The Core Definition
"Ordering of Credits" is the strategic sequencing of tax incentives against a liability to prioritize expiring or restrictive credits first, thereby preserving refundable or carry-forward credits for maximum future value.
Analyzing the Alaska Context
In the landscape of Alaska Corporate Income Tax, the order in which you apply credits (like the R&D credit) is not arbitrary; it is a mathematical necessity governed by statute. While Alaska follows the Internal Revenue Code (IRC) via AS 43.20.021, specific state-level limitations create a unique "waterfall" effect.
Misapplying this order can result in "stranded credits"—tax assets that expire worthless because a refundable credit was used prematurely.
The "Bucket" Logic
Visual AnalogyTax Liability must be filled by credits with the highest "volatility" (expiration risk) first.
The Statutory Hierarchy
Based on Alaska Statutes and Dept. of Revenue Guidance. Explore the priority levels below.
Credit Categories
Click to highlight interaction context.
General Ordering Principle
Generally, the Alaska Department of Revenue advises applying credits in an order that minimizes the taxpayer's loss of credit value. This means applying non-refundable credits that do not carry forward first, followed by those with limited carry-forward periods.
Alaska R&D Note (AS 43.20.021)
The Alaska R&D credit is often limited to 100% of the first $25,000 of tax liability plus 75% of the liability over $25,000. This calculation limitation effectively places it early in the calculation stack, but its application priority depends on its carryover status (7 years, non-refundable).
Ordering Impact Simulator
See the math in action. Why does ordering matter? In this example, we have a $100,000 Tax Liability. We have $80,000 in expiring Non-Refundable credits and $50,000 in Refundable credits.
If unused, this value is lost forever.
Can generate a cash refund.
Poor Ordering
Applying Refundable First
Total Economic Benefit
Correct Ordering
Applying Non-Refundable First
Total Economic Benefit
Local Guidance & Statutes
Internal Revenue Code Adoption
Source: Alaska Statute 43.20.021
Alaska generally adopts the Internal Revenue Code (IRC) by reference. This is critical for credit ordering because, absent a specific state statute overriding it, federal ordering principles often provide the baseline.
Under IRC § 38(d), the ordering of credits is generally determined by the order in which they are listed in the code, but conceptually, the general business credit is used on a First-In-First-Out (FIFO) basis regarding carryforwards.
Key Takeaway: Alaska's corporate income tax form (Form 6000) schedules essentially enforce an ordering by the layout of the form. Line items for non-refundable credits appear before payments and refundable credits.
Expert Analysis of the Ordering of Credits in the Context of the Alaska R&D Tax Credit
I. Introduction: Defining the Alaska Credit Ordering Principle
The Ordering of Credits refers to the mandatory sequence, established by Alaska Statutes (AS Title 43) and codified in administrative code (15 AAC), dictating the priority in which a corporate taxpayer must apply various statutory tax credits against their calculated Alaska Corporate Net Income Tax (CNIT) liability. This sequence is mandatory for compliance and directly determines the immediate cash utilization and subsequent carryover characteristics of all claimed credits.
The ordering principle establishes a clear, tiered structure that prioritizes credits designed for specific Alaska-based economic activities (Tier 1) over those credits adopted by reference from the federal system (Tier 2).
Contextualizing the Alaska R&D Tax Credit
The Alaska R&D Tax Credit is not derived from a state-specific calculation based on Qualified Research Expenses (QREs) defined solely by state law.1 Instead, Alaska utilizes a conformity approach, allowing a credit based on the federal Research Tax Credit (IRC § 41).3 Specifically, Alaska allows a state tax credit equal to eighteen percent (18%) of the taxpayer’s allowed federal General Business Credit (GBC) (IRC § 38) that is properly apportioned to Alaska.1
The definition of qualified research expenses used for the state calculation is identical to that used under IRC § 41.1 For a business to claim the Alaska credit, it must first be eligible for the federal R&D credit, requiring the use of federal forms such as IRS Forms 6765 and 3800 for calculation purposes.3
Crucially, the Alaska R&D credit possesses specific utilization characteristics that impact tax planning: it is non-refundable and non-transferable.1 Unused credit amounts may be carried back for one year and forward for up to 20 years, generally following the federal carryover rules (IRC § 39).1
The Critical Ordering Hierarchy
The R&D credit’s characterization as a Federal-Based Credit places it squarely within Tier 2 of the Alaska credit hierarchy. The central regulatory constraint imposed by the ordering rule is that Federal-Based Credits may only offset Alaska tax liability remaining after all Tier 1 Alaska Incentive Credits have been fully applied.1
This hierarchical structure reflects a legislative policy decision to direct the maximum immediate financial benefit toward highly targeted, proprietary state incentive programs—such as those promoting industrial development or oil and gas infrastructure (AS 43.20.042, for example, is excluded from the 18% limitation imposed on federal credits) 1—before allowing the use of generalized tax relief like the R&D credit. This mandatory priority sequence is the core mechanism of compliance for corporations utilizing both categories of credits.
