Definitive Analysis of Alaska Statute 43.20.021(d): The Corporate Limitation and Apportionment of Federal-Based Tax Credits, Including Research and Development

Alaska Statute 43.20.021(d) functions as a limitation mechanism, restricting the amount of any eligible federal income tax credit—including the Research and Development (R&D) credit—that corporations may claim against their Alaska corporate income tax liability. The statute caps the allowable state credit at 18 percent of the federal credit amount, provided that credit has been properly allocated and apportioned as “attributable to Alaska.”

I. Executive Summary: The Limitation on Federal Credits (AS 43.20.021(d))

A. Simple Meaning

Alaska Statute 43.20.021(d) limits any federal income tax credit claimed by corporations on their Alaska return to 18 percent of the federally determined credit amount.1 Furthermore, this 18% calculation is applied only to the portion of the federal credit base that is attributable to Alaska, as determined by the state’s corporate income tax apportionment formula.3

B. Key Findings and Nuanced Interpretation

The Alaska R&D tax credit is not a distinct state incentive established through state-specific Qualified Research Expenses (QREs) or definitions. Instead, it is an attribution of the federal Research Credit (IRC § 41), which is adopted and limited under the umbrella of general business credits recognized by IRC Section 38.4 This structure means a company must first establish eligibility for the federal credit before any Alaska benefit can be calculated.6

The statutory framework under AS 43.20.021(d) achieves two primary goals: setting a fixed, attenuated rate of state benefit (18%) and ensuring that the benefit is tied to the corporation’s economic presence within the state through mandatory apportionment.

Compliance is standardized through the filing of Alaska Form 6390 – Alaska Federal-based Credits, which is the required mechanism for applying the apportionment and the 18% limitation.5 The limitation applies explicitly to corporations.3 While pass-through entities, such as S-Corporations, LLCs, and Partnerships, may generate the underlying federal credit, the state tax benefit is realized and limited only when claimed by a corporate partner.4

The statute demonstrates a legislative hierarchy of incentives by explicitly carving out certain high-priority state programs from the 18% limitation. This limitation does not apply to the special industrial incentive tax credit under AS 43.20.042 or the renewable energy production tax credit under AS 43.20.046.1 This selective exclusion confirms that general R&D is treated as a standard, limited business credit, whereas the exempted activities, often tied to oil, gas, and resource development, represent strategic, high-priority state investments.

C. Scope of Federal Credits Subject to the Limitation

AS 43.20.021(d) is broad, applying to any credit allowed under the Internal Revenue Code (IRC) that is also permitted in computing Alaska income tax.2 Because Alaska adopts the IRC by reference (AS 43.20.021(a)), this limitation covers the entirety of the federal General Business Credits enumerated in IRC Section 38. The Research Credit (IRC § 41) is a primary component of this group, making it subject to the 18% cap and apportionment requirement.5

This broad reliance on the principle of statutory adoption by reference is a deliberate approach by the state. By incorporating the IRC for federal credits, Alaska minimizes the administrative burden associated with creating and maintaining separate, state-specific eligibility rules, credit definitions, and QRE standards for R&D.5 The state’s unique tax policy intervention is focused solely on the rate (18%) and the spatial attribution mechanism (apportionment), which simplifies regulatory efficiency while limiting the state’s potential revenue loss associated with extensive federal tax relief programs.

II. Foundational Statutory Context: The Alaska Net Income Tax Act

A. Adoption of the Internal Revenue Code (IRC) by Reference (AS 43.20.021(a))

The foundation of the Alaska corporate income tax system, and specifically the allowance of federal credits, rests on AS 43.20.021(a). This section incorporates by reference the vast majority of the Internal Revenue Code (specifically, Sections 26 U.S.C. 1–1399 and 6001–7872), granting these portions of the IRC full force and effect under the Alaska Net Income Tax Act.3

This blanket adoption allows the federal structure of tax calculation, including the availability of federal tax credits, to flow directly into the Alaska tax return calculation. However, this incorporation is not absolute; it is subject to exceptions or modifications detailed elsewhere in Title 43, Chapter 20. Alaska Statute 43.20.021(d) provides one such modification, dictating how corporations must treat these federally derived credits.

