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HB 191: "An Act relating to the oil and gas corporate income tax; and providing for an effective date."

00                             HOUSE BILL NO. 191                                                                          
01 "An Act relating to the oil and gas corporate income tax; and providing for an effective                                
02 date."                                                                                                                  
03 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA:                                                                
04    * Section 1. AS 29.60.599(1) is amended to read:                                                                   
05                 (1)  "barrel," when used with reference to oil, means the quantity of                           
06       oil contained in 42 United States gallons of 231 cubic inches each, measured at a                             
07       temperature of 60 degrees Fahrenheit and an absolute pressure of 14.65 pounds a                               
08       square inch [HAS THE MEANING GIVEN IN AS 43.20.144];                                                          
09    * Sec. 2. AS 41.09.010(b) is amended to read:                                                                      
10            (b)  An exploration incentive credit extended under (a) of this section may be                               
11       applied against                                                                                                   
12                 (1)  a payment or obligation against which a credit authorized by                                       
13       AS 38.05.180(i) may be claimed;                                                                                   
14                 (2)  taxes payable under AS 43.20 or AS 43.21, as applicable; and                                   
01                 (3)  oil and gas bonus payments due the state under AS 38.05.180(f).                                    
02    * Sec. 3. AS 43.20.011 is amended by adding a new subsection to read:                                              
03            (g)  For purposes of calculating the tax under (e) of this section, the taxable                              
04       income of a corporation engaged in the production or transportation of crude oil or                               
05       natural gas shall be determined in accordance with AS 43.21.                                                      
06    * Sec. 4. AS 43.20.145(f) is amended to read:                                                                      
07            (f)  This section does not apply to taxpayers subject to AS 43.21                                        
08       [AS 43.20.144 ENGAGED IN                                                                                          
09                 (1)  THE PRODUCTION OF OIL OR GAS FROM A LEASE OR                                                       
10       PROPERTY IN THE STATE; OR                                                                                         
11                 (2)  THE TRANSPORTATION OF OIL OR GAS BY REGULATED                                                      
12       PIPELINE IN THE STATE].                                                                                         
13    * Sec. 5. AS 43.21 is amended by adding new sections to read:                                                      
14                  Article 1. Determination of Taxable Income.                                                          
15            Sec. 43.21.200. Application. This chapter applies to every corporation doing                               
16       business in the state that derives income from the production of oil or gas from a lease                          
17       or property in the state or from the pipeline transportation of oil or gas in the state. The                      
18       tax calculated under this chapter is measured by the total taxable income of the                                  
19       corporation during the tax period as defined by AS 43.21.210 - 43.21.250 and is                                   
20       calculated at the rates established under AS 43.20.011(e).                                                        
