Call it the Etsy tax. Or the Amazon tax — a tax on companies that provide a marketing and logistics platform for small businesses across America.

The Senate Rules Committee’s Senate Bill 113, the proposed tax on the profits of internet-based companies, was heard by the House Finance Committee on Friday. Its presenter, Sen. Bill Wielechowski, told a whopper.

This legislation would amend the state’s corporate income tax code to include out-of-state corporations that are conducting digital business with Alaskan consumers. Think Amazon and Etsy, two online companies that allow small businesses all over the world to have access to the American markets. Whatever portion of profit that Amazon might make from Alaska would be taxed by Alaska.

Alaskans depend heavily on Amazon and other digital platforms to get the goods they need — from medications to top soil, things that are hard to find in rural communities, especially.

But many Alaskans use Amazon Prime, which allows them free shipping. That means the sales to Alaska have a lower profit because people in Nome or Galena can buy top soil from out of state and have it flown in, with the shipping costs all but erasing any company profits. It’s possible that for many Alaska sales, the Lower 48 retailer barely breaks even. This tax could mean that companies start refusing to ship to Alaska.

The bill is projected to generate between $25 million and $65 million annually in new revenue for the State of Alaska — an amount that was once a rounding error in the budget.

SB 113 proposes shifting from the current “cost of performance” method to a “market-based sourcing” approach. This change would tax businesses based on the location of their customers rather than the location of the business itself. 

For highly digitized businesses, defined as those deriving 50% or more of their sales in Alaska from intangible property or services delivered electronically, the bill suggests using a single sales factor formula. This method focuses solely on sales to determine tax liability, excluding property and payroll considerations.

In presenting his bill to House Finance Committee on Friday, Sen. Wielechowski said it was the same idea that Gov. Mike Dunleavy Administration had proposed in 2021, when he said he would back a bill that taxed out-of-state businesses doing business in Alaska, if the Legislature took the lead. He’s taking the lead.

“I can’t take credit for this bill. This was not my bill. This was proposed by the Dunleavy Administration a couple of years ago,” Wielchowski said. “And they proposed this idea to the fiscal policy working group.”

It’s false that the governor said he supported this concept. His former Revenue Commissioner Lucinda Mahoney had discussed such a tax at a forum once, but the governor never signed on.

In addition, the Department of Revenue has no understanding of how much this would bring in until FY 28. Wielechowski said the amount is as much as $65 million but it may be closer be $20 million. Few legislators appear to have a solid understanding that Amazon is a platform and that many of the sellers on the platform are very small companies with different taxes that apply to them, depending on their location.

The bill already passed the Senate on a vote of 15-4, with senators casting their votes:

Yeas: Jesse Bjorkman, Matt Claman, Mike Cronk, Forrest Dunbar, Cathy Giessel, Elvi Gray-Jackson, Lyman Hoffman, Scott Kawasaki, Jesse Kiehl, Kelly Merrick, Donny Olson, Bert Stedman, Gary Stevens, Loki Tobin, Bill Wielechowski, and Rob Yundt.

Nays: Shelley Hughes, James Kaufman, Robert Myers, and Mike Shower.

Wielechowski’s bill also increases taxes on oil and gas by changing the formula used to determine what portion of a business’ income is subject to Alaska’s corporate income tax. His changes target how oil and gas producers apportion their income to Alaska by changing the term “business income” to “apportionable income.”

Although the changes are possibly modest for the oil and gas sectors, there are other bills still in the queue by the Senate’s Democrat-led majority that would have a greater impact on Alaska’s producers and job creators, notably:

Senate Bill 112: Proposes reducing the maximum per-barrel oil production tax credits from $8 to $5. The reform aims to create a fairer and more sustainable tax structure for the state and is projected to raise approximately $400 million in new revenue per year. This bill is also sponsored by Sen. Wielechowski.

Senate Bill 92: Applies corporate income taxes to certain S-corporations in the oil and gas sector, specifically targeting companies that make over $5 million in taxable income. Called the Hilcorp tax because it targets one company, the measure is expected to generate as much as $175 million in revenue. It was originally sponsored by Sen. Rob Yundt of Wasilla, who later took his name off the bill. SB 92 awaits a hearing in Senate Finance Committee after passing Senate Resources Committee.

It’s unclear if food and medications purchased through Amazon would be considered part of the taxable base of businesses in the SB 113 tax, which if enacted, would take effect on Jan. 1, 2026.

SB 113 seems destined to pass the House, and it appears to have several Republicans supporting it, as they did in the Senate, as it is seen as an “easy” tax that will have no consequence.

However, there may be consequences unforeseen, such as the choice sellers can simply make to not do business with Alaska. Amazon sellers can choose not to sell to the 49th state due to high shipping costs. All they need to do is configure their shipping templates in the Seller Central tab to exclude Alaska by unchecking the state or setting prohibitively high shipping rates for Alaskans. This is sometimes done to avoid losses on heavy or bulky items, where shipping costs to remote areas can exceed profits.

If sellers, who will have the tax passed along to them, start reconsidering their interest in trading in Alaska, this may be one of the unintended consequences of Wielechowski’s Etsy Tax.