Senate considers changes to education tax credit
A Senate bill is on the move to save a popular education tax credit for businesses that donate money to Alaska universities and schools from expiring later this year, though it may require some fixes to ensure the program is functioning as intended.
As the state looks for means to plug the budget chasm, the education tax credit has been identified as foregone revenue. Between 2015 and 2017, the Alaska Department of Revenue calculates $20.5 million was given in tax credits to corporations.
That’s how much the state would have taken in if the credits weren’t granted.
But unlike Alaska’s oil tax credits, no check goes from the state back to corporations, Sen. John Coghill, R-North Pole, explained as his Senate Bill 116 was heard Feb. 8 in the Senate Labor and Commerce Committee. He is proposing to extend the credit to the year 2025 and hang onto provisions that keep it a lucrative tax write-off.
At the hearing Feb. 8, senators heard the pros and cons of the program. On the one hand, it helps feed between $10 million and $11 million per year to universities and education programs. Over the past three years, the combined total is about $33 million.
On the other hand, the ambiguities should be removed about what donations should qualify for the tax credit, Tax Division Director Ken Alper told the committee.
Upon questions about tax credits available to a variety of programs from Sen. Mia Costello, R-Anchorage, Alper was quick to point out problems that need to be “cleaned up” if the program is reauthorized.
“One of the most awkward parts of my job is responding to questions about the education tax credit. We’re not allowed to give tax advice,” he said. “It doesn’t have a pre-approval process. There’s a lot of gray area. It’s not the cleanest statute in the book.”
Alper said the tax credit shows up in 12 different categories of the state tax code. For example, it is listed separately in mining, fisheries and oil as well as in the general corporate tax sections. The credit was first made available in 1987. It’s been amended and updated many times since, Alper said.
“Through the years, if someone has a desire to make a donation (to an organization) and it’s not in a statute, they go to their legislator and he amends it,” Alper said. “It started out being traditional colleges and universities, and then secondary-vocational education, for example, was added six years ago. Now, nonprofits with an education component are allowed, too.”
Currently, nonprofits with only a tenuous education program piece and even groups outside of Alaska are on the list for receiving donations in what’s called the “other” category.
The 2017 list of recipients in the “other” category includes the Smithsonian Institute, the Alaska World Affairs Council, the Foraker Group, Alaska Business Week and the Alaska Development Corp. as well as traditional education groups such as the Girl Scouts.
Who gets the donation?
According to the Department of Revenue’s numbers, the total amount of contributions submitted for tax breaks hasn’t exceeded $11.2 million per year in the past three years. Those making the contribution are kept anonymous in the annual summary of Alaska Education Credits submitted to the Legislature, Alper said.
In 2015, contributions totaled $11.2 million and $7.4 million was claimed in credits. That same year, University of Alaska system proved the beneficiary of $5.2 million. Alaska Pacific University was granted $655,655 and secondary vocational schools split $3.36 million.
The “other” category in 2015 tallied just more than $2 million.
By 2016, $10.5 million was donated and $6.3 million in credits claimed. UA was given $2.9 million; APU $1.6 million and vocational schools split $3.6 million.
The “other” category split just over $2 million.
The secondary-vocational ed institutions on the receiving end were fewer in number, ranging from Anchorage School District to Ilisagvik College to Northwestern Alaska Career And Technical Center of Nome.
In 2017, corporate donations fell to $9.3 million with $6.3 million in claimed credits. UA received $3 million, or one-third of all donations, while APU took $1.6 million. Secondary-vocational education received $3.6 million and the “other” category was just more than $1 million.
The “other” category listed 100 different agencies ranging from Cook Inlet Historical Society to Girl Scouts of America and the Alaska World Affairs Council.
A rewrite ahead?
Coghill, whose bill would extend the program until Jan. 1, 2025, said he understands the problems with the statute.
“We are approaching a sunset deadline. I say let’s keep it from expiring, then go to work on fixing the problems with it,” Coghill said.
The division has no way to pre-determine which eligible educational programs should qualify, Alper said. There are 12 corporate tax categories and “it’s subject to a little bit of interpretation as eligible recipients of the tax credits.”
Typically, since it’s not based on pre-approval, a corporation makes the donation, and then when they file their taxes, they claim it to offset their taxes.
“At some point we audit it and they may or may not be approved,” Alper said.
One solution would be for the Legislature to amend the code to offer a process by which a tax credit could be pre-determined.
“It might add time and a little bit of cost, but there is a certain risk associated with this credit because they can’t know for sure if a given credit could qualify at the time its given,” Alper said, adding that it is the tax attorney’s advice to make that call.
The credit provision allowed for 50 percent of the annual contribution up to $100,000, 100 percent of the next $200,000, and 50 percent of annual contributions beyond $300,000. The total tax credit couldn’t exceed $5 million.
The credits were justified in the direct benefits to students who will become the future workforce. The credits allow private industry to partner with education for outcomes agreeable to both sides.
“The university has partnerships that are pretty dramatic: world class fish biology with the fishing industry. ConocoPhilips with ANSEP (Alaska Native Science and Engineering Program.) Same in the mining world, such as at the University of Alaska Fairbanks we have the College of Mines,” Coghill said. “For every dollar we give them a break on, we get a dollar extra that we wouldn’t get.”
Students gain from a “high end” education that the state wouldn’t otherwise be able to afford, Coghill argues.
One project just completed last year was the University of Alaska Fairbanks’ Engineering, Learning and Innovation Facility. Usibelli Coal Co., BP and ConocoPhillips together donated $2 million toward the $115.1 million construction costs, said spokesperson Marmiam Grimes.
“It costs us money because we have to allow that deduction against their taxes. But we see value in students and dollar for dollar, it pays money into education,” Coghill said.
There is a price paid by the state, however, Alper said.
“Instead, we’re letting companies do it, and claim the social benefits of it. But the state’s actually the one paying the costs. It (the tax credit) was written at a time when the state had more money. At the time, we didn’t really think about non-oil revenue. We were able to offer these benefits as an economic development strategy,” he said. “Now it’s probably appropriate to take a sharper pencil.”
Naomi Klouda can be reached at [email protected].