21            Sec. 43.21.210. Internal Revenue Code adopted by reference. (a) 26 U.S.C.                                  
22       1 - 1399 and 6001 - 7872 (Internal Revenue Code), as amended, are adopted by                                      
23       reference as a part of this chapter. These portions of the Internal Revenue Code have                             
24       full force and effect under this chapter unless excepted to or modified by other                                  
25       provisions of this chapter.                                                                                       
26            (b)  When portions of the Internal Revenue Code incorporated by reference as                                 
27       provided in (a) of this section refer to rules and regulations adopted by the United                              
28       States Commissioner of Internal Revenue, or hereafter adopted, those portions shall be                            
29       regarded as regulations adopted by the department under and in accord with the                                    
30       provisions of this chapter, unless and until the department adopts specific regulations                           
31       in place of those portions conformable with this chapter.                                                         
01            Sec. 43.21.220. Determination of taxable income from oil and gas                                           
02       production. (a) The taxable income of a corporation from the production of oil and                              
03       gas from a lease or property in the state is the corporation's net income as calculated in                        
04       accordance with this section.                                                                                     
05            (b)  Gross income of a corporation from oil and gas production is the sum of                                 
06       the gross value at the point of production of oil or gas produced from a lease or                                 
07       property in the state, any gain or loss resulting from the sale of a lease, and any gain or                       
08       loss resulting from the sale of property used in the production of oil and gas in the                             
09       state. The department shall by regulation determine a uniform method of establishing                              
10       the gross value at the point of production. For the purpose of determining the gross                              
11       value at the point of production under this subsection, the department shall use                                  
12       AS 43.55.150 for the determination of transportation costs.                                                       
13            (c)  Net income from oil and gas production shall be determined by deducting                                 
14       from gross income the following:                                                                                  
15                 (1)  royalties paid in kind or in value;                                                                
16                 (2)  taxes imposed under AS 43.55 that are actually paid or incurred by                                 
17       the corporation on the production from a lease or property in the state;                                          
18                 (3)  taxes imposed under AS 29.45.080 - 29.45.090 and AS 43.56 that                                     
19       are actually paid or incurred by the corporation on property used directly in the                                 
20       production of oil or gas from a lease or property in the state, including property used                           
21       in production, gathering, treatment, or preparation of the oil or gas for pipeline                                
22       transportation, but only if those property tax payments were due and payable only                                 
23       after the date of commercial production from the lease or property with which the                                 
24       property was associated;                                                                                          
25                 (4)  the direct costs incurred by or for the corporation in operating the                               
26       lease or property, including the direct costs of producing, gathering, treating, or                               
27       preparing the oil or gas for pipeline transportation, but net of any payments received                            
28       for those activities and not including any indirect cost or overhead expense;                                     
29                 (5)  depreciation, under 26 U.S.C. 167 (Internal Revenue Code) or                                       
30       another reasonable method as the department may by regulation establish, on property                              
31       used directly in the production, gathering, treatment, or preparation of the oil or gas                           
01       for pipeline transportation, including amortization of capitalized interest for                                   
02       investments in that property at a rate not to exceed the average cost to the taxpayer of                          
03       borrowed capital during the year in which the interest is capitalized; for purposes of                            
04       this paragraph, property capitalized under AS 43.20 shall maintain its adjusted basis,                            
05       less any depreciation taken under AS 43.20 and any amount attributable to that                                    
06       property received as a credit under this title;                                                                   
07                 (6)  the amortization of lease acquisition payments and taxes paid or                                   
08       incurred under AS 29.45.080, 29.45.090, or AS 43.56, including capitalized interest,                              
09       for or on producing properties before the commencement of commercial production                                   
10       from the lease or property for which the property is being used;                                                  
11                 (7)  interest expense of the corporation, not capitalized during                                        
12       construction, that was paid or incurred in connection with property in the state;                                 
13       however, the interest expense may not exceed that portion of the total interest paid by                           
14       the consolidated business of which the corporation is a part, determined by                                       
15       multiplying the total interest by a fraction, the numerator of which is the value of the                          
16       corporation's real and tangible personal property used directly in the production of oil                          
17       or gas from a lease or property in the state and the denominator of which is the value                            
18       of all real and tangible personal property of the consolidated business; in this                                  
19       paragraph, "total interest paid by the consolidated business" does not include interest                           
20       expense arising from intercompany obligations within the consolidated business                                    
21       except to the extent that the interest expense reflects a pass-through of interest on a                           
22       third-party borrowing by the parent or other member of the consolidated business with                             
23       the purpose, expressed at the time of the third-party borrowing, of financing Alaska                              
