CCS SB 2001(fld H): "An Act relating to the production tax on oil and gas and to conservation surcharges on oil; relating to criminal penalties for violating conditions governing access to and use of confidential information relating to the production tax; amending the definition of 'gas' as that definition applies in the Alaska Stranded Gas Development Act; making conforming amendments; and providing for an effective date."
00 CONFERENCE CS FOR SENATE BILL NO. 2001(fld H) 01 "An Act relating to the production tax on oil and gas and to conservation surcharges on 02 oil; relating to criminal penalties for violating conditions governing access to and use of 03 confidential information relating to the production tax; amending the definition of 'gas' 04 as that definition applies in the Alaska Stranded Gas Development Act; making 05 conforming amendments; and providing for an effective date." 06 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA: 07 * Section 1. The uncodified law of the State of Alaska is amended by adding a new section 08 to read: 09 LEGISLATIVE INTENT. (a) It is the intent of the legislature through sec. 11 of this 10 Act to confirm by clarification the long-standing interpretation of AS 43.55.020(f) by the 11 Department of Revenue. 12 (b) It is the intent of the legislature that the division or other unit of the Department of 13 Environmental Conservation assigned responsibility for administration of the programs under
01 AS 46.08 that are principally supported by the conservation surcharges on oil levied under 02 AS 43.55.201 - 43.55.299 and 43.55.300 - 43.55.310 03 (1) reduce program costs, including personnel costs, as necessary to operate 04 within the revenue anticipated to be generated by those surcharges, in the amounts of those 05 surcharges as amended by secs. 26 and 28 of this Act; and 06 (2) request appropriations for exceptional program needs and expansions 07 beyond what can be provided from the estimated amounts collected from those surcharges 08 from alternative funding sources. 09 * Sec. 2. AS 43.05.230(f) is amended to read: 10 (f) A wilful violation of the provisions of this section or of a condition 11 imposed under AS 43.55.040(1)(B) is punishable by a fine of not more than $5,000, 12 or by imprisonment for not more than two years, or by both. 13 * Sec. 3. AS 43.20.031(c) is amended to read: 14 (c) In computing the tax under this chapter, the taxpayer is not entitled to 15 deduct any taxes based on or measured by net income. The taxpayer may deduct the 16 tax levied and paid under AS 43.55. 17 * Sec. 4. AS 43.20.072(b) is amended to read: 18 (b) A taxpayer's business income to be apportioned under this section to the 19 state shall be the federal taxable income of the taxpayer's consolidated business for the 20 tax period, except that 21 (1) taxes based on or measured by net income that are deducted in the 22 determination of the federal taxable income shall be added back; the tax levied and 23 paid under AS 43.55 may not be added back; 24 (2) intangible drilling and development costs that are deducted as 25 expenses under 26 U.S.C. 263(c) (Internal Revenue Code) in the determination of the 26 federal taxable income shall be capitalized and depreciated as if the option to treat 27 them as expenses under 26 U.S.C. 263(c) (Internal Revenue Code) had not been 28 exercised; 29 (3) depletion deducted on the percentage depletion basis under 26 30 U.S.C. 613 (Internal Revenue Code) in the determination of the federal taxable income 31 shall be recomputed and deducted on the cost depletion basis under 26 U.S.C. 612
01 (Internal Revenue Code); and 02 (4) depreciation shall be computed on the basis of 26 U.S.C. 167 03 (Internal Revenue Code) as that section read on June 30, 1981. 04 * Sec. 5. AS 43.55.011 is amended by adding new subsections to read: 05 (e) There is levied on the producer of oil or gas a tax for all oil and gas 06 produced each month from each lease or property in the state, less any oil and gas the 07 ownership or right to which is exempt from taxation or constitutes a landowner's 08 royalty interest. Except as otherwise provided under (i) and (j) of this section, the tax 09 is equal to 22.8 percent of the production tax value of the taxable oil and gas as 10 calculated under AS 43.55.160. 11 (f) There is levied on the producer of oil or gas a tax for all oil and gas 12 produced each month from each lease or property in the state the ownership or right to 13 which constitutes a landowner's royalty interest, except for oil and gas the ownership 14 or right to which is exempt from taxation. The provisions of this subsection apply to a 15 landowner's royalty interest as follows: 16 (1) the rate of tax levied on oil is equal to five percent of the gross 17 value at the point of production of the oil; 18 (2) the rate of tax levied on gas is equal to 1.667 percent of the gross 19 value at the point of production of the gas; 20 (3) if the department determines that, for purposes of reducing the 21 producer's tax liability under (1) or (2) of this subsection, the producer has received or 22 will receive consideration from the royalty owner offsetting all or a part of the 23 producer's royalty obligation, other than a deduction under AS 43.55.020(d) of the 24 amount of a tax paid, 25 (A) notwithstanding (1) of this subsection, the tax is equal to 26 (i) for oil that is produced from a lease or property in 27 the Cook Inlet sedimentary basin, five percent of the gross value at the 28 point of production of the oil; 29 (ii) for oil, except oil described in (i) of this 30 subparagraph, 22.8 percent of the gross value at the point of production 31 of the oil; and
01 (B) notwithstanding (2) of this subsection, for gas the tax is 02 equal to 11.25 percent of the gross value at the point of production of the gas. 03 (g) In addition to the taxes levied under (e) and (f) of this section, during each 04 month for which the price index determined under (h) of this section is greater than 05 zero, there is levied on the producer of oil or gas a tax for all oil and gas produced 06 during that month from each lease or property in the state, less any oil and gas the 07 ownership or right to which is exempt from taxation or constitutes a landowner's 08 royalty interest. Except as otherwise provided under (i) and (j) of this section, the tax 09 levied under this subsection is equal to .175 percent of the production tax value of the 10 taxable oil and gas as calculated under AS 43.55.160, multiplied by the price index 11 determined under (h) of this section. However, application of this subsection may not, 12 when added to the tax levied under (e) of this section, impose a tax levy of more than 13 50 percent of the production tax value of taxable oil and gas as calculated under 14 AS 43.55.160. 15 (h) For purposes of (g) of this section, the price index for a month is calculated 16 by subtracting 35 from the number that is equal to the quotient of the production tax 17 value of the taxable oil and gas produced during that month, as calculated under 18 AS 43.55.160, divided by the amount of the taxable oil and gas produced during that 19 month, in Btu equivalent barrels. The production tax value is calculated (1) using the 20 monthly average of the producer's costs of transportation for the calendar year, as 21 provided by AS 43.55.160(i), and (2) substituting for the month's lease expenditures 22 1/12 of the adjusted lease expenditures for the calendar year, as provided by 23 AS 43.55.160(f). For purposes of this subsection, "Btu equivalent barrel" means (1) in 24 the case of oil, one barrel; (2) in the case of gas, the amount of gas that has an energy 25 content of 6,000,000 British thermal units. 26 (i) For a month that ends before April 1, 2021, the total tax levied by (e) and 27 (g) of this section on gas produced from a lease or property in the Cook Inlet 28 sedimentary basin may not exceed 29 (1) for a lease or property that first commenced commercial production 30 of gas before April 1, 2006, the product obtained by multiplying (A) the amount of gas 31 produced during that month from the lease or property, times (B) the average rate of
01 tax that was imposed under this chapter on gas produced from the lease or property for 02 the 12-month period ending on March 31, 2006, times (C) the average prevailing value 03 for gas delivered in the Cook Inlet area for the 12-month period ending March 31, 04 2006, as determined by the department under AS 43.55.020(f); 05 (2) for a lease or property that first commences commercial production 06 of gas after March 31, 2006, the product obtained by multiplying (A) the amount of 07 gas produced during that month from the lease or property, times (B) the average rate 08 of tax that was imposed under this chapter on gas produced from all leases or 09 properties in the Cook Inlet sedimentary basin for the 12-month period ending on 10 March 31, 2006, times (C) the average prevailing value for gas delivered in the Cook 11 Inlet area for the 12-month period ending March 31, 2006, as determined by the 12 department under AS 43.55.020(f). 13 (j) For a month that ends before April 1, 2021, the total tax levied by (e) and 14 (g) of this section on oil produced from a lease or property in the Cook Inlet 15 sedimentary basin may not exceed 16 (1) for a lease or property that first commenced commercial production 17 of oil before April 1, 2006, the product obtained by multiplying (A) the amount of oil 18 produced during that month from the lease or property, times (B) the average rate of 19 tax that was imposed under this chapter on oil produced from the lease or property for 20 the 12-month period ending on March 31, 2006, times (C) the average prevailing value 21 for oil delivered in the Cook Inlet area for the 12-month period ending March 31, 22 2006, as determined by the department under AS 43.55.020(f); 23 (2) for a lease or property that first commences commercial production 24 of oil after March 31, 2006, the product obtained by multiplying (A) the amount of oil 25 produced during that month from the lease or property, times (B) the average rate of 26 tax that was imposed under this chapter on oil produced from all leases or properties in 27 the Cook Inlet sedimentary basin for the 12-month period ending on March 31, 2006, 28 times (C) the average prevailing value for oil delivered in the Cook Inlet area for the 29 12-month period ending March 31, 2006, as determined by the department under 30 AS 43.55.020(f). 31 (k) Notwithstanding any contrary provision of AS 38.05.180(i), AS 41.09.010,
01 AS 43.20.043, 43.55.025, or 43.55.170, tax credits under AS 38.05.180(i), 02 AS 41.09.010, AS 43.20.043, AS 43.55.025, and 43.55.170 that are allocated to gas 03 produced from leases or properties in the Cook Inlet sedimentary basin and that are 04 available to be applied against a tax levied by (e) of this section on gas produced from 05 leases or properties in the Cook Inlet sedimentary basin during a month may be 06 applied only against the tax levied by (e) of this section on that gas. The amount by 07 which the tax credits allocated to gas produced from leases or properties in the Cook 08 Inlet sedimentary basin and that the producer would otherwise be allowed to use for a 09 different month or transfer to another person that exceeds the amount of tax credits 10 whose application would reduce the tax levied by (e) of this section on that gas to 11 zero, if any, is considered the amount of excess tax credits and the excess tax credits 12 are subject to the following: 13 (1) for each lease or property for which a limitation under (i) or (j) of 14 this section on the tax levied by (e) and (g) of this section has the effect of reducing 15 the producer's tax below the amount of tax that would be levied in the absence of that 16 limitation, the producer shall calculate the amount of that reduction; 17 (2) the producer shall calculate the total of the reductions calculated 18 under (1) of this subsection for all affected leases or properties; 19 (3) the producer shall reduce the amount of excess tax credits by the 20 total calculated under (2) of this subsection, but not to less than zero; 21 (4) any amount of excess tax credits remaining after reduction under 22 (3) of this subsection may be used for a different month, transferred to another person, 23 or applied against a tax levied on oil or gas produced from a lease or property located 24 anywhere in the state to the extent otherwise allowed under applicable law governing 25 the tax credits. 26 (l) Allocation of credits under (k) of this section shall be made under 27 regulations adopted by the department that provide for reasonable methods of 28 allocating tax credits to gas produced from leases or properties in the Cook Inlet 29 sedimentary basin. The method of allocating tax credits available under AS 43.55.170 30 shall be based on the number of barrels of oil equivalent produced from a lease or 31 property.