II. The Regulatory Framework of Credit Utilization
The Alaska Department of Revenue (DOR) administers the ordering of credits primarily through the structure of its corporate income tax forms, which implement the statutory priorities outlined in AS Title 43, Chapter 20, and the corresponding administrative regulations, 15 AAC 20.
Statutory Authority and Defining Credit Tiers
Tier 1 credits, known as Alaska Incentive Credits, are typically rooted in specific statutes governing resource development, infrastructure investment, or other priority economic sectors. Examples include the Special Industrial Incentive Investment Tax Credits under AS 43.20.042 7 or the Qualified Oil and Gas Service Industry Expenditure Credit under AS 43.20.049.9 These credits are defined by Alaska law and are explicitly designed to promote high-value, in-state activity.
In contrast, Tier 2, the Federal-Based Credits, including the R&D credit, are allowed under the general rule specified in 15 AAC 20.145, which adopts the Internal Revenue Code (IRC) § 38 framework by reference.1 The limitation on the R&D credit—eighteen percent (18%) of the apportioned federal amount—further distinguishes it as a measure intended for state conformity rather than an explicit, high-rate state incentive.
DOR Implementation Guidance via Tax Forms
The practical enforcement of the ordering rule is managed through a pair of mandatory corporate tax forms: Form 6300 and Form 6390. These forms translate the statutory hierarchy into a clear, arithmetical sequence required for filing:
- Form 6300 (Incentive Credits Summary): This form is required to calculate and order the total Tier 1 credits available, such as the Income Tax Education Credit, the Veteran Employment Tax Credit, or the Qualified Oil and Gas Service Industry Expenditure Credit (AS 43.20.049).10 Form 6300 determines the precise amount of Incentive Credits (Tier 1) that will be applied against the tax liability before any Federal-Based Credits are considered.11
- Form 6390 (Federal-Based Credits): This form, titled “Alaska Federal-Based Credits,” is used to calculate the 18% apportioned R&D credit (Line 11) and, critically, to determine the allowable offset based on the remaining tax liability after the Tier 1 application (Part II).12 To claim the R&D credit, a company must file Form 6390 along with its state tax return (Form 6000, 6100, or 6150).1
Defining Tier 1 Priority and Carryover Implications
The Department of Revenue (DOR) guidance, echoed in the instructions for Form 6390 and Form 6300, explicitly mandates that Alaska incentive credits (Tier 1) must be applied first against both the Alaska Regular Tax (RT) and the Alternative Minimum Tax (AMT).2 Only the tax base that remains after this application is available for offset by Federal-Based Credits (Tier 2).
This rigid prioritization structure has profound planning implications, especially concerning credit carryover provisions. Incentive Credits, such as the Qualified Oil and Gas Service Industry Expenditure Credit (AS 43.20.049), may have relatively short carryforward periods, potentially limited to five years.9 In contrast, the R&D credit (Tier 2) benefits from the longer federal rule, allowing unused portions to be carried forward for 20 years.1
The mandatory ordering rule compels the taxpayer to exhaust the shorter-lived Tier 1 credits immediately, thereby preserving the tax base for the utilization of the R&D credit (Tier 2) in subsequent years, should the Tier 1 credits fully eliminate the current year’s liability. This restriction prevents the taxpayer from exercising discretion that might otherwise lead them to defer the Tier 1 credit in favor of immediately utilizing the long-lived R&D credit, reinforcing the legislature’s intent to maximize the immediate benefit of specific industrial incentives.
The table below summarizes the key distinctions in the hierarchy of corporate tax credits in Alaska:
Credit Tier Hierarchy for Alaska Corporate Net Income Tax
| Credit Tier | Credit Type Example | Basis/Regulation | Carryover Period | Priority in Ordering |
| Tier 1 | Alaska Incentive Credits (e.g., AS 43.20.042) | AS 43.20, Form 6300 | Varies (e.g., 5 years) 9 | Highest (Applied First) 6 |
| Tier 2 | Federal-Based Credits (e.g., R&D Credit) | 15 AAC 20.145, Form 6390 | 20 Years Carryforward 1 | Secondary (Applied Second) 1 |
III. The Credit Application Sequence Against Tax Liability
The calculation of the available R&D credit and its subsequent application against the remaining tax base is meticulously detailed in the steps prescribed by Form 6390. This process involves four primary phases: calculating the apportioned R&D credit, offsetting the regular tax, offsetting the alternative minimum tax, and finally, applying the specific General Business Credit limitation.