24       business activity of the taxpayer corporation;                                                                    
25                 (8)  expenses incurred by the corporation after December 31, 2015, of                                   
26       unsuccessful exploration of oil or gas in the state, including the acquisition costs of                           
27       abandoned properties, dry hole costs, and the costs of geologic and geophysical                                   
28       exploration related to those abandoned properties;                                                                
29                 (9)  general overhead or administrative expense incurred by the                                         
30       corporation attributable to deriving income from the production of oil or gas from a                              
31       lease or property in the state to the extent that the general overhead or administrative                          
01       expense does not exceed that portion of the total general overhead or administrative                              
02       expense incurred by the consolidated business of which the corporation is a part,                                 
03       determined by multiplying the total general overhead or administrative expense by a                               
04       fraction, the numerator of which is the value of the corporation's real and tangible                              
05       personal property used directly in the production of oil or gas from a lease or property                          
06       in the state and the denominator of which is the value of all real and tangible personal                          
07       property of the consolidated business;                                                                            
08                 (10)  the amount of income from the production of oil and gas from a                                    
09       lease or property that is divided among the regional Native corporations under 43                                 
10       U.S.C. 1606(i) (sec. 7(i), Alaska Native Claims Settlement Act, P.L. 92-203);                                     
11                 (11)  net operating loss carry forward amounts accrued from taxes paid                                  
12       under AS 43.20 or AS 43.21 for expenditures related to the production of oil or gas                               
13       from a lease or property in the state or from pipeline transportation of oil or gas in the                        
14       state, except that a net operating loss amount that resulted from an expenditure that                             
15       was also the basis of a credit under this title may not be deducted under this paragraph.                         
16            (d)  Deductions from gross income under this section may not include                                         
17       expenses previously deducted on a return filed under AS 43.20.                                                    
18            (e)  If a corporation subject to this chapter shares the production or proceeds of                           
19       the production from a lease or property through a working interest, royalty interest,                             
20       overriding royalty interest, production payment, net profit interest, joint venture, or                           
21       other agreement, the taxpayer shall allocate the deductions from gross income between                             
22       the corporation and the persons with whom the corporation has the agreement in                                    
23       accordance with the terms of the agreement.                                                                       
24            Sec. 43.21.230. Determination of taxable income from oil and gas pipeline                                  
25       transportation. (a) Except as provided in (c) of this section, taxable income                                   
26       attributable to the transportation of oil in a pipeline engaged in interstate commerce in                         
27       this state is the amount reported or that would be required to be reported to the Federal                         
28       Energy Regulatory Commission or its successors as net operating income, less those                                
29       portions of interest and general overhead or administrative expense attributable to the                           
30       pipeline transportation of oil in the state, except that taxable income shall also include                        
31       taxes on or measured by income. The department shall establish regulations governing                              
01       the determination of interest and general overhead or administrative expense                                      
02       attributable to pipeline transportation of oil in the state.                                                      
03            (b)  Except as provided in (c) of this section, taxable income attributable to the                           
04       transportation of natural gas in a pipeline engaged in interstate commerce in this state                          
05       is the amount reported or that would be required to be reported to the Federal Energy                             
06       Regulatory Commission as net operating income, less that portion of interest and                                  
07       general overhead or administrative expense attributable to pipeline transportation in                             
08       the state, except that the taxable income shall also include taxes on or measured by                              
09       income. The department shall establish regulations governing the determination of                                 
10       interest and general overhead or administrative expense attributable to pipeline                                  
11       transportation of natural gas in the state.                                                                       
12            (c)  Taxable income attributable to the transportation of oil or natural gas in                              
13       this state of a corporation not under the jurisdiction of the Federal Energy Regulatory                           
14       Commission, or of a corporation under the jurisdiction of the Federal Energy                                      
15       Regulatory Commission but not reporting the operation of pipelines in the state                                   
16       separately from the operation of pipelines elsewhere, shall be based on an amount                                 
17       equal to the amount that would have been reported to the Federal Energy Regulatory                                
18       Commission under (a) of this section in the case of oil pipelines, or under (b) of this                           
19       section, in the case of natural gas pipelines, had the corporation been, in fact, under the                       
20       jurisdiction of the Federal Energy Regulatory Commission for the taxable year and                                 
21       required to report on the operation of pipelines in the state separately from the                                 
22       operation of pipelines elsewhere.                                                                                 
23            Sec. 43.21.240. Determination of taxable income from activities other than                                 
24       oil and gas production or pipeline transportation. (a) Taxable income of a                                      
25       corporation subject to this chapter from activities in this state other than the production                       
26       of oil or gas from a lease or property in the state or the pipeline transportation of oil or                      
27       gas in the state shall be determined in accordance with the method established in art.                            
