Alaska Lawmakers Vote to Update Corporate Income Tax for Highly Digitized Businesses

(ALASKA) – Alaska lawmakers advanced a measure to update the state’s corporate income tax after Gov. Mike Dunleavy vetoed a similar bill last year, reviving a debate over how the state taxes out-of-state companies and online firms.

The proposal would make two central changes. It would shift Alaska to market-based sourcing, taxing large businesses based on where their customers are rather than where the work is performed, and it would add a rule aimed at highly digitized businesses that do most of their business online.

That second change would pull companies such as Netflix and eBay into Alaska’s corporate tax base even if they do not have a physical presence in the state, broadening the reach of a system that lawmakers say no longer matches how business is done.

Rep. Calvin Schrage, an Anchorage independent and co-chair of the House Finance Committee, framed the proposal at the bill’s first hearing on February 13, 2026 as a response to a gap in current law. He said, “Currently, there is a loophole in Alaska’s corporate income tax structure, and that loophole is that if you’re a highly digital business that doesn’t have a physical presence here in the state, you are not paying taxes to the state of Alaska. You’re paying those taxes to other states.”

Schrage’s description captured the thrust of the measure. Alaska’s current rules, as lawmakers presented them, can leave income tied to online activity outside the state tax system if the company lacks bricks-and-mortar operations in Alaska.

The bill also revisits a tax concept that has become more central as states try to connect corporate tax liability to where economic activity occurs. Under market-based sourcing, the location of the customer, not the place where services are performed, becomes the anchor for sourcing income.

That matters most for large multistate businesses. A company that sells into Alaska could face tax based on its Alaska customer base even if much of its workforce, production, or service work sits elsewhere.

Lawmakers advancing the change are aligning sourcing with economic activity rather than physical presence. In practice, that would move the state’s tax approach closer to where sales are made and where customers consume a service.

The digital-business rule goes a step further by targeting companies whose business model depends on online transactions, streaming, platforms, or other internet-based activity. Alaska lawmakers cited Netflix and eBay as examples of the kind of firm the bill is designed to reach.

Those companies illustrate the issue lawmakers are trying to address. A business can earn money from Alaska customers without maintaining offices, warehouses, or employees in the state, leaving traditional physical-presence rules less effective as a measure of taxable activity.

Revenue estimates sit at the center of the case for the overhaul. The Alaska Department of Revenue estimated the bill would raise between $25 million and $65 million each year.

Legislative material tied that estimate in part to the digital-business provision. One summary projected that provision alone would generate $25 million to $65 million per year, underscoring how much of the measure’s fiscal promise rests on bringing highly digitized businesses into the tax base.

Current Alaska corporate tax rules apply to corporations with more than $25,000 in taxable income, according to one legislative summary. The top rate is 9.4% on income above $222,000.

Those figures give the debate sharper edges. Lawmakers are not discussing the creation of a new tax from scratch; they are debating who falls inside an existing system and how income should be assigned to Alaska under that system.

Dunleavy’s own fiscal plan overlapped with part of the bill now moving through the Legislature. His broader proposal included the market-based sourcing change, but did not include the provision for highly digitized businesses.

That split shows where the politics become more pointed. Market-based sourcing had already appeared in the governor’s broader fiscal thinking, while the effort to tax online-heavy companies without a physical Alaska footprint marks the part of the proposal that goes further.

A second tax measure is moving on a parallel track in the Legislature. Senate Bill 92, sponsored by Sen. Bill Yundt, would extend the tax to a narrow set of S-corporations, especially oil and gas companies with more than $5 million in taxable income.

Legislative materials say that bill would likely apply to just one company, Hilcorp. While separate from the market-based sourcing and digital-business proposal, Senate Bill 92 reflects a broader push in Juneau to expand Alaska’s corporate tax base in targeted ways.

Taken together, the two efforts show lawmakers testing more than one route to collect more corporate tax revenue. One approach reaches outward to companies selling into Alaska and to highly digitized businesses operating online; the other reaches inward to a narrow class of S-corporations, with oil and gas companies at the center.

Businesses affected by the main overhaul would face a different compliance map if the bill becomes law. Large companies would need to assign income based on where customers are located, and online-heavy firms without Alaska offices or staff could still fall within the state tax base.

That would change reporting and tax planning for companies that previously relied on physical presence as the threshold that determined whether Alaska could tax them. It would also widen the set of firms that need to examine whether sales, subscriptions, platform revenue, or other Alaska-linked receipts create state tax liability.

The implications extend beyond internet companies with household names. Market-based sourcing reaches large businesses generally, and the digital provision addresses a form of commerce that increasingly cuts across sectors rather than staying confined to a small tech category.

At the same time, the Legislature’s separate work on Senate Bill 92 shows that Alaska lawmakers are not limiting the discussion to online activity. They are also examining whether the state’s corporate income tax should apply to certain business structures that have remained outside the tax in narrower circumstances.

That combination places the structure of Alaska’s business tax system under fresh scrutiny. The questions before lawmakers are where income is earned, who should owe tax on it, and whether the state’s rules still fit a market in which digital sales and remote transactions carry more weight than physical operations alone.

The main proposal remains in the legislative process, with hearings underway after the first hearing on February 13, 2026. Lawmakers are again weighing an update that stalled after Dunleavy’s veto, this time with the same two pillars at the center: market-based sourcing and a tax rule for highly digitized businesses.

How far that effort goes will determine whether Alaska redraws the reach of its corporate income tax to capture online and out-of-state activity that lawmakers say now escapes the system, while a separate Senate bill tests a narrower expansion aimed at S-corporations and, by legislative account, likely one company, Hilcorp.