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CCS HB 111: "An Act relating to credits against the oil and gas production tax; relating to the applicability of certain credits earned under the oil and gas production tax to the tax on corporations; relating to tax credit certificates against the oil and gas production tax and the issuance and assignment of those certificates; relating to interest applicable to delinquent taxes; relating to lease expenditures; relating to the oil and gas tax credit fund; relating to a legislative working group; and providing for an effective date."

00 CONFERENCE CS FOR HOUSE BILL NO. 111 01 "An Act relating to credits against the oil and gas production tax; relating to the 02 applicability of certain credits earned under the oil and gas production tax to the tax on 03 corporations; relating to tax credit certificates against the oil and gas production tax 04 and the issuance and assignment of those certificates; relating to interest applicable to 05 delinquent taxes; relating to lease expenditures; relating to the oil and gas tax credit 06 fund; relating to a legislative working group; and providing for an effective date." 07 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA: 08 * Section 1. AS 31.05.030(n) is amended to read: 09 (n) Upon request of the commissioner of revenue, the commission shall 10 determine the commencement of regular production from a lease or property for 11 purposes of AS 43.55.160(f) and (g) and 43.55.165(o) and (p). 12 * Sec. 2. AS 40.25.100(a) is amended to read: 13 (a) Information in the possession of the Department of Revenue that discloses

01 the particulars of the business or affairs of a taxpayer or other person, including 02 information under AS 38.05.020(b)(11) that is subject to a confidentiality agreement 03 under AS 38.05.020(b)(12), is not a matter of public record, except as provided in 04 AS 43.05.230(i) - (k) [AS 43.05.230(i) - (l)] or for purposes of investigation and law 05 enforcement. The information shall be kept confidential except when its production is 06 required in an official investigation, administrative adjudication under AS 43.05.405 - 07 43.05.499, or court proceeding. These restrictions do not prohibit the publication of 08 statistics presented in a manner that prevents the identification of particular reports 09 and items, prohibit the publication of tax lists showing the names of taxpayers who are 10 delinquent and relevant information that may assist in the collection of delinquent 11 taxes, or prohibit the publication of records, proceedings, and decisions under 12 AS 43.05.405 - 43.05.499. 13 * Sec. 3. AS 43.05.225 is amended to read: 14 Sec. 43.05.225. Interest. Unless otherwise provided, 15 (1) a delinquent tax under this title 16 (A) [UNDER THIS TITLE,] before January 1, 2014, bears 17 interest in each calendar quarter at the rate of five percentage points above the 18 annual rate charged member banks for advances by the 12th Federal Reserve 19 District as of the first day of that calendar quarter, or at the annual rate of 11 20 percent, whichever is greater, compounded quarterly as of the last day of that 21 quarter; 22 (B) [UNDER THIS TITLE,] on and after January 1, 2014, and 23 before January 1, 2018 [EXCEPT AS PROVIDED IN (C) OF THIS 24 PARAGRAPH], bears interest in each calendar quarter at the rate of three 25 percentage points above the annual rate charged member banks for advances 26 by the 12th Federal Reserve District as of the first day of that calendar quarter; 27 (C) [UNDER AS 43.55,] on and after January 1, 2018 [2017, 28 (i) FOR THE FIRST THREE YEARS AFTER A TAX 29 BECOMES DELINQUENT], bears interest in each calendar quarter at 30 the rate of 5.25 [SEVEN] percentage points above the annual rate 31 charged member banks for advances by the 12th federal reserve district