28       IV of AS 43.19.010 and in AS 43.20.143, as modified by (b) - (d) of this section.                                 
29            (b)  The total taxable income of a consolidated business is its entire income                                
30       less the portion of that entire income attributable to worldwide production and pipeline                          
31       transportation of oil and gas. In this subsection, for a member of a consolidated                                 
01       business who is                                                                                                   
02                 (1)  required to file under the Internal Revenue Code, "entire income"                                  
03       means the taxpayer's taxable income as the term is used in AS 43.20.011 - 43.20.142;                              
04                 (2)  not required to file under the Internal Revenue Code, "entire                                      
05       income" means an income determination prepared in accordance with generally                                       
06       accepted accounting principles, except that a taxpayer may elect to report income as                              
07       the income would be determined under (1) of this subsection.                                                      
08            (c)  The numerator and denominator of the property factor, of the payroll                                    
09       factor, and of the sales factor shall be calculated without reference to that portion of                          
10       property, payroll, or sales directly related to the production of oil or gas from a lease                         
11       of property in the state or the pipeline transportation of oil or gas in the state.                               
12            (d)  The value attributed to vessels transporting Alaska oil or gas of a                                     
13       consolidated business that are not owned or effectively owned by the consolidated                                 
14       business shall be excluded from the property factor.                                                              
15            Sec. 43.21.250. Applicability of tax to a consolidated business. The                                       
16       provisions of this chapter apply to a consolidated business whether or not the taxpayer                           
17       is the parent or controlling corporation.                                                                         
18                    Article 2. Calculation of Tax; Returns.                                                            
19            Sec. 43.21.300. Calculation of tax. (a) The amount of the tax payable on the                               
20       taxable income of a corporation subject to tax under this chapter shall be determined                             
21       using the tax rates in AS 43.20.011(e).                                                                           
22            (b)  For purposes of this chapter, the department may combine taxable income                                 
23       of corporations subject to tax under this chapter who are part of the same consolidated                           
24       business.                                                                                                         
25            (c)  If the methods of allocation and apportionment provided in this chapter do                              
26       not fairly represent the extent of a corporation's business activity in the state, the                            
27       corporation may petition for or the department may require, in respect to all or any                              
28       part of the corporation's business activity, if reasonable, the employment of any                                 
29       method authorized under art. IV, sec. 18, AS 43.19.010 (Multistate Tax Compact), to                               
30       carry out an equitable allocation and apportionment of the corporation's income. The                              
31       commissioner shall include in the annual report required in AS 43.21.410 a report on                              
01       all relief granted under this subsection, including, for each case, a statement of the                            
02       changes in tax liability resulting from the granting of relief, the tax years involved, and                       
03       a description of the method of determining taxable income that was substituted for the                            
04       methods provided in this chapter.                                                                                 
05            Sec. 43.21.320. Credits. Subject to the limitations imposed on the credits in                              
06       AS 43.20, a credit under AS 43.20.014, 43.20.043, 43.20.044, 43.20.046, 43.20.047,                                
07       43.20.048, 43.20.049, or 43.20.053 may be applied against the tax levied under this                               
08       chapter, unless a credit for the same expenditure has been taken against a tax levied                             
09       under AS 43.20 or AS 43.55. Any refund of a credit under this section is limited to the                           
10       portion of the tax credit unused under this title.                                                                
11            Sec. 43.21.330. Returns and payment of taxes. (a) A corporation subject to                               
12       tax under this chapter and required to make a return under the Internal Revenue Code                              
13       shall, within 30 days after the federal return is required to be filed, submit a return                           
14       setting out                                                                                                       
15                 (1)  the amount of tax due under this chapter, less credits claimed                                     
16       against the tax; and                                                                                              
17                 (2)  other information the department may require to carry out the                                      
18       purposes of this chapter.                                                                                         
19            (b)  The return shall be made under oath or shall contain a written declaration                              
20       that it is made under penalty of perjury and shall be made on a form prescribed by the                            
21       department.                                                                                                       
22            (c)  On request by the department, a taxpayer shall furnish to the department a                              
23       true and correct copy of each annual tax return the taxpayer has filed with the United                            
24       States Internal Revenue Service. Every taxpayer shall notify the department in writing                            