B. Deconstructing AS 43.20.021(d): Limitation of Credits for Corporations

Subsection (d) imposes two fundamental limitations on federal credits:

1. Applicability: The limitation applies exclusively to corporations.1
2. The 18% Cap: The calculated credit is explicitly “limited to 18 percent… of the amount of credit determined for federal income tax purposes”.2 This means that once a corporation determines its total federal R&D credit (on Federal Form 3800), only a maximum of 18% of that amount can potentially be claimed in Alaska.
3. Attributable to Alaska: This phrase mandates that the 18% limitation is applied only to the federal credit amount that “is attributable to Alaska”.1 For a multi-state corporation, this requires a preliminary apportionment calculation to isolate the portion of the federal credit corresponding to Alaska’s economic nexus. If a corporation conducts business both inside and outside Alaska, only the apportioned share of the federal credit serves as the base for the 18% state benefit calculation.9

C. Distinguishing the Alaska R&D Credit: A Federal Credit Attribute

It is important to understand that the “Alaska R&D Tax Credit” is not a separate incentive program in the mold of credits offered by many other states. Alaska does not maintain its own set of QRE definitions or an independent R&D tax credit statute.4 The credit’s existence and definition are entirely derived from the provisions of IRC § 41, mandating that the definition of qualified research expenses is the same as under federal law.4 A company must satisfy the federal four-part test for qualified research expenditures to be eligible for the Alaska credit.6

D. Explicit Statutory Exclusions

The 18% limitation is not universally applied to all credits. The statute explicitly provides exceptions for targeted economic incentives, signaling the state’s priority interests. The limitation does not apply to:

• The special industrial incentive tax credit under AS 43.20.042.1
• The renewable energy production tax credit under AS 43.20.046.1

These exclusions create a hierarchy of incentives. AS 43.20.021(d) establishes a low baseline benefit (18%) for general federal credits like R&D. By excluding strategic credits—such as those related to oil and gas exploration and development (AS 43.20.042) 11 and renewable energy 1—the legislature designates these specific activities as high-priority recipients of full, uncapped state incentives. Consequently, general R&D activity not tied to these strategic sectors receives only a marginal, limited tax break. The primary role of the R&D credit under AS 43.20.021(d) is therefore to mitigate federal tax conformity issues rather than to serve as a strong, proactive driver of new, general R&D investment within Alaska.

III. Mechanics of the 18 Percent Limitation

A. The Rationale for the 18% Rate

The 18% limitation rate is not arbitrary; it aligns with several other calculation methods used within Alaska’s corporate tax structure. For example, for the purpose of calculating the alternative minimum tax (AMT) on tax preferences (26 U.S.C. 55–59), the state tax is also set at 18 percent for corporations of the applicable alternative minimum federal tax.3 This consistent 18% figure across multiple specialized corporate tax calculations suggests the credit limitation is designed to integrate the value of the federal credit into a state rate equivalent.

B. Identifying Eligible Federal Credits

The starting point for the Alaska calculation is the total Federal General Business Credit recognized under IRC Section 38, typically summarized on Federal Form 3800. For R&D specifically, the foundational calculation is performed using Federal Form 6765 (Credit for Increasing Research Activities).4 The federal calculation must be finalized, including determining the credit under either the regular method or the Alternative Simplified Credit (ASC), before the resulting credit amount is transferred to the Alaska return. Only the portion of the federal credit that arises from non-passive activities is initially considered for the Alaska credit base (Form 6390, Line 3).7

C. Calculating the Base Credit: Federal R&D Credit (IRC § 41) Determination

Since AS 43.20.021(d) focuses on the “amount of credit determined for federal income tax purposes,” the definition of Qualified Research Expenses (QREs) remains identical to that under IRC § 41.4 All federal rules regarding qualifying activities—the four-part test, including the requirement for qualified purpose and elimination of uncertainty—must be satisfied.6