01 as of the first day of that calendar quarter, compounded quarterly as of 02 the last day of that quarter; [AND 03 (ii) AFTER THE FIRST THREE YEARS AFTER A 04 TAX BECOMES DELINQUENT, DOES NOT BEAR INTEREST;] 05 (2) the interest rate is 12 percent a year for 06 (A) delinquent fees payable under AS 05.15.095(c); and 07 (B) unclaimed property that is not timely paid or delivered, as 08 allowed by AS 34.45.470(a). 09 * Sec. 4. AS 43.20.044(a) is amended to read: 10 (a) A taxpayer may apply as a credit against the tax levied under this chapter 11 (1) the exploration incentive credit authorized by AS 27.30; 12 (2) an alternative tax credit for oil and gas exploration earned by 13 the taxpayer under AS 43.55.025 for exploration expenditures incurred for work 14 performed on or after July 1, 2016. 15 * Sec. 5. AS 43.20.047(h) is amended to read: 16 (h) If the liquefied natural gas storage facility for which a credit was received 17 under this section ceases commercial operation during the nine calendar years 18 immediately following the calendar year in which the liquefied natural gas storage 19 facility commences commercial operation, the tax liability under this chapter of the 20 person who claimed the credit shall be increased, and a person not subject to the tax 21 under this chapter that received a payment under (d) or former [AND] (e) of this 22 section shall be liable to the state in the amount determined in this subsection. The 23 amount of the increase in tax liability or liability to the state 24 (1) for a person subject to the tax under this chapter, shall be 25 determined and assessed for the taxable year in which the liquefied natural gas storage 26 facility ceases commercial operation, regardless of whether the liquefied natural gas 27 storage facility subsequently resumes commercial operation; 28 (2) for a person not subject to the tax due under this chapter, shall be 29 determined and assessed as of December 31 of the calendar year in which the liquefied 30 natural gas storage facility ceases commercial operation, regardless of whether the 31 liquefied natural gas storage facility subsequently resumes commercial operation; and

01 (3) is equal to the total amount of the credit taken or received as a 02 payment under (d) of this section, as applicable, multiplied by a fraction, the 03 numerator of which is the difference between 10 and the number of calendar years for 04 which the liquefied natural gas storage facility was eligible for a tax credit under this 05 section and the denominator of which is 10. 06 * Sec. 6. AS 43.55.023(c) is amended to read: 07 (c) A credit or portion of a credit under this section 08 (1) may not be used to reduce a person's tax liability under 09 AS 43.55.011(e) for any calendar year below zero; 10 (2) may, if [, AND ANY UNUSED CREDIT OR PORTION OF A 11 CREDIT] not used under this subsection, [MAY] be applied in a later calendar year; 12 (3) may, regardless of when the credit was earned, be used to 13 satisfy a tax, interest, penalty, fee, or other charge that 14 (A) is related to the tax due under this chapter for a prior 15 year, except for a surcharge under AS 43.55.201 - 43.55.299 or 43.55.300 16 or the tax levied by AS 43.55.011(i) or 43.55.014; and 17 (B) has not, for the purpose of art. IX, sec. 17(a), 18 Constitution of the State of Alaska, been subject to an administrative 19 proceeding or litigation. 20 * Sec. 7. AS 43.55.023(d) is amended to read: 21 (d) A person that is entitled to take a tax credit under this section that wishes 22 to transfer the unused credit to another person or, for a credit for a lease expenditure 23 incurred before July 1, 2017, obtain a cash payment under AS 43.55.028 may apply 24 to the department for a transferable tax credit certificate. An application under this 25 subsection must be in a form prescribed by the department and must include 26 supporting information and documentation that the department reasonably requires. 27 The department shall grant or deny an application, or grant an application as to a lesser 28 amount than that claimed and deny it as to the excess, not later than 120 days after the 29 latest of (1) March 31 of the year following the calendar year in which the qualified 30 capital expenditure or carried-forward annual loss for which the credit is claimed was 31 incurred; (2) the date the statement required under AS 43.55.030(a) or (e) was filed for