A. Calculating the Apportioned R&D Credit (Form 6390, Part I)
To determine the amount of R&D credit available for application (the Tier 2 amount), the taxpayer must first determine its federal General Business Credit (GBC) amount, typically derived from federal Form 3800.12 This process includes:
- Federal GBC Determination: Identifying the total federal GBC from all non-passive activities (Form 3800, Part III, line 2, column e).12
- Exclusions: Subtracting any federal GBC amounts not allowable for Alaska (Lines 2a–2c).12
- Apportionment: Applying the state apportionment factor (Line 6) to the total federal GBC applicable to Alaska (Line 5).5
- 18% Limitation: Multiplying the apportioned federal GBC (Line 7) by 18% to arrive at the current apportioned state credit (Line 8).4
The total Tier 2 credit available for the tax year (Line 11) is the sum of the current apportioned credit (Line 8), plus any allowed Alaska carryforward (Line 9) and Alaska carryback amounts (Line 10).12
B. Offsetting Regular Tax (RT) Liability (Form 6390, Part II)
The ordering rule commences with the calculation of the available Regular Tax (RT) liability, post-Tier 1 application:
- Gross RT: The process begins with the calculated Alaska regular tax (Form 6390, Line 12a), generally derived from the corporation net income tax return (Form 6000, 6100, or 6150) Schedule D, line 2.12
- Tier 1 Reduction: The total Incentive Credits (Tier 1) allowed against RT (Form 6390, Line 12b) are subtracted.6 These amounts are calculated on Form 6300 and include any required proportional allocation.6
- Remaining RT Base: The result, Line 12c, represents the remaining RT liability available for the R&D credit offset. If the Tier 1 Incentive Credits fully eliminate the RT liability, Line 12c will be zero, and no R&D credit may be applied against the RT base that year.
C. Offsetting Alternative Minimum Tax (AMT) Liability (Form 6390, Part II)
One beneficial feature of the Federal-Based Credits in Alaska is their permissibility to offset the Alaska Alternative Minimum Tax (AMT).1 However, this offset is still subordinate to the Tier 1 credits:
- Gross AMT: The net Alaska AMT liability is determined (Form 6390, Line 13a).12
- Tier 1 Reduction: This AMT liability is first reduced by any Alaska Incentive Credits (Tier 1) allowed against the AMT (Line 13b).12 This reduction is typically determined by proportionally allocating the Tier 1 credits between RT and AMT based on the ratio of the respective taxes.6
- Remaining AMT Base: The remaining AMT liability (Line 13c) is the final portion of the tax base available for the Tier 2 R&D credit.
D. Determining Allowable Credit and the 25% Limitation
The combined result of the application sequence is determined by lines 14 and 15 of Form 6390.
Line 14, the Net Alaska income tax, is the sum of the remaining RT (Line 12c) and the remaining AMT (Line 13c). This figure represents the maximum tax liability remaining that can be offset by the Tier 2 credits.
A secondary constraint is then applied, mirroring federal General Business Credit limitations. Line 15 calculates 25% of the excess, if any, of the remaining RT (Line 12c) over $\$4,500$.12 The final allowable Tier 2 credit amount (Line 16, not explicitly shown in the provided snippets but implied by the form structure) is the lesser of:
- The total available R&D credit amount (Line 11);
- The total available tax liability after Tier 1 application (Line 14); or
- The maximum credit allowed by the 25% limitation rule.
This layered constraint system, including the 25% limitation, serves as a crucial revenue protection mechanism for the state. Even if Tier 1 Incentive Credits are minimal, the proportional cap relative to the remaining Regular Tax liability ensures that the R&D credit cannot entirely eliminate a substantial corporate tax liability, thereby guaranteeing a mandatory minimum level of tax payment for highly profitable corporations.
IV. Detailed Practical Example of the Ordering Rule Mechanics
To illustrate the critical impact of the Ordering of Credits, a quantitative example demonstrating the sequential reduction of tax liability by Tier 1 and Tier 2 credits is essential. This example assumes a corporate taxpayer is subject to the Alaska Corporate Net Income Tax (CNIT) and utilizes both Alaska Incentive Credits (Tier 1) and the Federal-Based R&D Credit (Tier 2).