A significant implication of this structure is that the qualified activities need not be conducted in Alaska to qualify.5 Qualified activities must only be conducted within the United States.5 A multi-state corporation may centralize its R&D activities entirely outside Alaska. Alaska only requires that the resultant federal credit be apportioned to the corporation’s tax base in the state. If a substantial portion of the corporation’s overall economic nexus (measured by the property, payroll, and sales factors used for apportionment) resides in Alaska, the company effectively claims a state R&D credit benefit based on research physically conducted elsewhere.4 This unique characteristic benefits Alaska-taxable corporations that maintain their R&D infrastructure outside of the state.

IV. Alaska Department of Revenue (DOR) Guidance and Compliance

The Alaska Department of Revenue (DOR) manages the implementation of AS 43.20.021(d) primarily through a dedicated tax schedule and specific rules regarding credit ordering and utilization.

A. Mandatory Reporting: Alaska Form 6390 – Federal-Based Credits

Alaska Form 6390 is the mandatory compliance document used by any corporation claiming federal-based credits on its state income tax return (Forms 6000, 6100, or 6150).7 The form’s structure mirrors the requirements of the statute: it first requires the calculation of the apportioned federal credit base (Form 6390, Line 7) and subsequently applies the statutory 18% limitation to that base (Form 6390, Line 8).7 The purpose of Form 6390 is to properly order and limit these federal-based credits on an as-if Alaska basis.9

B. Credit Ordering and Limitations Against Alaska Tax Liability

The calculated Alaska credit provides a dollar-for-dollar offset against the corporation’s Alaska tax liabilities.5 The order of credit application is crucial:

1. Priority for State Incentives: State-specific priority incentive credits (such as AS 43.20.042) must be applied first against both the regular Alaska corporate tax and the Alaska Alternative Minimum Tax (AMT).5 Form 6390 includes lines (12b and 13b) specifically for reducing the regular tax and net Alaska AMT by these priority state incentives before considering the federal-based credits.
2. Federal-Based Credit Application: The R&D credit, limited by AS 43.20.021(d), is then applied against the remaining Alaska regular tax liability (Line 12c of Form 6390).7
3. Alternative Minimum Tax (AMT) Offset: While some summaries indicate that federal-based credits may not be applied against the Alaska AMT 8, Form 6390’s structure dictates that federal-based credits can offset remaining Alaska AMT, but only after all higher-priority Alaska incentive credits have been fully utilized against both regular tax and AMT.5 This ensures the state maximizes the utilization of its high-value, domestic incentives before granting the attenuated federal benefit.

C. Administrative Treatment of Carryovers and Carrybacks

The DOR adopts the federal provisions regarding the utilization of unused credits. Unused federal-based credits (including the R&D credit) may be carried back for one year and carried forward for up to 20 years.4 This adherence to federal carryover periods provides significant long-term predictability and utility for corporations engaged in multi-year research projects, ensuring that the limited state benefit is not immediately lost if the company has a low or negative tax liability in the current year.

D. Prohibition on Duplicative Claims

The state tax code strictly prohibits claiming both a specific state incentive credit and the federal attribution of that credit if they are based on the same expenditure. If an expenditure formed the basis for claiming a service industry credit under AS 43.20.049 (which governs qualified oil and gas service industry expenditures), the taxpayer is explicitly prohibited from claiming the attribution of that same expenditure as a federal-based credit on Alaska Form 6390.11 This ensures taxpayers select the most advantageous state incentive and prevents stacking the limited federal credit on top of the already generous state-specific incentives designed for critical resource industries.

V. Determining “Attributable to Alaska”: The Apportionment Requirement

The requirement that the federal credit be “attributable to Alaska” under AS 43.20.021(d) necessitates applying the state’s corporate income tax apportionment statutes.