01 (m) The department shall by regulation establish sampling, testing, and 02 averaging methods for determining the energy content of a producer's gas produced 03 during a month. 04 * Sec. 6. AS 43.55.017(a) is amended to read: 05 (a) Except as provided in this chapter, the taxes imposed by this chapter are in 06 place of all taxes now imposed by the state or any of its municipalities, and neither the 07 state nor a municipality may impose a tax on [UPON] 08 (1) producing oil or gas leases; 09 (2) oil or gas produced or extracted in the state; 10 (3) the value of intangible drilling and development costs, as 11 described in 26 U.S.C. 263(c) (Internal Revenue Code), as amended through 12 January 1, 1974 [EXPLORATION EXPENSES]. 13 * Sec. 7. AS 43.55.020(a) is repealed and reenacted to read: 14 (a) Ninety-five percent of the total tax levied by AS 43.55.011(e) - (g), net of 15 any credits applied under this chapter, is due on the last day of each calendar month on 16 oil and gas produced from each lease or property during the preceding month. The 17 remaining portion of the tax levied by AS 43.55.011(e) - (g), net of any credits applied 18 under this chapter, is due on March 31 of the year following the calendar year during 19 which the oil and gas were produced. An unpaid amount of tax that is not paid when 20 due in accordance with this subsection becomes delinquent. An overpayment of tax 21 with respect to a month may be applied against the tax due for any later month. 22 Notwithstanding any contrary provision of AS 43.05.280, interest on an overpayment 23 is allowed only from a date that is 90 days after the later of (1) the March 31 described 24 in this subsection, or (2) the date that the statement required under AS 43.55.030(a) 25 and (e) to be filed on or before that March 31 is filed. Interest is not allowed if the 26 overpayment was refunded within the 90-day period. 27 * Sec. 8. AS 43.55.020(b) is amended to read: 28 (b) The production tax on oil and [OR] gas shall be paid by or on behalf of the 29 producer. 30 * Sec. 9. AS 43.55.020(d) is amended to read: 31 (d) In making settlement with the royalty owner for oil and gas that is
01 taxable under AS 43.55.011, the producer may deduct the amount of the tax paid on 02 taxable royalty oil and [OR] gas, or may deduct taxable royalty oil or gas equivalent 03 in value at the time the tax becomes due to the amount of the tax paid. Unless 04 otherwise agreed between the producer and the royalty owner, the amount of the 05 tax paid under AS 43.55.011(e) and (g) on taxable royalty oil and gas for a month, 06 other than oil and gas the ownership or right to which constitutes a landowner's 07 royalty interest, is considered to be the gross value at the point of production of 08 the taxable royalty oil and gas produced during the month multiplied by a figure 09 that is a quotient, in which 10 (1) the numerator is the producer's total tax liability under 11 AS 43.55.011(e) and (g) for the month of production; and 12 (2) the denominator is the total gross value at the point of 13 production of the oil and gas taxable under AS 43.55.011(e) and (g) produced by 14 the producer from all leases and properties in the state during the month. 15 * Sec. 10. AS 43.55.020(e) is repealed and reenacted to read: 16 (e) Gas flared, released, or allowed to escape in excess of the amount 17 authorized by the Alaska Oil and Gas Conservation Commission is considered, for the 18 purpose of AS 43.55.011 - 43.55.180, as gas produced from a lease or property. Oil or 19 gas used in the operation of a lease or property in the state in drilling for or producing 20 oil or gas, or for repressuring, except to the extent determined by the Alaska Oil and 21 Gas Conservation Commission to be waste, is not considered, for the purpose of 22 AS 43.55.011 - 43.55.180, as oil or gas produced from a lease or property. 23 * Sec. 11. AS 43.55.020(f) is amended to read: 24 (f) If oil or gas is produced but not sold, or if oil or gas is produced and 25 sold under circumstances where the sale price does not represent the prevailing value 26 for oil or gas of like kind, character, or quality in the field or area from which the 27 product is produced, the department may require the tax to be paid upon the basis of 28 the value of oil or gas of the same kind, quality, and character prevailing for that field 29 or area during the calendar month of production or sale [FOR THAT FIELD OR 30 AREA]. 31 * Sec. 12. AS 43.55 is amended by adding a new section to read:
01 Sec. 43.55.024. Tax credits for certain losses and expenditures. (a) A 02 producer or explorer may take a tax credit for a qualified capital expenditure as 03 follows: 04 (1) notwithstanding that a qualified capital expenditure may be a 05 deductible lease expenditure for purposes of calculating the production tax value of oil 06 and gas under AS 43.55.160(a), unless a credit for that expenditure is taken under 07 AS 38.05.180(i), AS 41.09.010, AS 43.20.043, or AS 43.55.025, 08 (A) a producer or explorer that incurs a qualified capital 09 expenditure may also elect to take a tax credit against a tax due under 10 AS 43.55.011(e) in the amount of 20 percent of that expenditure; 11 (B) for a calendar year for which the producer makes a 12 substitution under AS 43.55.160(f), instead of taking a tax credit at a rate 13 authorized by (A) of this paragraph as to each separate qualified capital 14 expenditure after it has been incurred, a producer that incurs a qualified capital 15 expenditure during that year and that wishes to apply a credit based on that 16 expenditure against a tax due under AS 43.55.011(e) shall calculate and apply 17 every month an annualized tax credit in an amount equal to 1 2/3 percent of the 18 total qualified capital expenditures incurred during that year and for which the 19 tax credit is taken for that year; 20 (2) a producer or explorer may take a credit for a qualified capital 21 expenditure incurred in connection with geological or geophysical exploration or in 22 connection with an exploration well only if the producer or explorer provides to the 23 department, as part of the statement required under AS 43.55.030(a) for the month for 24 which the credit is sought to be taken, the producer's or explorer's written agreement 25 (A) to notify the Department of Natural Resources, within 30 26 days after completion of the geological or geophysical data processing or 27 completion of the well, or within 30 days after the statement is filed, whichever 28 is the latest, of the date of completion and to submit a report to that department 29 describing the processing sequence and provide a list of data sets available; 30 (B) to provide to the Department of Natural Resources, within 31 30 days after the date of a request, specific data sets, ancillary data, and reports
01 identified in (A) of this paragraph; 02 (C) that, notwithstanding any provision of AS 38, the 03 Department of Natural Resources shall hold confidential the information 04 provided to that department under this paragraph for 10 years following the 05 completion date, after which the department shall publicly release the 06 information after 30 days' public notice. 07 (b) A producer or explorer may elect to take a tax credit in the amount of 22.8 08 percent of a carried-forward annual loss. A credit under this subsection may be applied 09 against a tax due under AS 43.55.011(e). For purposes of this subsection, a carried- 10 forward annual loss is the amount of a producer's or explorer's adjusted lease 11 expenditures under AS 43.55.160 for a previous calendar year that was not deductible 12 in any month under AS 43.55.160(a) and (b). 13 (c) A credit or portion of a credit under this section 14 (1) may not be used to reduce a person's tax liability under 15 AS 43.55.011(e) for any month below 16 (A) three percent of the gross value at the point of production 17 for oil and gas produced in the area of the state lying north of 68 degrees North 18 latitude for producers of over 75,000 barrels of oil equivalent a day; or 19 (B) zero for all regions and producers other than those 20 described in (A) of this paragraph; and 21 (2) not used under (1) of this subsection may be applied in a later 22 month. 23 (d) Except as limited by (j) of this section, a person entitled to take a tax credit 24 under this section that wishes to transfer the unused credit to another person may 25 apply to the department for a transferable tax credit certificate. An application under 26 this subsection must be on a form prescribed by the department and must include 27 supporting information and documentation that the department reasonably requires. 28 The department shall grant or deny an application, or grant an application as to a lesser 29 amount than that claimed and deny it as to the excess, not later than 60 days after the 30 latest of (1) March 31 of the year following the calendar year in which the qualified 31 capital expenditure or carried-forward annual loss for which the credit is claimed was
01 incurred; (2) if the applicant is required under AS 43.55.030(a) and (e) to file a 02 statement on or before March 31 of the year following the calendar year in which the 03 qualified capital expenditures or carried-forward annual loss for which the credit is 04 claimed was incurred, the date the statement was filed; or (3) the date the application 05 was received by the department. If, based on the information then available to it, the 06 department is reasonably satisfied that the applicant is entitled to a credit, the 07 department shall issue the applicant a transferable tax credit certificate for the amount 08 of the credit. A certificate issued under this subsection does not expire. 09 (e) A person to which a transferable tax credit certificate is issued under (d) of 10 this section may transfer the certificate to another person, and a transferee may further 11 transfer the certificate. Subject to the limitations set out in (a) - (c) of this section, and 12 notwithstanding any action the department may take with respect to the applicant 13 under (g) of this section, the owner of a certificate may apply the credit or a portion of 14 the credit shown on the certificate only against a tax due under AS 43.55.011(e). 15 However, a credit shown on a transferable tax credit certificate may not be applied to 16 reduce a transferee's total tax due under AS 43.55.011(e) on oil and gas produced 17 during a calendar year to less than 80 percent of the tax that would otherwise be due 18 without applying that credit. Any portion of a credit not used under this subsection 19 may be applied in a later period. 20 (f) Under standards established in regulations adopted by the department and 21 subject to appropriations made by law, the department, on the written application of 22 the person to whom a transferable tax credit has been issued under (d) of this section 23 and whose average amount of oil and gas produced a day taxable under 24 AS 43.55.011(e) is not more than 50,000 barrels of oil equivalent a day for the 25 preceding calendar year, shall issue a cash refund, in whole or in part, for the 26 certificate if the department finds 27 (1) after investigation and audit of the tax credit claim by the 28 department, that the applicant is entitled to the credit to the extent of the refund 29 amount; 30 (2) within 24 months after having applied for the transferable tax credit 31 certificate, that the applicant incurred a qualified capital expenditure or was the