A. Example Parameters
For Tax Year 202X, a corporation reports the following:
- Gross Alaska Regular Tax (RT): $\$150,000$ (Form 6390, Line 12a)
- Gross Alaska Net Alternative Minimum Tax (AMT): $\$25,000$ (Form 6390, Line 13a)
- Total Gross Tax Liability: $\$175,000$
- Tier 1 Alaska Incentive Credit Available (from Form 6300): $\$80,000$
- Tier 2 R&D Credit Available (18% Apportioned, Form 6390, Line 11): $\$100,000$
B. Required Step 1: Proportional Allocation of Tier 1 Credits
The $\$80,000$ in Tier 1 Incentive Credits must be applied first, proportionally, against the total tax liability (RT + AMT), as per Department guidance.6
- RT Share of Total Liability: $\$150,000 / \$175,000 \approx 85.7\%$
- AMT Share of Total Liability: $\$25,000 / \$175,000 \approx 14.3\%$
The Tier 1 credit is then allocated:
- Tier 1 Applied to RT (Form 6390, Line 12b): $\$80,000 \times 85.7\% = \$68,560$
- Tier 1 Applied to AMT (Form 6390, Line 13b): $\$80,000 \times 14.3\% = \$11,440$
- Total Tier 1 Applied: $\$68,560 + \$11,440 = \$80,000$
C. Required Step 2: Calculation of Remaining Tax Base (The Ordering Impact)
The application of the high-priority Tier 1 credits directly reduces the available tax base against which the R&D credit (Tier 2) can be utilized:
- Remaining RT (Line 12c): $\$150,000 – \$68,560 = \$81,440$
- Remaining AMT (Line 13c): $\$25,000 – \$11,440 = \$13,560$
- Total Available Base for Tier 2 (Line 14): $\$81,440 + \$13,560 = \$95,000$
The ordering rule dictates that, despite the taxpayer having $\$100,000$ in R&D credits available, only $\$95,000$ of tax liability remains after the mandatory application of the Tier 1 Incentive Credits.
D. Required Step 3: Application of Tier 2 and Determination of Carryforward
The R&D credit is applied against the remaining tax base. For simplification, assuming the 25% GBC limitation does not reduce the allowable amount below $\$95,000$:
- R&D Credit Utilized: $\$95,000$ (Limited by the remaining liability, Line 14)
- Total R&D Credit Available: $\$100,000$
- R&D Credit Carryforward: $\$100,000 – \$95,000 = \$5,000$
The unused $\$5,000$ in R&D credits must then be carried back one year or forward for up to 20 years.1
The application flow demonstrates that the utilization of the R&D credit is structurally subordinate to, and reduced by, the mandatory application of the Alaska Incentive Credits.
Detailed Example of Credit Application Flow (Form 6390 Logic)
| Form 6390 Reference | Description | Initial Liability/Credit | Credit Applied | Remaining Liability |
| 12a | Gross Alaska Regular Tax (RT) | $\$150,000$ | N/A | N/A |
| 13a | Gross Alaska Net AMT | $\$25,000$ | N/A | N/A |
| Tier 1 Application | Incentive Credit Available (Form 6300) | $\$80,000$ | N/A | N/A |
| 12b | Less: Tier 1 Applied to RT (85.7% proportion) | N/A | $\$68,560$ | N/A |
| 13b | Less: Tier 1 Applied to AMT (14.3% proportion) | N/A | $\$11,440$ | N/A |
| 12c | RT After Tier 1 | N/A | N/A | $\$81,440$ |
| 13c | AMT After Tier 1 | N/A | N/A | $\$13,560$ |
| 14 | Total Available Base for Tier 2 | N/A | N/A | $\$95,000$ |
| 11 | R&D Credit Available (18% Apportioned) | $\$100,000$ | N/A | N/A |
| 16 | Allowable R&D Credit (Limited by Line 14) | N/A | $\$95,000$ | N/A |
| N/A | R&D Credit Carryforward (20 Yrs) | N/A | N/A | $\$5,000$ |
V. Advanced Policy Implications and Risk Mitigation
The mandatory ordering rule, combined with the structural characteristics of the R&D credit, generates specific risks and opportunities for corporate tax planning in Alaska.
A. Strategic Impact of Non-Refundability and Non-Transferability
Since the Alaska R&D credit is non-refundable and non-transferable 1, its value is entirely dependent on the existence of future Alaska CNIT liability sufficient to utilize the carryforward. The ordering rule intensifies this dependency: if Tier 1 credits are consistently large enough to eliminate most or all current tax liability (Lines 12c and 13c are low), the R&D credit benefit is perpetually postponed.
