Alaska's legislature ended its fourth and final special 2017 session without consideration of Governor Bill Walker's income tax proposal.

According to the governor's press release:

"I am deeply saddened that the Senate has decided to again ignore Alaska's fiscal crisis. After three years of inaction and $14 billion of lost savings, it is the responsibility of the legislature to work as hard as it can to reach agreements that stop this bleeding of public assets, and restore confidence to our economy. Multiple downgrades from credit agencies and stern warnings from the legislature's own staff emphasize the urgency of the action required. We need a complete fiscal plan to support prosecutors and police, and to pay for some of the policy decisions made in this amended version of SB 54. Alaskans need real progress on this issue."

On September 22, 2017, Governor Walker called the state legislature into its fourth special legislative session of the year, which began on October 23, 2017. He again proposed the establishment of a personal income tax to address revenue shortages.

Effective January 1, 2019, the proposal would have created a 1.5% withholding tax rate (referred to as a modified head tax) on resident and nonresident wage sand self-employment income, capping the annual withholding amount at $2,200 or twice the previous year's permanent fund dividend amount, whichever is higher. The dividend for 2017 was announced as $1,100.

The proposal was expected to generate between $300 million and $325 million.

Ernst & Young LLP insights

As we've reported previously, this was not the first time the governor had called for the establishment of a personal income tax to solve the state's financial woes. (See Tax Alerts 2017-548 and 2017-1180 for more on the governor's state income tax proposals.)

The legislature's regular session for the 30th State Legislature begins January 16, 2018. It remains to be seen if the governor will continue to press for the institution of a personal income tax.

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