01 successful bidder on a bid submitted for a lease on state land under AS 38.05.180(f); 02 (3) that the amount of the refund would not exceed the total of 03 qualified capital expenditures and successful bids described in (2) of this subsection 04 that have not been the subject of a finding made under this paragraph for purposes of a 05 previous refund; 06 (4) that the applicant does not have an outstanding liability to the state 07 for unpaid delinquent taxes under this title; and 08 (5) that the sum of the amount of the refund applied for and amounts 09 previously refunded to the applicant during the calendar year under this subsection 10 would not exceed $25,000,000. 11 (g) The issuance of a transferable tax credit certificate under (d) of this section 12 does not limit the department's ability to later audit a tax credit claim to which the 13 certificate relates or to adjust the claim if the department determines that the applicant 14 was not entitled to the amount of the credit for which the certificate was issued. The 15 tax liability of the applicant under AS 43.55.011(e) and 43.55.017 - 43.55.180 is 16 increased by the amount of the credit that exceeds that to which the applicant was 17 entitled, or the applicant's available valid outstanding credits applicable against the tax 18 levied by AS 43.55.011(e) are reduced by that amount. If the applicant's tax liability is 19 increased under this subsection, the increase bears interest under AS 43.05.225 from 20 the date the transferable tax credit certificate was issued. For purposes of this 21 subsection, an applicant that is an explorer is considered a producer subject to the tax 22 levied by AS 43.55.011(e). 23 (h) The department may adopt regulations to carry out the purposes of this 24 section, including prescribing reporting, record keeping, and certification procedures 25 and requirements to verify the accuracy of credits claimed and to ensure that a credit is 26 not used more than once, and otherwise implementing this section. 27 (i) A person may not elect to take a tax credit under (a) or (j) of this section for 28 an expenditure incurred to acquire an asset (1) the cost of previously acquiring which 29 was a lease expenditure under AS 43.55.160(c) or would have been a lease 30 expenditure under AS 43.55.160(c) if it had been incurred on or after April 1, 2006; or 31 (2) that has previously been placed in service in the state. An expenditure to acquire an
01 asset is not excluded under this subsection if not more than an immaterial portion of 02 the asset meets a description under (1) or (2) of this subsection. For purposes of this 03 subsection, "asset" includes geological, geophysical, and well data and interpretations. 04 (j) For the purposes of this section, 05 (1) a producer's or explorer's transitional investment expenditures are 06 the sum of the expenditures the producer or explorer incurred on or after April 1, 07 2001, and before April 1, 2006, that would be qualified capital expenditures if they 08 were incurred on or after April 1, 2006, less the sum of the payments or credits the 09 producer or explorer received before April 1, 2006, for the sale or other transfer of 10 assets, including geological, geophysical, or well data or interpretations, acquired by 11 the producer or explorer as a result of expenditures the producer or explorer incurred 12 before April 1, 2006, that would be qualified capital expenditures, if they were 13 incurred on or after April 1, 2006; 14 (2) a producer or explorer may elect to take a tax credit against a tax 15 due under AS 43.55.011(e) in the amount of 20 percent of the producer's or explorer's 16 transitional investment expenditures, but only to the extent that the amount does not 17 exceed 18 (A) 1/10 of the producer's or explorer's qualified capital 19 expenditures that are incurred during the month for which the credit is taken, if 20 the producer or explorer does not make a substitution under AS 43.55.160(f); 21 (B) 1/120 of the producer's or explorer's qualified capital 22 expenditures that are incurred during the calendar year that includes the month 23 for which the credit is taken, if the producer or explorer makes a substitution 24 under AS 43.55.160(f); 25 (3) a producer or explorer may not take a tax credit for a transitional 26 investment expenditure 27 (A) for any month that ends the later of 28 (i) April 30, 2013; or 29 (ii) the seventh anniversary of the last day of the month 30 for which the producer first applies a credit under this subsection 31 against a tax due under AS 43.55.011(e), if the producer did not have
01 commercial production of oil or gas from a lease or property in the state 02 before April 1, 2006; 03 (B) more than once; or 04 (C) if a credit for that expenditure was taken under 05 AS 38.05.180(i), AS 41.09.010, AS 43.20.043, or AS 43.55.025; 06 (4) notwithstanding (d), (e), and (g) of this section, a producer or 07 explorer may not transfer a tax credit or obtain a transferable tax credit certificate for a 08 transitional investment expenditure. 09 (k) As a condition of receiving a tax credit under this section, a producer or 10 explorer that obtains the tax credit for or directly related to a pipeline, facility, or other 11 asset that is or becomes subject to regulation by the Federal Energy Regulatory 12 Commission or the Regulatory Commission of Alaska, or a successor regulatory body 13 shall at all times support and in all rate proceedings file to flow through 100 percent of 14 the tax credits to ratepayers as a reduction in the costs of service for the pipeline, 15 facility, or other asset. 16 (l) In this section, "qualified capital expenditure" means, except as otherwise 17 provided in (i) of this section, an expenditure that is a lease expenditure under 18 AS 43.55.160 and is 19 (1) incurred for geological or geophysical exploration; or 20 (2) treated as a capitalized expenditure under 26 U.S.C. (Internal 21 Revenue Code), as amended, regardless of elections made under 26 U.S.C. 263(c) 22 (Internal Revenue Code), as amended, and is 23 (A) treated as a capitalized expenditure for federal income tax 24 reporting purposes by the person incurring the expenditure; or 25 (B) eligible to be deducted as an expense under 26 U.S.C. 26 263(c) (Internal Revenue Code), as amended. 27 * Sec. 13. AS 43.55.025(a) is amended to read: 28 (a) Subject to the terms and conditions of this section, [ON OIL AND GAS 29 PRODUCED ON OR AFTER JULY 1, 2004, FROM AN OIL AND GAS LEASE, 30 OR ON GAS PRODUCED FROM A GAS ONLY LEASE,] a credit against the 31 production tax due under AS 43.55.011(e) [THIS CHAPTER] is allowed for
01 exploration expenditures that qualify under (b) of this section in an amount equal to 02 one of the following: 03 (1) 20 percent of the total exploration expenditures that qualify only 04 under (b) and (c) of this section; 05 (2) 20 percent of the total exploration expenditures for work performed 06 before July 1, 2007, and that qualify only under (b) and (d) of this section; 07 (3) 40 percent of the total exploration expenditures that qualify under 08 (b), (c), and (d) of this section; or 09 (4) 40 percent of the total exploration expenditures that qualify only 10 under (b) and (e) of this section. 11 * Sec. 14. AS 43.55.025(b) is amended to read: 12 (b) To qualify for the production tax credit under (a) of this section, an 13 exploration expenditure must be incurred for work performed on or after July 1, 2003, 14 and before July 1, 2016 [2007], except that an exploration expenditure for a Cook Inlet 15 prospect must be incurred for work performed on or after July 1, 2005, [AND 16 BEFORE JULY 1, 2010, AND EXCEPT THAT AN EXPLORATION 17 EXPENDITURE, IN WHOLE OR IN PART, SOUTH OF 68 DEGREES, 15 18 MINUTES, NORTH LATITUDE, AND NOT PART OF A COOK INLET 19 PROSPECT MUST BE INCURRED FOR WORK PERFORMED ON OR AFTER 20 JULY 1, 2003, AND BEFORE JULY 1, 2010,] and 21 (1) may be for seismic or geophysical exploration costs not connected 22 with a specific well; 23 (2) if for an exploration well, 24 (A) must be incurred by an explorer that holds an interest in the 25 exploration well for which the production tax credit is claimed; 26 (B) may be for either an oil or gas discovery well or a dry hole; 27 and 28 (C) must be for goods, services, or rentals of personal property 29 reasonably required for the surface preparation, drilling, casing, cementing, 30 and logging of an exploration well, and, in the case of a dry hole, for the 31 expenses required for abandonment if the well is abandoned within 18 months
01 after the date the well was spudded; 02 (3) may not be for testing, stimulation, or completion costs; 03 administration, supervision, engineering, or lease operating costs; geological or 04 management costs; community relations or environmental costs; bonuses, taxes, or 05 other payments to governments related to the well; or other costs that are generally 06 recognized as indirect costs or financing costs; and 07 (4) may not be incurred for an exploration well or seismic exploration 08 that is included in a plan of exploration or a plan of development for any unit on 09 May 13, 2003. 10 * Sec. 15. AS 43.55.025(f) is amended to read: 11 (f) For a production tax credit under this section, 12 (1) an explorer shall, in a form prescribed by the department and 13 within six months of the completion of the exploration activity, claim the credit and 14 submit information sufficient to demonstrate to the department's satisfaction that the 15 claimed exploration expenditures qualify under this section; 16 (2) an explorer shall agree, in writing, 17 (A) to notify the Department of Natural Resources, within 30 18 days after completion of seismic or geophysical data processing, completion of 19 a well, or filing of a claim for credit, whichever is the latest, for which 20 exploration costs are claimed, of the date of completion and submit a report to 21 that department describing the processing sequence and providing a list of data 22 sets available; if, under (c)(2)(B) of this section, an explorer submits a claim 23 for a credit for expenditures for an exploration well that is located within three 24 miles of a well already drilled for oil and gas, in addition to the submissions 25 required under (1) of this subsection, the explorer shall submit the information 26 necessary for the commissioner of natural resources to evaluate the validity of 27 the explorer's claim that the well is directed at a distinctly separate exploration 28 target, and the commissioner of natural resources shall, upon receipt of all 29 evidence sufficient for the commissioner to evaluate the explorer's claim, make 30 that determination within 60 days; 31 (B) to provide to the Department of Natural Resources, within