A. The Concept of Business Income Taxable Inside and Outside Alaska (AS 43.20.142)

For a taxpayer with business activity and income taxable both inside and outside the state, AS 43.20.142 mandates the allocation and apportionment of net income according to the rules set forth in AS 43.19 (Multistate Tax Compact).12 The DOR applies this same apportionment factor, used for determining taxable income, to the base of the federal credit to establish the portion that is “attributable to Alaska” for purposes of AS 43.20.021(d).9

B. Alaska’s Apportionment Formula: The MTC Framework

Alaska has adopted the standard Multistate Tax Compact (MTC) framework for apportionment.14 The method requires the use of an equally weighted three-factor formula, consisting of the property factor, the payroll factor, and the sales factor, calculated as a fraction consisting of the sum of the factors divided by three.15

The Apportionment Factor (input on Form 6390, Line 6) is mathematically defined as:

$$\text{Apportionment Factor} = \frac{(\text{Alaska Property Factor} + \text{Alaska Payroll Factor} + \text{Alaska Sales Factor})}{3}$$

Detailed Breakdown of the Apportionment Factors (15 AAC 19.131):

• Property Factor: Measures the ratio of the average value of the taxpayer’s real and tangible personal property located in Alaska to the value of all such property everywhere.
• Payroll Factor: Measures the ratio of total compensation paid within Alaska to the total compensation paid everywhere.
• Sales Factor: Measures the ratio of total sales in Alaska to total sales everywhere.

C. The Regulatory Application of Apportionment

The key distinction in Alaska’s approach is that the state uses a general income apportionment factor to allocate the credit base, rather than relying on a factor specifically weighted toward the location of research activities (QREs, payroll) that generated the credit. This is reflected on Form 6390:

1. The taxpayer inputs the MTC-derived Alaska Apportionment Factor (Line 6).
2. The total current federal general business credit applicable to Alaska (Line 5) is multiplied by this factor (Line 7) to determine the federal credit amount deemed “attributable to Alaska”.7

This method ensures that the state benefit is proportionate to the company’s overall operational, labor, and market presence in Alaska, rather than specifically subsidizing the hiring of R&D personnel or the construction of R&D facilities within the state. Because Alaska adheres to the equally-weighted three-factor MTC approach 16, the definition of what constitutes an R&D credit “attributable to Alaska” is directly tied to the state’s general economic activity measure. Consequently, any legislative changes to the state’s general income apportionment formula (such as a future shift to a single sales factor) would automatically redefine the value of the R&D credit under AS 43.20.021(d), even if the statutory 18% rate remained unchanged.

VI. Case Study: Step-by-Step Calculation of the Alaska R&D Tax Credit

To illustrate the dual limitation imposed by AS 43.20.021(d) and Form 6390, consider the following scenario involving a multistate corporation.

A. Scenario Definition: Multistate Corporation

Arctic Systems Corp., a C-Corporation, operates nationally but has significant tax nexus in Alaska. The company conducts qualified research (per IRC § 41) for new drilling technology, with research payroll primarily situated outside Alaska. The products developed, however, are sold predominantly in Alaska.

Financial Data for Tax Year 202X

B. Calculation Walkthrough: From Federal Base to Alaska Allowable Credit

The calculation follows the structure mandated by Form 6390.

1. Determine the Alaska Apportionment Factor (Form 6390, Line 6)

The equally weighted three-factor formula is applied:

• Property Factor Ratio: $10,000,000 / $100,000,000 = 0.10 (10%)
• Payroll Factor Ratio: $12,000,000 / $40,000,000 = 0.30 (30%)
• Sales Factor Ratio: $30,000,000 / $200,000,000 = 0.15 (15%)
• Apportionment Factor: $(0.10 + 0.30 + 0.15) / 3 = 0.1833 (18.33\%)$

2. Determine Apportioned Federal Credit Attributable to Alaska (Form 6390, Line 7)

This step isolates the portion of the federal credit that is “attributable to Alaska” using the apportionment factor (0.1833).

• Apportioned Federal Credit: $450,000 \times 0.1833 = \$82,485$

3. Apply the 18% Limitation (AS 43.20.021(d)) (Form 6390, Line 8)

The statutory rate limit is applied to the apportioned amount calculated in Step 2.