25       of any modification of the taxpayer's federal income tax return and of a recomputation                            
26       of tax or determination of deficiency. A full statement of the facts must accompany                               
27       this notice. The notice shall be filed within 60 days after the final determination of the                        
28       modification, recomputation, or deficiency, and the taxpayer shall pay the additional                             
29       tax or penalty under this chapter. For purposes of this section, a determination shall be                         
30       considered to be final at the time an amended federal return is filed or a notice of                              
31       deficiency or an assessment is mailed to the taxpayer by the Internal Revenue Service,                            
01       except that in no event shall a determination be considered final for purposes of this                            
02       section until the taxpayer has exhausted the taxpayer's rights of appeal under federal                            
03       law.                                                                                                              
04            (d)  The total amount of tax imposed by this chapter is due and payable to the                               
05       department at the same time and in the same manner as the tax payable to the United                               
06       States Internal Revenue Service, including quarterly estimated tax prepayments,                                   
07       except that a taxpayer with an estimated tax liability of less than $1,000,000 for the                            
08       year is not required to make quarterly prepayments of the estimated tax.                                          
09            (e)  A tax due under this section is payable even if the assessment is under                                 
10       appeal or the validity, enforceability, or application of this chapter or any provision of                        
11       this chapter is challenged before the department or in the courts.                                                
12            (f)  An unpaid amount of an installment payment required under (d) of this                                   
13       section that is not paid when due shall be treated as an underpayment under 26 U.S.C.                             
14       6655 (Internal Revenue Code) and shall accrue interest at a rate appropriate for the                              
15       state prescribed in regulation.                                                                                   
16                      Article 3. Administrative Matters.                                                               
17            Sec. 43.21.400. Regulations. The department shall adopt regulations in                                     
18       accordance with AS 44.62 (Administrative Procedure Act) to implement this chapter.                                
19       In the adoption of regulations under this section, the department shall use the 1981                              
20       regulations adopted under former provisions of this chapter as guidance. Regulations                              
21       adopted under this section must include methods for accounting for                                                
22                 (1)  intercompany transactions in a fair and equitable manner and to                                    
23       prevent purposeful tax evasion or manipulation of income or deductions, including                                 
24       transactions for costs incurred by a party outside of the state that are related to oil or                        
25       gas production from a lease or property in the state or to pipeline transportation of oil                         
26       or gas in the state; and                                                                                          
27                 (2)  transactions between parent and subsidiary companies.                                              
28            Sec. 43.21.410. Public reporting. (a) The commissioner shall compile and                                   
29       transmit to the legislature an annual report of state revenue and the implementation of                           
30       taxation policies under this chapter. The report must include total aggregate income                              
31       tax paid by corporations subject to this chapter and aggregate income and deductions                              
01       by category, classified so as to prevent the identification of particular returns or                              
02       reports.                                                                                                          
03            (b)  The legislative auditor shall notify the legislature on or before the first day                         
04       of each regular session that the annual report reviewing the actions of the department                            
05       in administering this chapter is available.                                                                       
06            Sec. 43.21.420. Information disclosure. Notwithstanding another provision of                               
07       law, the department shall disclose to a legislator, on request, information collected                             
08       from a taxpayer to the extent that                                                                                
09                 (1)  the taxpayer is a publicly traded company;                                                         
10                 (2)  the information has been filed in a quarterly, annual, or other                                    
11       periodic report to the United States Securities Exchange Commission; and                                          
12                 (3)  the information has been made public by the United States                                          
13       Securities Exchange Commission.                                                                                   
14            Sec. 43.21.499. Definitions. Unless the context requires otherwise, the                                    
15       definitions contained in AS 43.55.900 are applicable to this chapter. In addition, in this                        
16       chapter,                                                                                                          
17                 (1)  "consolidated business" means a corporation or group of                                            
18       corporations having more than 50 percent common ownership, direct or indirect, or a                               
19       group of corporations in which there is common control, either direct or indirect, as                             
20       evidenced by an arrangement, contract, or agreement;                                                              
21                 (2)  "Internal Revenue Code" has the meaning given in AS 43.20.340.                                     