01 30 days after the date of a request, specific data sets, ancillary data, and reports 02 identified in (A) of this paragraph; 03 (C) that, notwithstanding any provision of AS 38, information 04 provided under this paragraph will be held confidential by the Department of 05 Natural Resources for 10 years following the completion date, at which time 06 that department will release the information after 30 days' public notice; 07 (3) if more than one explorer holds an interest in a well or seismic 08 exploration, each explorer may claim an amount of credit that is proportional to the 09 explorer's cost incurred; 10 (4) the department may exercise the full extent of its powers as though 11 the explorer were a taxpayer under this title, in order to verify that the claimed 12 expenditures are qualified exploration expenditures under this section; and 13 (5) if the department is satisfied that the explorer's claimed 14 expenditures are qualified under this section, the department shall issue to the explorer 15 a production tax credit certificate for the amount of credit to be allowed against 16 production taxes due under AS 43.55.011(e) [THIS CHAPTER; HOWEVER, 17 NOTWITHSTANDING ANY OTHER PROVISION OF THIS SECTION, THE 18 DEPARTMENT MAY NOT ISSUE TO AN EXPLORER A PRODUCTION TAX 19 CREDIT CERTIFICATE IF THE TOTAL OF PRODUCTION TAX CREDITS 20 SUBMITTED FOR COOK INLET PRODUCTION, BASED ON EXPLORATION 21 EXPENDITURES FOR WORK PERFORMED DURING THE PERIOD 22 DESCRIBED IN (b) OF THIS SECTION FOR THAT PRODUCTION, THAT HAVE 23 BEEN APPROVED BY THE DEPARTMENT EXCEEDS $20,000,000]. 24 * Sec. 16. AS 43.55.025(h) is amended to read: 25 (h) A producer that purchases a production tax credit certificate may apply the 26 credits against its production tax liability under AS 43.55.011(e) [THIS CHAPTER]. 27 Regardless of the price the producer paid for the certificate, the producer may receive 28 a credit against its production tax liability for the full amount of the credit, but for not 29 more than the amount for which the certificate is issued. A production tax credit 30 allowed under this section may not be applied more than once. 31 * Sec. 17. AS 43.55.025(i) is amended to read:
01 (i) For a production tax credit under this section, 02 (1) the amount of the credit that may be applied against the production 03 tax for each tax month may not exceed the total production tax liability under 04 AS 43.55.011(e) of the taxpayer applying the credit for the same month; and 05 (2) an amount of the production tax credit that is greater than the total 06 tax liability under AS 43.55.011(e) of the taxpayer applying the credit for a tax month 07 may be carried forward and applied against the taxpayer's production tax liability 08 under AS 43.55.011(e) in one or more immediately following months. 09 * Sec. 18. AS 43.55.030(a) is amended to read: 10 (a) The tax shall be paid to the department, and the person paying the tax shall 11 file with the department at the time the tax or a portion of the tax is required to be 12 paid a statement, under oath, on forms prescribed by or acceptable to the department, 13 giving, with other information required, the following: 14 (1) a description of each [THE] lease or property from which the oil 15 and [OR] gas were [WAS] produced, by name, legal description, lease number, or 16 [BY] accounting codes [CODE NUMBERS] assigned by the department; 17 (2) the names of the producer and the person paying the tax; 18 (3) the gross amount of oil and the gross amount of [OR] gas 19 produced from each [THE] lease or property, and the percentage of the gross amount 20 of oil and gas owned by each producer for whom the tax is paid; 21 (4) the gross [TOTAL] value at the point of production of the oil 22 and of the [OR] gas produced from each [THE] lease or property owned by each 23 producer for whom the tax is paid; [AND] 24 (5) the name of the first purchaser and the price received for the oil 25 and for the [OR] gas, unless relieved from this requirement in whole or in part by 26 the department; and 27 (6) the producer's lease expenditures and adjustments as 28 calculated under AS 43.55.160 [IF SOLD IN THE STATE]. 29 * Sec. 19. AS 43.55.030(d) is amended to read: 30 (d) Reports by or on behalf of the producer are delinquent the first day 31 following the day the tax is due. [EACH PRODUCER IS SUBJECT TO A PENALTY
01 OF $25 A DAY FOR EACH LEASE OR PROPERTY UPON WHICH THE 02 REPORT IS NOT FILED. THE PENALTY FOR FAILURE TO FILE A REPORT IS 03 IN ADDITION TO THE PENALTY FOR DELINQUENT TAXES, AND IS A LIEN 04 AGAINST THE ASSETS OF THE PRODUCER.] 05 * Sec. 20. AS 43.55.030 is amended by adding new subsections to read: 06 (e) In addition to other required information, the statement required to be filed 07 on or before March 31 of a year must show any adjustments or corrections to the 08 statements that were required under (a) of this section to be filed for the months of the 09 preceding calendar year during which the oil or gas was produced. 10 (f) For purposes of AS 43.05.260(a), the statement required to be filed on or 11 before March 31 of a year is considered to be the return for the tax imposed by 12 AS 43.55.011(e) - (g) for oil and gas produced each month of the preceding calendar 13 year. 14 * Sec. 21. AS 43.55.040 is amended to read: 15 Sec. 43.55.040. Powers of Department of Revenue. Except as provided in 16 AS 43.05.405 - 43.05.499, the department may 17 (1) require a person engaged in production and the agent or employee 18 of the person, and the purchaser of oil or gas, or the owner of a royalty interest in oil 19 or gas to furnish, whether by the filing of regular statements or reports or 20 otherwise, additional information that is considered by the department as necessary to 21 compute the amount of the tax; notwithstanding any contrary provision of law, the 22 disclosure of additional information under this paragraph to the producer 23 obligated to pay the tax does not violate AS 40.25.100(a) or AS 43.05.230(a); 24 before disclosing information under this paragraph that is otherwise required to 25 be held confidential under AS 40.25.100(a) or AS 43.05.230(a), the department 26 shall 27 (A) provide the person that furnished the information a 28 reasonable opportunity to be heard regarding the proposed disclosure and 29 the conditions to be imposed under (B) of this paragraph; and 30 (B) impose appropriate conditions limiting 31 (i) access to the information to those legal counsel,
01 consultants, employees, officers, and agents of the producer who 02 have a need to know that information for the purpose of 03 determining or contesting the producer's tax obligation; and 04 (ii) the use of the information to use for that 05 purpose; 06 (2) examine the books, records, and files of such a person; 07 (3) conduct hearings and compel the attendance of witnesses and the 08 production of books, records, and papers of any person; and 09 (4) make an investigation or hold an inquiry that is considered 10 necessary to a disclosure of the facts as to 11 (A) the amount of production from any oil or gas location, or of 12 a company or other producer of oil or gas; and 13 (B) the rendition of the oil and gas for taxing purposes. 14 * Sec. 22. AS 43.55.080 is amended to read: 15 Sec. 43.55.080. Collection and deposit of revenue. Except as otherwise 16 provided under art. IX, sec. 17, Constitution of the State of Alaska, the [THE] 17 department shall deposit in the general fund the money collected by it under 18 AS 43.55.011 - 43.55.180 [AS 43.55.011 - 43.55.150]. 19 * Sec. 23. AS 43.55.135 is amended to read: 20 Sec. 43.55.135. Measurement. For the purposes of AS 43.55.011 - 43.55.180 21 [AS 43.55.011 - 43.55.150], oil is [SHALL BE] measured in terms of a "barrel of oil" 22 and gas is [SHALL BE] measured in terms of a "cubic foot of gas." 23 * Sec. 24. AS 43.55.150(a) is amended to read: 24 (a) For the purposes of AS 43.55.011 - 43.55.180 [AS 43.55.011 - 43.55.150], 25 the gross value at the point of production is [SHALL BE] calculated using the 26 reasonable costs of transportation of the oil or gas. The reasonable costs of 27 transportation are [SHALL BE] the actual costs, except when the 28 (1) [WHEN THE] parties to the transportation of oil or gas are 29 affiliated; 30 (2) [WHEN THE] contract for the transportation of oil or gas is not an 31 arm's length transaction or is not representative of the market value of that
01 transportation; and 02 (3) [WHEN THE] method of transportation of oil or gas is not 03 reasonable in view of existing alternative methods of transportation. 04 * Sec. 25. AS 43.55 is amended by adding new sections to article 1 to read: 05 Sec. 43.55.160. Determination of production tax value of oil and gas. (a) 06 Except as provided in (f) of this section, for purposes of AS 43.55.011(e) and (g), the 07 production tax value of the taxable (1) oil and gas produced during a month from a 08 lease or property in the state that includes land north of 68 degrees North latitude is 09 the gross value at the point of production of the oil and gas taxable under 10 AS 43.55.011(e) and (g) and produced by the producer from that lease or property, 11 less the producer's lease expenditures for the month applicable to that oil and gas, as 12 adjusted under (e) of this section; (2) oil and gas produced during a month from a 13 lease or property in the state outside the Cook Inlet sedimentary basin and south of 68 14 degrees North latitude is the gross value at the point of production of the oil and gas 15 taxable under AS 43.55.011(e) and (g) and produced by the producer from that lease 16 or property, less the producer's lease expenditures for the month applicable to that oil 17 and gas, as adjusted under (e) of this section; (3) oil produced during a month from a 18 lease or property in the Cook Inlet sedimentary basin is the gross value at the point of 19 production of the oil taxable under AS 43.55.011(e) and (g) and produced by the 20 producer from that lease or property, less the producer's lease expenditures for the 21 month applicable to that oil, as adjusted under (e) of this section; (4) gas produced 22 during a month from a lease or property in the Cook Inlet sedimentary basin is the 23 gross value at the point of production of the gas taxable under AS 43.55.011(e) and (g) 24 and produced by the producer from that lease or property, less the producer's lease 25 expenditures for the month applicable to that gas, as adjusted under (e) of this section. 26 However, a production tax value calculated under this subsection may not be less than 27 zero. If a producer does not produce taxable oil or gas during a month, the producer is 28 considered to have generated a positive production tax value if a calculation described 29 in this subsection yields a positive number because the producer's adjusted lease 30 expenditures for a month are less than zero as a result of the producer's receiving a 31 payment or credit under (e) of this section or otherwise.