• Total Current Apportioned Credit: $\$82,485 \times 0.18 = \$14,847.30$
• This amount, $14,847.30, represents the maximum R&D credit Arctic Systems Corp. can claim for the year.

4. Determine Allowable Credit Against Tax (Form 6390, Part II)

The calculated credit is applied as a dollar-for-dollar offset against the corporation’s tax liability.

• Maximum Allowable Credit: $14,847.30
• Alaska Regular Tax Liability: $300,000
• Since the credit ($14,847.30) is significantly less than the liability ($300,000), the full calculated credit is utilized.5

The effective state benefit is a product of two limiting factors: the MTC apportionment factor and the 18% statutory cap. In this case, the effective rate of the Alaska credit relative to the total federal credit determined ($450,000) is only 3.3%. This result highlights that the application of the 18% limit to the apportioned amount creates a compounded attenuation for multi-state corporations.

Table 1: Key Steps in Calculating the Alaska R&D Credit per AS 43.20.021(d) and Form 6390

Table 2: Numerical Example of Alaska R&D Tax Credit Calculation (Arctic Systems Corp.)

VII. Advanced Compliance and Conclusions

A. Treatment of Non-Corporate Entities

The statutory text of AS 43.20.021(d) explicitly limits the credit for corporations.3 While partnerships, LLCs, and S-corporations are eligible entities for generating the underlying federal R&D credit 4, the subsequent state credit calculation is reserved for corporate partners. If a credit is generated by a partnership, it is reported on Alaska Form 6900 (Alaska Partnership Return). The corporate partner may then claim its proportionate share of the credit on its own Form 6390, subject to the 18% limitation and the partner’s specific apportionment factor.11 Non-corporate partners do not receive this state benefit, solidifying the application of AS 43.20.021(d) squarely within the corporate tax framework.

B. Interaction with Alaska Alternative Minimum Tax (AMT)

The calculation and utilization of the credit are complicated by the interaction with the Alaska Alternative Minimum Tax. The Alaska AMT is generally determined at a rate of 18 percent of the applicable federal AMT.3 While the R&D credit is generally intended to offset the regular tax, Form 6390 includes provisions for applying federal-based credits against the AMT. This application, however, is subordinate to the use of all high-priority Alaska incentive credits.5 The strict credit ordering ensures that the lower-value federal-based credit is utilized only after the state has maximized the effectiveness of its specialized, higher-priority economic incentives.

C. Synthesized Conclusions

The analysis of Alaska Statute 43.20.021(d) reveals a mechanism that is simple in concept but complex in application, demonstrating a deliberate legislative policy choice regarding corporate tax incentives:

1. Passive Conformity: The structure minimizes the regulatory burden and relies on federal standards for determining credit eligibility (IRC § 41).5 This approach prioritizes administrative efficiency and federal tax conformity over creating a robust, targeted state R&D incentive program.
2. Attenuated Benefit: The application of the 18% limitation to the apportioned amount results in a low effective state credit rate for most multi-state taxpayers. This low rate confirms that the credit functions as a minor reduction for corporations with an existing tax nexus in Alaska, rather than a significant driver for new, localized research and development investment within the state.
3. Economic Presence Alignment: By linking the definition of “attributable to Alaska” to the equally-weighted three-factor apportionment formula (Property, Payroll, and Sales) 16, the statute bases the R&D credit benefit on a company’s total economic footprint, not specifically on the location of its research expenditures. This allows companies that centralize R&D outside the state but maintain significant Alaska operations to claim the credit, furthering the goal of subsidizing established corporate presence.

Legislative Risk: Because the value of the credit is inextricably tied to the general corporate income tax apportionment formula defined under the Multistate Tax Compact 15, any future legislative movement away from the current equally weighted three-factor method—such as a shift to a single sales factor—would inherently alter the effective R&D tax benefit derived from AS 43.20.021(d) without requiring any amendment to the 18% limitation itself. Tax planning must therefore monitor not only specific credit legislation but also changes to Alaska’s general apportionment rules.

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