An Act relating to the elimination of income taxes on pass-through entities.

34th Legislature (2025-2026)

The bill would eliminate Alaska's state income tax on pass-through entities starting January 1, 2028.

(S) REFERRED TO FINANCE

Summary of SB 3002 (34th Legislature, Third Special Session)

Purpose and intent

The bill proposes the elimination of income taxes on pass-through entities (PTEs) in Alaska. Pass-through entities include structures such as sole proprietorships, partnerships, LLCs, and S corporations where income is taxed at the owner level rather than at the entity level.

The core policy aim is to shift the tax burden away from business entities to the owners, by removing the state-level income tax applicable to PTE earnings.

Key provisions

Section 1: Repeal of AS 43.20.019, effective January 1, 2028.

AS 43.20.019 currently governs some aspect of individual or entity-level taxation related to business income. The repeal indicates that Alaska would no longer impose a state income tax on pass-through income starting in 2028.

The bill text indicates the mechanism is the elimination of the income tax on pass-through entities, with the repeal date triggering the removal of such tax obligations at the entity level.

Effective date and timeline

Repeal takes effect January 1, 2028.

Action history shows:

Introduced and referred to the Finance committee on June 20, 2026.
Process includes consideration by the Senate Finance Committee (FN) and initial readings.

If enacted, Alaska would transition from existing PTE income tax structures to a system without PTE-level taxes beginning in 2028.

Who is affected

Pass-through entities operating in Alaska (including partnerships, LLCs treated as partnerships or disregarded entities for tax purposes, and S-corporations) would no longer face state income tax on income flowing to owners.

Individual owners of PTEs would no longer be subject to state-level income tax on pass-through income reported from these entities, though ownership-level income tax obligations (if any) would still depend on current personal tax policy (outside the scope of this bill).

Potential impacts and considerations

Revenue impact: Removing PTE income taxation would reduce state tax revenues tied to pass-through business income. The bill does not specify replacement funding or exemptions beyond the repeal.

Economic impact: The policy could attract business investment and potentially influence the location of business formations and ownership structures in Alaska. Opponents may raise concerns about revenue stability and fairness between traditional and pass-through taxation methods.

Compliance and administration: The change would simplify PTE taxation for many entities, reducing filing complexity related to PTE income. Tax administration would shift focus away from collecting PTE-level taxes toward other tax or revenue sources, as applicable.

Notes

The bill is designated as SB 3002, introduced during the 34th Legislature, Third Special Session, by the Senate Rules Committee at the governor’s request.

It is categorized as an act relating to the elimination of income taxes on pass-through entities.

The current text provided indicates a repeal of AS 43.20.019 with an effective date of January 1, 2028.

If you’d like, I can compare this proposal to current Alaska tax law, outline potential fiscal implications (revenue estimates, offsets, or sunset considerations), or summarize stakeholder positions and public policy debates surrounding PTE taxation.