01 the calendar year in which the qualified capital expenditure or carried-forward annual 02 loss for which the credit is claimed was incurred; or (3) the date the application was 03 received by the department. If, based on the information then available to it, the 04 department is reasonably satisfied that the applicant is entitled to a credit, the 05 department shall issue the applicant a transferable tax credit certificate for the amount 06 of the credit. A certificate issued under this subsection does not expire. 07 * Sec. 8. AS 43.55.023(d), as amended by sec. 7 of this Act, is amended to read: 08 (d) A person that is entitled to take a tax credit under this section that wishes 09 to transfer the unused credit to another person [OR, FOR A CREDIT FOR A LEASE 10 EXPENDITURE INCURRED BEFORE JULY 1, 2017, OBTAIN A CASH 11 PAYMENT UNDER AS 43.55.028] may apply to the department for a transferable 12 tax credit certificate. An application under this subsection must be in a form 13 prescribed by the department and must include supporting information and 14 documentation that the department reasonably requires. The department shall grant or 15 deny an application, or grant an application as to a lesser amount than that claimed and 16 deny it as to the excess, not later than 120 days after the latest of (1) March 31 of the 17 year following the calendar year in which the qualified capital expenditure or carried- 18 forward annual loss for which the credit is claimed was incurred; (2) the date the 19 statement required under AS 43.55.030(a) or (e) was filed for the calendar year in 20 which the qualified capital expenditure or carried-forward annual loss for which the 21 credit is claimed was incurred; or (3) the date the application was received by the 22 department. If, based on the information then available to it, the department is 23 reasonably satisfied that the applicant is entitled to a credit, the department shall issue 24 the applicant a transferable tax credit certificate for the amount of the credit. A 25 certificate issued under this subsection does not expire. 26 * Sec. 9. AS 43.55.023(e) is amended to read: 27 (e) A person to which a transferable tax credit certificate is issued under (d) of 28 this section may transfer the certificate to another person, and a transferee may further 29 transfer the certificate. Subject to the limitations set out in (a) - (d) of this section, and 30 notwithstanding any action the department may take with respect to the applicant 31 under (g) of this section, the owner of a certificate may apply the credit or a portion of

01 the credit shown on the certificate 02 (1) [ONLY] against a tax levied by AS 43.55.011(e); however [. 03 HOWEVER], a credit shown on a transferable tax credit certificate may not be applied 04 under this paragraph to reduce a transferee's total tax liability under 05 AS 43.55.011(e) for oil and gas produced during a calendar year to less than 80 06 percent of the tax that would otherwise be due without applying that credit; any [. 07 ANY] portion of a credit not used under this paragraph [SUBSECTION] may be 08 applied in a later period; or 09 (2) regardless of when the credit was earned, to satisfy a tax, 10 interest, penalty, fee, or other charge that 11 (A) is related to the tax due under this chapter, except for a 12 surcharge under AS 43.55.201 - 43.55.299 or 43.55.300 or the tax levied by 13 AS 43.55.011(i) or 43.55.014; 14 (B) is for a calendar year before the year in which the 15 certificate is applied; and 16 (C) has not, for the purpose of art. IX, sec. 17(a), 17 Constitution of the State of Alaska, been subject to an administrative 18 proceeding or litigation. 19 * Sec. 10. AS 43.55.023(g) is amended to read: 20 (g) The issuance of a transferable tax credit certificate under (d) of this section 21 or former (m) of this section [OR THE PURCHASE OF A CERTIFICATE UNDER 22 AS 43.55.028] does not limit the department's ability to later audit a tax credit claim to 23 which the certificate relates or to adjust the claim if the department determines, as a 24 result of the audit, that the applicant was not entitled to the amount of the credit for 25 which the certificate was issued. The tax liability of the applicant under 26 AS 43.55.011(e) and 43.55.017 - 43.55.180 is increased by the amount of the credit 27 that exceeds that to which the applicant was entitled, or the applicant's available valid 28 outstanding credits applicable against the tax levied by AS 43.55.011(e) are reduced 29 by that amount. If the applicant's tax liability is increased under this subsection, the 30 increase bears interest under AS 43.05.225 from the date the transferable tax credit 31 certificate was issued. For purposes of this subsection, an applicant that is an explorer