01 (b) For purposes of administration of (a) of this section, 02 (1) any adjusted lease expenditures that would otherwise be deductible 03 in a month but whose deduction would cause a production tax value calculated under 04 (a) of this section of taxable oil or gas produced during the month to be less than zero 05 may be added to the producer's adjusted lease expenditures for one or more other 06 months in the same calendar year; the total of any adjusted lease expenditures that are 07 not deductible in any month during a calendar year because their deduction would 08 cause a production tax value calculated under (a) of this section of taxable oil or gas 09 produced during one or more months to be less than zero may be used to establish a 10 carried-forward annual loss under AS 43.55.024(b); 11 (2) an explorer that has taken a tax credit under AS 43.55.024(b) or 12 that has obtained a transferable tax credit certificate under AS 43.55.024(d) for the 13 amount of a tax credit under AS 43.55.024(b) is considered a producer, subject to the 14 tax levied under AS 43.55.011(e), to the extent that the explorer generates a positive 15 production tax value as the result of the explorer's receiving a payment or credit 16 described in (e) of this section. 17 (c) For purposes of this section, 18 (1) a producer's lease expenditures for a period are the ordinary and 19 necessary costs upstream of the point of production of oil and gas that are incurred on 20 or after April 1, 2006, by the producer during the period and that are direct costs of 21 exploring for, developing, or producing oil or gas deposits located within the 22 producer's leases or properties in the state or, in the case of land in which the producer 23 does not own a working interest, that are direct costs of exploring for oil or gas 24 deposits located within other land in the state; in determining whether costs are lease 25 expenditures, 26 (A) the department shall give substantial weight to the typical 27 industry practices and standards in the state that determine the costs that an 28 operator is allowed to bill a working interest owner that is not the operator, 29 under unit operating agreements or similar operating agreements that were in 30 effect on or before December 1, 2005, and were subject to negotiation with at 31 least one working interest owner with substantial bargaining power, other than
01 the operator; and 02 (B) as to matters that are not addressed by the industry 03 practices and standards described in (A) of this paragraph or as to which those 04 practices and standards are not clear or are not uniform, the department shall 05 give substantial weight to the standards adopted by the Department of Natural 06 Resources that determine the costs, other than interest, that a lessee is allowed 07 to deduct from revenue in calculating net profits under a lease issued under 08 AS 38.05.180(f)(3)(B), (D), or (E); 09 (2) the Department of Revenue may authorize a producer, including a 10 producer that is an operator, to treat as its lease expenditures under this section the 11 costs, other than items listed in (d) of this section, paid by the producer that are billed 12 to the producer by an operator in accordance with the terms of a unit operating 13 agreement or similar operating agreement if the Department of Revenue finds that 14 (A) the pertinent provisions of the operating agreement are 15 substantially consistent with the Department of Revenue's determinations and 16 standards otherwise applicable under this subsection; and 17 (B) at least one working interest owner party to the agreement, 18 other than the operator, has substantial incentive and ability to effectively audit 19 billings under the agreement; 20 (3) an activity does not need to be physically located on, near, or 21 within the premises of the lease or property within which an oil or gas deposit being 22 explored for, developed, or produced is located in order for the cost of the activity to 23 be a cost upstream of the point of production of the oil or gas; 24 (4) the lease expenditures that are applicable to oil or gas produced 25 from a lease or property shall be determined under regulations adopted by the 26 department that provide for reasonable methods of allocating costs between oil and 27 gas and among leases or properties; 28 (5) "direct costs" include 29 (A) an expenditure, when incurred, to acquire an item if the 30 acquisition cost is otherwise a direct cost, notwithstanding that the expenditure 31 may be required to be capitalized rather than treated as an expense for financial
01 accounting or federal income tax purposes; 02 (B) payments of or in lieu of property taxes, sales and use 03 taxes, motor fuel taxes, and excise taxes; 04 (C) a reasonable allowance, as determined under regulations 05 adopted by the department, for overhead expenses directly related to exploring 06 for, developing, and producing oil or gas deposits located within leases or 07 properties or other land in the state. 08 (d) For purposes of (c) of this section, lease expenditures do not include 09 (1) depreciation, depletion, or amortization; 10 (2) oil or gas royalty payments, production payments, lease profit 11 shares, or other payments or distributions of a share of oil or gas production, profit, or 12 revenue; 13 (3) taxes based on or measured by net income; 14 (4) interest or other financing charges or costs of raising equity or debt 15 capital; 16 (5) acquisition costs for a lease or property or exploration license; 17 (6) costs arising from fraud, wilful misconduct, or gross negligence; 18 (7) fines or penalties imposed by law; 19 (8) costs of arbitration, litigation, or other dispute resolution activities 20 that involve the state or concern the rights or obligations among owners of interests in, 21 or rights to production from, one or more leases or properties or a unit; 22 (9) donations; 23 (10) costs incurred in organizing a partnership, joint venture, or other 24 business entity or arrangement; 25 (11) amounts paid to indemnify the state; the exclusion provided by 26 this paragraph does not apply to the costs of obtaining insurance or a surety bond from 27 a third-party insurer or surety; 28 (12) surcharges levied under AS 43.55.201 or 43.55.300; 29 (13) for a transaction that is an internal transfer or is otherwise not an 30 arm's length transaction, expenditures incurred that are in excess of fair market value; 31 (14) an expenditure incurred to purchase an interest in any corporation,
01 partnership, limited liability company, business trust, or any other business entity, 02 whether or not the transaction is treated as an asset sale for federal income tax 03 purposes; 04 (15) a tax levied under AS 43.55.011; 05 (16) the portion of costs incurred for dismantlement, removal, 06 surrender, or abandonment of a facility, pipeline, well pad, platform, or other 07 structure, or for the restoration of a lease, field, unit, area, body of water, or right-of- 08 way in conjunction with dismantlement, removal, surrender, or abandonment, that is 09 attributable to production in barrels of oil equivalent of oil or gas occurring before 10 April 1, 2006; the portion is calculated as a ratio of the amount of oil and gas 11 production associated with the facility, pipeline, well pad, platform, or other structure, 12 lease, field, unit, area, body of water, or right-of-way occurring before April 1, 2006, 13 to the total amount of oil and gas production in barrels of oil equivalent associated 14 with that facility, pipeline, well pad, platform, or other structure, lease, field, unit, 15 area, body of water, or right-of-way through the end of the calendar month before 16 commencement of the dismantlement, removal, surrender, or abandonment; a cost is 17 not excluded under this paragraph if the dismantlement, removal, surrender, or 18 abandonment for which the cost is incurred is undertaken for the purpose of replacing, 19 renovating, or improving the facility, pipeline, well pad, platform, or other structure; 20 (17) losses or damages resulting from an unpermitted oil discharge that 21 is not confined to a pad, platform, or other structure, or costs to contain, clean up, or 22 remediate such an unpermitted oil discharge to the extent that those costs exceed the 23 routine costs of operation for a producer or explorer that would otherwise be incurred 24 as lease expenditures in the absence of the unpermitted oil discharge; this paragraph 25 does not apply to the cost of developing and maintaining an oil discharge prevention 26 and contingency plan under AS 46.04.030; 27 (18) costs incurred to satisfy a work commitment under an exploration 28 license under AS 38.05.132. 29 (e) Unless the payment or credit has already been subtracted in calculating 30 billed costs under (c)(2) of this section, a producer's lease expenditures must be 31 adjusted by subtracting certain payments or credits received by the producer or by an
