00 SPONSOR SUBSTITUTE FOR HOUSE BILL NO. 441 01 "An Act amending the oil and gas properties production (severance) tax as it relates to 02 oil to require payment of a tax of at least five percent of the gross value at the point of 03 production before any price adjustments authorized by this Act, to modify the 04 mechanism for calculating the effective tax rate, to provide for adjustments to the tax 05 when the prevailing value of the oil exceeds $20 per barrel or falls below $16 per barrel 06 and to limit the effect of the adjustments, to exempt certain kinds of oil from application 07 of the adjustments, and to waive and defer payment of portions of the tax on oil when its 08 prevailing value falls below $10 per barrel; and providing for an effective date." 09 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA: 10  * Section 1. AS 43.55.011(a) is amended to read: 11 (a) There is levied upon the producer of oil a tax for all oil produced from 12 each lease or property in the state, less any oil the ownership or right to which is 01 exempt from taxation. The tax is equal to either the percentage-of-value amount 02 calculated under (b) of this section or the cents-per-barrel amount calculated under (c) 03 of this section, whichever is greater [, MULTIPLIED BY THE ECONOMIC LIMIT 04 FACTOR DETERMINED FOR THE OIL PRODUCTION OF THE LEASE OR 05 PROPERTY UNDER AS 43.55.013]. If the amounts calculated under (b) and (c) of 06 this section are equal, the amount calculated under (b) of this section shall be treated 07 as if it were the greater for purposes of this section. 08  * Sec. 2. AS 43.55.011(b) is amended to read: 09 (b) The percentage-of-value amount equals the tax rate set out in (e) of this  10 section multiplied by [12.25 PERCENT OF THE GROSS VALUE AT THE POINT 11 OF PRODUCTION OF TAXABLE OIL PRODUCED ON OR BEFORE JUNE 30, 12 1981, FROM THE LEASE OR PROPERTY AND 15 PERCENT OF THE GROSS 13 VALUE AT THE POINT OF PRODUCTION OF TAXABLE OIL PRODUCED 14 FROM THE LEASE OR PROPERTY AFTER JUNE 30, 1981; EXCEPT THAT FOR 15 A LEASE OR PROPERTY COMING INTO COMMERCIAL OIL PRODUCTION 16 AFTER JUNE 30, 1981, THE PERCENTAGE-OF-VALUE AMOUNT EQUALS 17 12.25 PERCENT OF THE GROSS VALUE AT THE POINT OF PRODUCTION OF 18 TAXABLE OIL PRODUCED FROM THE LEASE OR PROPERTY IN THE FIRST 19 FIVE YEARS AFTER THE START OF COMMERCIAL OIL PRODUCTION AND 20 EQUALS 15 PERCENT OF] the gross value at the point of production of taxable oil 21 produced [THEREAFTER] from the lease or property. 22  * Sec. 3. AS 43.55.011(c) is amended to read: 23 (c) The cents-per-barrel amount equals [$0.60 PER BARREL OF TAXABLE 24 OLD CRUDE OIL PRODUCED FROM THE LEASE OR PROPERTY, AND] $0.80 25 per barrel of taxable crude oil [FOR ALL OTHER TAXABLE OIL] produced from 26 the lease or property, [BOTH] as adjusted by AS 43.55.012, multiplied by the  27 economic limit factor determined for the oil production of the lease or property  28 under AS 43.55.013 and by the price adjustment factor set out in (e)(2)(C) of this  29 section. 30  * Sec. 4. AS 43.55.011 is amended by adding new subsections to read: 31 (e) Except as provided in (h) of this section for heavy oil, the tax rate is the 01 lesser of 02 (1) 25 percent; or 03 (2) the product of the volume adjusted tax rate multiplied by the price 04 adjustment factor; for purposes of 05 (A) this paragraph, the volume adjusted tax rate is the greater 06 of 07 (i) five percent; or 08 (ii) the economic limit factor determined for the oil 09 production of the lease or property under AS 43.55.013 multiplied by 10 the nominal tax rate; 11 (B) subparagraph (A) of this paragraph, the nominal tax rate is 12 (i) 12.25 percent during the first five years from the 13 date that is the start of commercial oil production; and 14 (ii) 15 percent after the first five years from the date 15 that is the start of commercial oil production; and 16 (C) this paragraph and for the purpose of determining the cents- 17 per-barrel amount under (c) of this section, the price adjustment factor is one, 18 except that the price adjustment factor is the West Coast prevailing value 19 (i) divided by 16 during each month in which the West 20 Coast prevailing value for oil under AS 43.55.020(f) averages less than 21 $16 per barrel; 22 (ii) divided by 20 during each month in which the West 23 Coast prevailing value for oil under AS 43.55.020(f) averages more 24 than $20 per barrel; 25 (f) During a month in which the West Coast prevailing value for oil 26 determined under AS 43.55.020(f) on which tax is due under this chapter averages less 27 than $10 per barrel, the payment of 28 (1) one-half of the tax due and payable under this chapter is waived; 29 and 30 (2) the remaining one-half of the tax due and payable under this 31 chapter is deferred, subject to the following: 01 (A) the amount of tax payment that is deferred under this 02 paragraph is payable by the taxpayer 03 (i) during each month in which the West Coast 04 prevailing value for oil on which tax is due under this chapter averages 05 at least $16 per barrel; and 06 (ii) sequentially on a month-for-month basis in the 07 order in which the tax payment was deferred based on payment of one 08 month's deferred tax during each month that the West Coast prevailing 09 value for oil on which tax is due under this chapter averages at least 10 $16 per barrel; and 11 (B) amounts due and payable by reason of a payment deferral 12 under this paragraph bear interest at the rate of a 10-year note of the United 13 States treasury at the time of the deferral. 14 (g) On and after July 1, 2005, the commissioner shall 15 (1) annually revise the dollar prices described in (e) and (f) of this 16 section and the related denominators setout in (e)(2)(C)(i) and (ii) of this section to 17 reflect inflation as defined by regulation adopted by the department; and 18 (2) promptly report the application of the revisions to all taxpayers 19 subject to the tax levied and collected under this chapter. 20 (h) Notwithstanding (e) of this section, the tax rate for heavy oil is the volume 21 adjusted tax rate. The volume adjusted tax rate for heavy oil is determined by 22 multiplying the economic limit factor determined for the oil production of the lease or 23 property under AS 43.55.013 by the nominal tax rate set out in (e)(2)(A)(i) and (ii) of 24 this section. In this subsection, "heavy oil" means oil equal to or less than 20 degrees 25 API gravity. 26  * Sec. 5. This Act takes effect July 1, 2004.