The left-leaning Center on Budget and Policy Priorities reports that Alaska is among twenty-five states losing money to a relatively new corporate tax break, the domestic production deduction:
"The federal government created this tax break, known as the “domestic production deduction,” in 2004. Since most states base their own tax codes on the federal tax code, the tax break was carried over into many states without specific legislative scrutiny or a vote. Now it is costing not only the federal government but also 25 states a large amount of money. By 2014, it will cost these states over $600 million per year.
"The deduction — enacted as Section 199 of the federal Internal Revenue Code — allows companies to claim a tax deduction based on profits from “qualified production activities,” a sweeping category that goes well beyond manufacturing to include such diverse activities as food production, filmmaking, and utilities — a substantial share of states’ corporate income tax base."
CBPP lists four reasons states ought to disallow the deduction:
- A state-level domestic production deduction creates little incentive for corporations to create or protect jobs within that state.
- The deduction provides little help to struggling businesses, since only profitable ones can use it.
- The deduction favors large corporations over small businesses.
- State revenues lost to the deduction could be better spent on other priorities.
What's not clear is exactly where these deductions come from, e.g. how much to film making, etc.?