22    * Sec. 6. AS 43.82.210(a) is amended to read:                                                                      
23            (a)  If the commissioner approves an application and proposed project plan                                   
24       under AS 43.82.140, the commissioner may develop proposed terms for inclusion in a                                
25       contract under AS 43.82.020 for periodic payment in lieu of one or more of the                                    
26       following taxes that otherwise would be imposed by the state or a municipality on the                             
27       qualified sponsor or member of a qualified sponsor group as a consequence of                                      
28       participating in an approved qualified project:                                                                   
29                 (1)  oil and gas production taxes and oil surcharges under AS 43.55;                                    
30                 (2)  oil and gas exploration, production, and pipeline transportation                                   
31       property taxes under AS 43.56;                                                                                    
01                 (3)  oil and gas corporate income tax under AS 43.21; [REPEALED]                                    
02                 (4)  Alaska net income tax under AS 43.20;                                                              
03                 (5)  municipal sales and use tax under AS 29.45.650 - 29.45.710;                                        
04                 (6)  municipal property tax under AS 29.45.010 - 29.45.250 or                                           
05       29.45.550 - 29.45.600;                                                                                            
06                 (7)  municipal special assessments under AS 29.46;                                                      
07                 (8)  a comparable tax or levy imposed by the state or a municipality                                    
08       after June 18, 1998;                                                                                              
09                 (9)  other state or municipal taxes or categories of taxes identified by                                
10       the commissioner.                                                                                               
11    * Sec. 7. AS 43.20.144 is repealed.                                                                                
12    * Sec. 8. The uncodified law of the State of Alaska is amended by adding a new section to                          
13 read:                                                                                                                   
14       APPLICABILITY. AS 43.21, added by sec. 5 of this Act, applies to taxable income                                   
15 earned or received after December 31, 2015.                                                                             
16    * Sec. 9. The uncodified law of the State of Alaska is amended by adding a new section to                          
17 read:                                                                                                                   
18       REGULATIONS. (a) The Department of Revenue may adopt regulations necessary to                                     
19 implement AS 43.21, added by sec. 5 of this Act. The regulations take effect under AS 44.62                             
20 (Administrative Procedure Act), but not before the effective date of the law implemented by                             
21 regulation.                                                                                                             
22       (b)  The Department of Revenue shall provide by regulation for a transition for a                                 
23 corporation subject to tax under AS 43.20 before December 31, 2015, to avoid double                                     
24 taxation of the same income or double deduction of the same expense of the corporation as a                             
25 result of becoming subject to tax under AS 43.21, added by sec. 5 of this Act.                                          
26       (c)  The Department of Revenue may adopt regulations necessary to provide a five-                                 
27 year transition period for the adoption of applicable depreciation schedules.                                           
28    * Sec. 10. Section 9 of this Act takes effect immediately under AS 01.10.070(c).                                   
29    * Sec. 11. Except as provided in sec. 10 of this Act, this Act takes effect January 1, 2016.