01 operator acting for the producer, as provided in this subsection. If one or more 02 payments or credits subject to this subsection are received by a producer or by an 03 operator acting for the producer during a month or, under (f) of this section, during a 04 calendar year, and if either the total amount of the payments or credits exceeds the 05 amount of the producer's lease expenditures or the producer has no lease expenditures, 06 the producer shall nevertheless subtract those payments or credits from the lease 07 expenditures or from zero, respectively, and the producer's adjusted lease expenditures 08 for that month or calendar year are a negative number and shall be applied to the 09 calculation under (a) of this section as a negative number. The payments or credits that 10 a producer shall subtract from the producer's lease expenditures, or from zero, under 11 this subsection are payments or credits, other than tax credits, received by the producer 12 or by an operator acting for the producer for 13 (1) the use by another person of a production facility in which the 14 producer has an ownership interest or the management by the producer of a production 15 facility under a management agreement providing for the producer to receive a 16 management fee; 17 (2) a reimbursement or similar payment that offsets the producer's 18 lease expenditures, including an insurance recovery from a third-party insurer and a 19 payment from the state or federal government for reimbursement of the producer's 20 upstream costs, including costs for gathering, separating, cleaning, dehydration, 21 compressing, or other field handling associated with the production of oil or gas 22 upstream of the point of production; 23 (3) the sale or other transfer of 24 (A) an asset, including geological, geophysical, or well data or 25 interpretations, acquired by the producer as a result of a lease expenditure or an 26 expenditure that would be a lease expenditure if it were incurred on or after 27 April 1, 2006; for purposes of this subparagraph, 28 (i) if a producer removes from the state, for use outside 29 the state, an asset described in this subparagraph, the value of the asset 30 at the time it is removed is considered a payment received by the 31 producer for sale or transfer of the asset;
01 (ii) for a transaction that is an internal transfer or is 02 otherwise not an arm's length transaction, if the sale or transfer of the 03 asset is made for less than fair market value, the amount subtracted 04 must be the fair market value; and 05 (B) oil or gas 06 (i) that is not considered produced from a lease or 07 property under AS 43.55.020(e); and 08 (ii) the cost of acquiring which is a lease expenditure 09 incurred by the person that acquires the oil or gas. 10 (f) In place of the adjusted lease expenditures for a month under (a) of this 11 section, a producer may, at any time, elect to substitute, for every month of a calendar 12 year, 1/12 of the producer's adjusted lease expenditures for the calendar year. For 13 every month of a calendar year in which the price index for a producer determined 14 under AS 43.55.011(h) is greater than zero for one or more months, the producer shall 15 substitute, in place of the adjusted lease expenditures under (a) of this section, 1/12 of 16 the producer's adjusted lease expenditures for the calendar year. A substitution made 17 under this subsection applies to the calculation of the tax under AS 43.55.011(e) and 18 (g). 19 (g) The department shall specify or approve a reasonable allocation method 20 for determining the portion of a cost that is appropriately treated as a lease expenditure 21 under (c) of this section if a cost that would otherwise constitute a lease expenditure 22 under (c) of this section is incurred to explore for, develop, or produce 23 (1) both an oil or gas deposit located within land outside the state and 24 an oil or gas deposit located within a lease or property, or other land, in the state; or 25 (2) an oil or gas deposit located partly within land outside the state and 26 partly within a lease or property, or other land, in the state. 27 (h) For purposes of AS 43.55.024(a) and (b) and only as to expenditures 28 incurred to explore for an oil or gas deposit located within land in which an explorer 29 does not own a working interest, the term "producer" in (b), (c), and (e) of this section 30 includes "explorer." 31 (i) Notwithstanding any contrary provision of AS 43.55.150, for purposes of
01 (a) of this section, if the price index determined under AS 43.55.011(h) is greater than 02 zero for any month during a calendar year, the gross value at the point of production of 03 the oil and gas taxable under AS 43.55.011(e) and (g) must be calculated for every 04 month of that calendar year under regulations adopted by the department that provide 05 for using a monthly average of the producer's costs of transportation for the calendar 06 year. 07 (j) The department may adopt regulations that establish additional standards 08 necessary to carrying out the purposes of this section, including the incorporation of 09 the concepts of 26 U.S.C. 482 (Internal Revenue Code), as amended, the related or 10 accompanying regulations of that section, and any ruling or guidance issued by the 11 United States Internal Revenue Service that relates to that section. 12 (k) For purposes of this section, 13 (1) "explore" includes conducting geological or geophysical 14 exploration, including drilling a stratigraphic test well; 15 (2) "ordinary and necessary" has the meaning given in 26 U.S.C. 162 16 (Internal Revenue Code), as amended, and regulations adopted under that section; 17 (3) "stratigraphic test well" means a well drilled for the sole purpose of 18 obtaining geological information to aid in exploring for an oil or gas deposit and the 19 target zones of which are located in the state. 20 Sec. 43.55.170. Additional nontransferable tax credits. (a) For a month for 21 which a producer's tax liability under AS 43.55.011(e) on oil and gas produced from 22 leases or properties outside the Cook Inlet sedimentary basin and south of 68 degrees 23 North latitude exceeds zero before application of any credits under this chapter, a 24 producer that is qualified under (e) of this section may apply a tax credit against that 25 liability of up to $500,000. 26 (b) A producer may not take a tax credit under (a) of this section for any 27 month that ends the later of 28 (1) April 30, 2016; or 29 (2) the 10th anniversary of the last day of the month for which the 30 producer first has commercial oil or gas production before May 1, 2016, from at least 31 one lease or property in the state outside the Cook Inlet sedimentary basin and south of
01 68 degrees North latitude, if the producer did not have commercial oil or gas 02 production from a lease or property in the state outside the Cook Inlet sedimentary 03 basin and south of 68 degrees North latitude before April 1, 2006. 04 (c) For a month for which a producer's tax liability under AS 43.55.011(e) 05 exceeds zero before application of any credits under this chapter, other than a credit 06 under (a) of this section, but after application of any credit under (a) of this section, a 07 producer that is qualified under (e) of this section and whose average amount of oil 08 and gas produced a day and taxable under AS 43.55.011(e) is less than 100,000 barrels 09 of oil equivalent a day may apply a tax credit under this section against that liability. A 10 producer whose average amount of oil and gas produced a day and taxable under 11 AS 43.55.011(e) is 12 (1) not more than 50,000 barrels of oil equivalent may apply a tax 13 credit of up to $1,000,000 for the month; 14 (2) more than 50,000 and less than 100,000 barrels of oil equivalent 15 may apply a tax credit of up to the following fraction of $1,000,000 for the month: 16 1 - [2 x (AP - 50,000)]/100,000, 17 where AP = the average amount of oil and gas, expressed as barrels of oil equivalent, 18 produced a day during the month and taxable under AS 43.55.011(e). 19 (d) A producer may not take a tax credit under (c) of this section for any 20 month that ends the later of 21 (1) April 30, 2016; or 22 (2) the 10th anniversary of the last day of the month for which the 23 producer first has commercial oil or gas production before May 1, 2016, from at least 24 one lease or property in the state, if the producer did not have commercial oil or gas 25 production from a lease or property in the state before April 1, 2006. 26 (e) On written application by a producer, including any information the 27 department may require, the department shall determine whether the producer 28 qualifies under this section for a calendar year. To qualify under this section, a 29 producer must demonstrate that its operation in the state or its ownership of an interest 30 in a lease or property in the state as a distinct producer entity would not result in the 31 division among multiple producer entities of any production tax liability under
01 AS 43.55.011(e) that would be reasonably expected to be attributed to a single 02 producer entity if the tax credit provisions of (a) or (c) of this section did not exist. 03 (f) A tax credit authorized by (a) of this section may not be applied to reduce a 04 producer's tax liability for any month under AS 43.55.011(e) on oil and gas produced 05 from leases or properties outside the Cook Inlet sedimentary basin and south of 68 06 degrees North latitude below zero. An unused portion of a tax credit authorized by (a) 07 of this section that could otherwise be applied for a month, but whose application 08 would cause the producer's tax liability for the month on oil and gas produced from 09 leases or properties outside the Cook Inlet sedimentary basin and south of 68 degrees 10 North latitude to be less than zero, may be applied for one or more other months in the 11 same calendar year to the extent otherwise allowed under this section. 12 (g) A tax credit authorized by (c) of this section may not be applied to reduce 13 a producer's tax liability under AS 43.55.011(e) for any month below zero. An unused 14 portion of a tax credit that could otherwise be applied for a month but whose 15 application would cause the producer's tax liability under AS 43.55.011(e) for the 16 month to be less than zero may be applied for one or more other months in the same 17 calendar year to the extent otherwise allowed under this section. 18 (h) An unused tax credit or portion of a tax credit under this section is not 19 transferable and may not be carried forward to or used in a later calendar year. 20 Sec. 43.55.180. Required reports. (a) The Department of Revenue shall 21 (1) study 22 (A) the effects of the tax rates under AS 43.55.011(f) and of 23 potential changes in those tax rates on state revenue and on oil and gas 24 exploration, development, and production on private land; and 25 (B) the fairness of the tax rates under AS 43.55.011(f) and of 26 potential changes in those tax rates for private landowners; and 27 (2) prepare a report on or before the first day of the 2013 regular 28 session of the legislature on the results of the study made under (1) of this subsection, 29 including a recommendation as to whether those tax rates should be changed; the 30 department shall notify the legislature that the report prepared under this paragraph is 31 available.