For businesses that generate high levels of Tier 1 credits due to significant oil, gas, or industrial investment (AS 43.20.042) 7, the long 20-year carryforward period for the R&D credit 1 becomes critical. The R&D credit effectively functions as a deep reserve that will only be drawn upon once the state’s proprietary industrial incentives have been fully utilized or have expired. The non-transferability rule imposes a finite risk: if the corporation ceases operations or significantly reduces taxable activities in Alaska before the 20-year window closes, the accrued R&D credit carryforwards may expire unused.13
B. Tax Planning and Modeling Considerations
Taxpayers must employ sophisticated tax modeling to project the interplay between the two tiers of credits. The short life of some Incentive Credits (e.g., 5 years for AS 43.20.049 9) and the long life of the R&D credit (20 years) means that planning cannot be done on a year-by-year basis.
The ordering rule forces the acceleration of the utilization of the shorter-lived Tier 1 credits. This is generally advantageous, as it mitigates the risk of expiration for the Tier 1 credits. However, it also requires that the taxpayer accurately forecast their future eligibility for and generation of Tier 1 credits, as the expected influx of new Tier 1 credits in future years will continuously constrain the utilization of existing R&D credit carryforwards. Effective planning requires dynamic forecasting of the liability base (Line 14) to optimize the sequencing of the R&D credit carryforward utilization.
C. Compliance and Audit Risk
Compliance complexity is heightened by the requirement for accurate proportional allocation of Tier 1 credits against both RT and AMT. Lines 12b and 13b on Form 6390 require the taxpayer to pull allocated amounts from Form 6300, and a miscalculation of this proportion—as illustrated by the formula in the Form 6300 instructions 6—would systematically distort the remaining tax base (Line 14), leading to an incorrect application of the R&D credit (Line 16). This specific compliance step represents a significant audit vulnerability.
Furthermore, regulatory oversight is often concentrated on the resource-related Tier 1 credits. For example, the Department of Revenue (DOR) is mandated to grant or deny tax credit applications related to oil and gas development (AS 43.55.023) within 120 days, and these credits are subject to rigorous credit audits.14
An audit adjustment to a Tier 1 credit has a direct, cascading effect on the Tier 2 R&D credit utilization. If, during an audit, the DOR reduces the amount of Tier 1 Incentive Credit claimed, the effect is an increase in the remaining tax base (Lines 12c/13c) available for offset by Tier 2 credits. This unexpected increase in the available base accelerates the utilization of the R&D credit, which, while beneficial for the taxpayer in reducing the carryforward risk, necessitates meticulous record-keeping to re-calculate the R&D credit utilization for the audit year and adjust subsequent carryforward balances. Taxpayers must maintain detailed documentation linking their Alaska R&D claims back to the underlying federal forms (Form 6765 and Form 3800) to substantiate the 18% apportioned credit amount claimed on Form 6390.3
VI. Conclusion: Strategic Importance of Credit Ordering
The Alaska R&D tax credit regime operates under a dual structural constraint. Quantitatively, the credit is limited to $18\%$ of the apportioned federal General Business Credit.1 Qualitatively, the credit’s immediate utilization is subject to the strict sequencing rule that dictates the mandatory exhaustion of higher-priority Alaska Incentive Credits (Tier 1) before any Tier 2 Federal-Based Credits, including the R&D credit, can be applied.
This ordering principle is enforced through mandatory utilization schedules articulated in DOR Forms 6300 and 6390. Adherence to the Form 6390 methodology is paramount for compliance and accurate carryover tracking. Failure to correctly order credits and calculate the proportional reduction of the tax base by Tier 1 credits results in either an overstated current-year tax liability or, conversely, an accelerated exhaustion of credits that should have been deferred.
For corporate taxpayers engaged in both general R&D activities and significant industrial or resource development in Alaska, the ordering rule transforms the R&D credit from an immediate cash offset tool into a critical, long-term tax asset. Its realization is strategically dependent on the expiration, reduction, or full utilization of the state’s high-priority industrial incentives. Effective tax management requires viewing the R&D credit not merely as a deduction, but as a component of the long-term capital structure, whose value is realized over two decades, contingent upon the success and consumption pattern of competing, higher-priority state tax benefits.
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What is the R&D Tax Credit?
The Research & Experimentation Tax Credit (or R&D Tax Credit), is a general business tax credit under Internal Revenue Code section 41 for companies that incur research and development (R&D) costs in the United States. The credits are a tax incentive for performing qualified research in the United States, resulting in a credit to a tax return. For the first three years of R&D claims, 6% of the total qualified research expenses (QRE) form the gross credit. In the 4th year of claims and beyond, a base amount is calculated, and an adjusted expense line is multiplied times 14%. Click here to learn more.
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