopes that the idea of taxing S-corporations becomes a part of the budget, even if a different legislator sponsors it.