01 (b) The Department of Revenue shall 02 (1) study the effects of the credits authorized by AS 43.55.025 and 03 43.55.170 on state revenue, on the encouragement of exploration, development, and 04 production of oil and gas deposits located in the state, and on the encouragement of 05 new entrants into the oil and gas industry in the state; and 06 (2) prepare a report on or before the first day of the 2015 regular 07 session of the legislature on the results of the study made under (1) of this subsection, 08 and shall include with the report a recommendation as to whether the legislature 09 should extend the availability of the credits under AS 43.55.025 and 43.55.170; the 10 department shall notify the legislature that the report prepared under this paragraph is 11 available. 12 * Sec. 26. AS 43.55.201 is amended to read: 13 Sec. 43.55.201. Surcharge levied. (a) Every producer of oil shall pay a 14 surcharge of $.01 [$.02] per barrel of oil produced from each lease or property in the 15 state, less any oil the ownership or right to which is exempt from taxation. 16 (b) The surcharge imposed by (a) of this section is in addition to the tax 17 imposed by AS 43.55.011 and is due on the last day of the month on oil produced 18 from each lease or property during the preceding month. The surcharge [SHALL 19 BE PAID IN THE SAME MANNER AS THE TAX IMPOSED BY AS 43.55.011 - 20 43.55.150; AND] is in addition to the surcharge imposed by AS 43.55.300 - 21 43.55.310. 22 (c) A producer of oil shall make reports of production in the same manner and 23 under the same penalties as required under AS 43.55.011 - 43.55.180 [AS 43.55.011 - 24 43.55.150]. 25 * Sec. 27. AS 43.55.201 is amended by adding a new subsection to read: 26 (d) Oil not considered under AS 43.55.020(e) to be produced from a lease or 27 property is not considered to be produced from a lease or property for purposes of this 28 section. 29 * Sec. 28. AS 43.55.300 is amended to read: 30 Sec. 43.55.300. Surcharge levied. (a) Every producer of oil shall pay a 31 surcharge of $.04 [$.03] per barrel of oil produced from each lease or property in the
01 state, less any oil the ownership or right to which is exempt from taxation. 02 (b) The surcharge imposed by (a) of this section is in addition to the tax 03 imposed by AS 43.55.011 and is due on the last day of the month on oil produced 04 from each lease or property during the preceding month. The surcharge [SHALL 05 BE PAID IN THE SAME MANNER AS THE TAX IMPOSED BY AS 43.55.011 - 06 43.55.150; AND] is in addition to the surcharge imposed by AS 43.55.201 - 07 43.55.231. 08 (c) A producer of oil shall make reports of production in the same manner and 09 under the same penalties as required under AS 43.55.011 - 43.55.180 [AS 43.55.011 - 10 43.55.150]. 11 * Sec. 29. AS 43.55.300 is amended by adding a new subsection to read: 12 (d) Oil not considered under AS 43.55.020(e) to be produced from a lease or 13 property is not considered to be produced from a lease or property for purposes of this 14 section. 15 * Sec. 30. AS 43.55.900(6) is repealed and reenacted to read: 16 (6) "gas" means 17 (A) all natural, associated, or casinghead gas; 18 (B) all hydrocarbons that 19 (i) are recovered by mechanical separation of well 20 fluids or by gas processing in a gas processing plant; and 21 (ii) exist in a gaseous phase at the completion of 22 mechanical separation and any gas processing in a gas processing plant; 23 and 24 (C) all other hydrocarbons produced from a well not defined as 25 oil; 26 * Sec. 31. AS 43.55.900(7) is repealed and reenacted to read: 27 (7) "gross value at the point of production" means 28 (A) for oil, the value of the oil at its point of production 29 without deduction of any costs upstream of that point of production; 30 (B) for gas, the value of the gas at its point of production 31 without deduction of any costs upstream of that point of production;
01 * Sec. 32. AS 43.55.900(10) is repealed and reenacted to read: 02 (10) "oil" means 03 (A) crude petroleum oil; and 04 (B) all liquid hydrocarbons that are recovered by mechanical 05 separation of well fluids or by gas processing in a gas processing plant; 06 * Sec. 33. AS 43.55.900 is amended by adding new paragraphs to read: 07 (17) "barrel of oil equivalent" means 08 (A) in the case of oil, one barrel; 09 (B) in the case of gas, 6,000 cubic feet; 10 (18) "Cook Inlet sedimentary basin" has the meaning given in 11 regulations adopted to implement AS 38.05.180(f)(4); 12 (19) "explorer" means a person who, in exploring for new oil or gas 13 reserves, incurs expenditures; 14 (20) "gas processing" 15 (A) means processing a gaseous mixture of hydrocarbons 16 (i) by means of absorption, adsorption, externally 17 applied refrigeration, artificial compression followed by adiabatic 18 expansion using the Joule-Thomson effect, or another physical process 19 that is not mechanical separation; and 20 (ii) for the purpose of extracting and recovering liquid 21 hydrocarbons; 22 (B) does not include gas treatment; 23 (21) "gas processing plant" means a facility that 24 (A) extracts and recovers liquid hydrocarbons from a gaseous 25 mixture of hydrocarbons by gas processing; and 26 (B) is located upstream of any gas treatment and upstream of 27 the inlet of any gas pipeline system transporting gas to a market; 28 (22) "gas treatment" 29 (A) means conditioning gas and removing from gas 30 nonhydrocarbon substances for the purpose of rendering the gas acceptable for 31 tender and acceptance into a gas pipeline system;
01 (B) includes incidentally removing liquid hydrocarbons from 02 the gas; 03 (C) does not include 04 (i) dehydration required to facilitate the movement of 05 gas from the well to the point where gas processing takes place; 06 (ii) the scrubbing of liquids from gas to facilitate gas 07 processing; 08 (23) "landowner's royalty interest" means 09 (A) a lessor's royalty interest under an oil and gas lease; or 10 (B) a royalty interest that is 11 (i) held by a surface owner of land from which oil or 12 gas is produced; and 13 (ii) granted in exchange for the right to use the surface 14 of that land or as compensation for damage to the surface of that land; 15 (24) "oil and gas lease" includes an oil and gas lease, a gas only lease, 16 and an oil only lease; 17 (25) "point of production" means 18 (A) for oil, the automatic custody transfer meter or device 19 through which the oil enters into the facilities of a carrier pipeline or other 20 transportation carrier in a condition of pipeline quality; in the absence of an 21 automatic custody transfer meter or device, "point of production" means the 22 mechanism or device to measure the quantity of oil that has been approved by 23 the department for that purpose, through which the oil is tendered and accepted 24 in a condition of pipeline quality into the facilities of a carrier pipeline or other 25 transportation carrier or into a field topping plant; 26 (B) for gas, other than gas described in (C) of this paragraph, 27 that is 28 (i) not subjected to or recovered by mechanical 29 separation or run through a gas processing plant, the first point where 30 the gas is accurately metered; 31 (ii) subjected to or recovered by mechanical separation
01 but not run through a gas processing plant, the first point where the gas 02 is accurately metered after completion of mechanical separation; 03 (iii) run through a gas processing plant, the first point 04 where the gas is accurately metered downstream of the plant; 05 (C) for gas run through an integrated gas processing plant and 06 gas treatment facility that does not accurately meter the gas after the gas 07 processing and before the gas treatment, the first point where gas processing is 08 completed or where gas treatment begins, whichever is further upstream. 09 * Sec. 34. AS 43.55.011(a), 43.55.011(b), 43.55.011(c), 43.55.012, 43.55.013, 43.55.016, 10 43.55.025(k)(1), 43.55.025(k)(3), 43.55.900(1), 43.55.900(8), 43.55.900(11), 43.55.900(12), 11 and 43.55.900(16) are repealed. 12 * Sec. 35. The uncodified law of the State of Alaska is amended by adding a new section to 13 read: 14 APPLICABILITY. (a) Sections 5, 7 - 10, 12, 13, 15 - 18, 20, 24, and 26 - 34 of this 15 Act and AS 43.55.160 and 43.55.170, enacted by sec. 25 of this Act, apply to oil and gas 16 produced after March 31, 2006. 17 (b) Section 11 of this Act applies to oil and gas produced before, on, or after the 18 effective date of sec. 11 of this Act. 19 * Sec. 36. The uncodified law of the State of Alaska is amended by adding a new section to 20 read: 21 TRANSITIONAL PROVISIONS. (a) Notwithstanding any contrary provision of 22 AS 43.55.024(a), enacted by sec. 12 of this Act, for oil and gas produced after March 31, 23 2006, and before January 1, 2007, the phrase "every month an annualized tax credit in an 24 amount equal to 1 2/3 percent" in AS 43.55.024(a)(1)(B), enacted by sec. 12 of this Act, shall 25 be replaced by the phrase "every month during the period April 1, 2006, through 26 December 31, 2006, an annualized tax credit in an amount equal to 2.222 percent." 27 (b) Notwithstanding any contrary provision of AS 43.55.024(e), enacted by sec. 12 of 28 this Act, for oil and gas produced after March 31, 2006, and before January 1, 2007, the 29 phrase "a calendar year" in AS 43.55.024(e), enacted by sec. 12 of this Act, shall be replaced 30 by the phrase "the last nine months of the calendar year." 31 (c) Notwithstanding any contrary provision of AS 43.55.024(j)(2), enacted by sec. 12
01 of this Act, for oil and gas produced after March 31, 2006, and before January 1, 2007, 02 (1) the number "1/120" in AS 43.55.024(j)(2)(B), enacted by sec. 12 of this 03 Act, shall be replaced by the number "1/90"; 04 (2) the phrase "calendar year" in AS 43.55.024(j)(2)(B), enacted by sec. 12 of 05 this Act, shall be replaced by the phrase "last nine months of the calendar year." 06 (d) Notwithstanding any contrary provision of AS 43.55.160(f), enacted by sec. 25 of 07 this Act, for oil and gas produced after March 31, 2006, and before January 1, 2007, the 08 phrase "for every month of a calendar year, 1/12 of the producer's adjusted lease expenditures 09 for the calendar year" in AS 43.55.160(f), enacted by sec. 25 of this Act, shall be replaced by 10 the phrase "for each of the last nine months of 2006, one-ninth of the producer's adjusted lease 11 expenditures for that nine-month period." 12 (e) For oil and gas produced before April 1, 2006, the provisions of AS 43.55, and 13 regulations adopted under AS 43.55, that were in effect before April 1, 2006, and that were 14 applicable to the oil and gas continue to apply to that oil and gas. 15 (f) Notwithstanding any contrary provision of AS 43.55.020(a), as repealed and 16 reenacted by sec. 7 of this Act, for oil and gas produced after March 31, 2006, and before the 17 first day of the first month that begins at least 270 days after the effective date of sec. 7 of this 18 Act, 19 (1) the amount of the taxes that would have been levied on the producer by 20 AS 43.55, as the provisions of that chapter read on March 31, 2006, is due on the last day of 21 each calendar month on the oil and gas that was produced from each lease or property during 22 the preceding month; 23 (2) the amount, if any, of the taxes levied by AS 43.55.011(e) - (g), enacted by 24 sec. 5 of this Act, net of any credits applied as allowed by law, that exceeds the amount due 25 under (1) of this subsection, is due on the last day of the first month that begins after the last 26 payment under (1) of this subsection is due. 27 (g) Notwithstanding any contrary provision of AS 43.55.030(a), as amended by sec. 28 18 of this Act, for oil and gas produced after March 31, 2006, and before the first day of the 29 first month that begins at least 270 days after the effective date of sec. 18 of this Act, the 30 person paying the tax shall file with the Department of Revenue, at the time an amount of tax 31 is due
01 (1) under (f)(1) of this section, the statement required under former 02 AS 43.55.030(a), as that subsection read on March 31, 2006; and 03 (2) under (f)(2) of this section, the statements required under AS 43.55.030(a), 04 as amended by sec. 18 of this Act. 05 (h) Notwithstanding any contrary provision of AS 43.55.201(a) or (b), as amended by 06 sec. 26 of this Act, or AS 43.55.300(a) or (b), as amended by sec. 28 of this Act, for oil 07 produced after March 31, 2006, and before the first day of the first month that begins at least 08 270 days after the effective date of secs. 26 and 28 of this Act, 09 (1) the amount of the surcharges that would have been imposed on the 10 producer under AS 43.55, as the provisions of that chapter read on March 31, 2006, is due on 11 the last day of each calendar month on oil produced from each lease or property during the 12 preceding month; 13 (2) the amount, if any, of the surcharges imposed under AS 43.55.201(a), as 14 amended by sec. 26 of this Act, and AS 43.55.300(a), as amended by sec. 28 of this Act, that 15 exceeds the amount due under (1) of this subsection, is due on the last day of the first month 16 that begins after the last payment under (1) of this subsection is due. 17 (i) Notwithstanding any contrary provision of AS 43.55.201(c), as amended by sec. 18 26 of this Act, or AS 43.55.300(c), as amended by sec. 28 of this Act, for oil produced after 19 March 31, 2006, and before the first day of the first month that begins at least 270 days after 20 the effective date of secs. 26 and 28 of this Act, at the time an amount of surcharge is due 21 (1) under (h)(1) of this section, the producer shall file the report of production 22 required under former AS 43.55.201(c) and 43.55.300(c), as those provisions read on 23 March 31, 2006; and 24 (2) under (h)(2) of this section, the producer shall file the report of production 25 required under AS 43.55.201(c), as amended by sec. 26 of this Act, and AS 43.55.300(c), as 26 amended by sec. 28 of this Act. 27 (j) For purposes of taxes to be calculated and due under (f)(1) of this section and 28 statements to be filed under (g)(1) of this section, regulations that were adopted by the 29 Department of Revenue under AS 43.55, as the provisions of that chapter read on March 31, 30 2006, and that were in effect on that date apply to those taxes and statements. 31 * Sec. 37. The uncodified law of the State of Alaska is amended by adding a new section to
01 read: 02 TRANSITION: RETROACTIVITY OF REGULATIONS. Notwithstanding any 03 contrary provision of AS 44.62.240, a regulation adopted by the Department of Revenue to 04 implement, interpret, make specific, or otherwise carry out the provisions of secs. 5, 7 - 10, 05 12, 13, 15 - 18, 20, 24 - 34, and 36 of this Act may apply retroactively as of April 1, 2006, if 06 the Department of Revenue expressly designates in the regulation that the regulation applies 07 retroactively to that date. 08 * Sec. 38. The uncodified law of the State of Alaska is amended by adding a new section to 09 read: 10 REVISOR'S INSTRUCTION. The revisor of statutes is instructed to change the 11 heading of 12 (1) AS 43.55 from "Oil and Gas Production Taxes and Oil Surcharge" to "Oil 13 and Gas Production Tax and Oil Surcharge"; 14 (2) article 1 of AS 43.55 from "Oil and Gas Properties Production Taxes" to 15 "Oil and Gas Production Tax"; 16 (3) AS 43.55.011 from "Oil production tax" to "Oil and gas production tax"; 17 (4) AS 43.55.025 from "Tax credit for oil and gas exploration or gas only 18 exploration" to "Alternative tax credit for oil and gas exploration"; 19 (5) AS 43.55.150 from "Determination of gross value" to "Determination of 20 gross value at the point of production." 21 * Sec. 39. The uncodified law of the State of Alaska is amended by adding a new section to 22 read: 23 RETROACTIVITY OF PROVISIONS OF ACT. Sections 5, 7 - 10, 12, 13, 15 - 18, 24 and 24 - 38 of this Act are retroactive to April 1, 2006. 25 * Sec. 40. This Act takes effect immediately under AS 01.10.070(c).