01 is considered a producer subject to the tax levied by AS 43.55.011(e). 02 * Sec. 11. AS 43.55.025(a) is amended to read: 03 (a) Subject to the terms and conditions of this section, a credit against the 04 [PRODUCTION] tax levied by AS 43.55.011(e) or, if the credit is for exploration 05 expenditures incurred for work performed on or after July 1, 2016, against the 06 tax levied by AS 43.20 is allowed for exploration expenditures that qualify under (b) 07 of this section in an amount equal to one of the following: 08 (1) 30 percent of the total exploration expenditures that qualify only 09 under (b) and (c) of this section; 10 (2) 30 percent of the total exploration expenditures that qualify only 11 under (b) and (d) of this section; 12 (3) 40 percent of the total exploration expenditures that qualify under 13 (b), (c), and (d) of this section; 14 (4) 40 percent of the total exploration expenditures that qualify only 15 under (b) and (e) of this section; 16 (5) 80, 90, or 100 percent, or a lesser amount described in (l) of this 17 section, of the total exploration expenditures described in (b)(1) and (2) of this section 18 and not excluded by (b)(3) and (4) of this section that qualify only under (l) of this 19 section; 20 (6) the lesser of $25,000,000 or 80 percent of the total exploration 21 drilling expenditures described in (m) of this section and that qualify under (b) and 22 (c)(1), (c)(2)(A), and (c)(2)(C) of this section; or 23 (7) the lesser of $7,500,000 or 75 percent of the total seismic 24 exploration expenditures described in (n) of this section and that qualify under (b) of 25 this section. 26 * Sec. 12. AS 43.55.025(a), as amended by sec. 11 of this Act, is amended to read: 27 (a) Subject to the terms and conditions of this section, a credit against the tax 28 levied by AS 43.55.011(e) or, if the credit is for exploration expenditures incurred for 29 work performed on or after July 1, 2016, against the tax levied by AS 43.20 is allowed 30 for exploration expenditures that qualify under (b) of this section in an amount equal 31 to one of the following:

01 (1) 30 percent of the total exploration expenditures that qualify only 02 under (b) and (c) of this section; 03 (2) 30 percent of the total exploration expenditures that qualify only 04 under (b) and (d) of this section; 05 (3) 40 percent of the total exploration expenditures that qualify under 06 (b), (c), and (d) of this section; 07 (4) 40 percent of the total exploration expenditures that qualify only 08 under (b) and (e) of this section; 09 (5) 80, 90, or 100 percent, or a lesser amount described in (l) of this 10 section, of the total exploration expenditures described in (b)(2) and (3) [(b)(1) AND 11 (2)] of this section and not excluded by (b)(4) and (5) [(b)(3) AND (4)] of this section 12 that qualify only under (l) of this section; 13 (6) the lesser of $25,000,000 or 80 percent of the total exploration 14 drilling expenditures described in (m) of this section and that qualify under (b) and 15 (c)(1), (c)(2)(A), and (c)(2)(C) of this section; or 16 (7) the lesser of $7,500,000 or 75 percent of the total seismic 17 exploration expenditures described in (n) of this section and that qualify under (b) of 18 this section. 19 * Sec. 13. AS 43.55.025(b) is amended to read: 20 (b) To qualify for the production tax credit under (a) of this section, an 21 exploration expenditure 22 (1) must be incurred for work performed after June 30, 2008, and 23 before July 1, 2016, except that, [TO QUALIFY FOR THE PRODUCTION TAX 24 CREDIT UNDER (a)(1), (2), (3), OR (4) OF THIS SECTION] for exploration 25 conducted outside of the Cook Inlet sedimentary basin and south of 68 degrees North 26 latitude, to qualify for the production tax credit under 27 (A) (a)(1), (2), or (3) of this section, an exploration 28 expenditure must be incurred for work performed after June 30, 2008, and 29 before January 1, 2022; [,] and 30 (B) (a)(4) of this section, an exploration expenditure must 31 be incurred for work performed after June 30, 2008, and before

01 January 1, 2018; 02 (2) [(1)] may be for seismic or other geophysical exploration costs not 03 connected with a specific well; 04 (3) [(2)] if for an exploration well, 05 (A) must be incurred by an explorer that holds an interest in the 06 exploration well for which the production tax credit is claimed; 07 (B) may be for either a well that encounters an oil or gas 08 deposit or a dry hole; 09 (C) must be for a well that has been completed, suspended, or 10 abandoned at the time the explorer claims the tax credit under (f) of this 11 section; and 12 (D) must be for goods, services, or rentals of personal property 13 reasonably required for the surface preparation, drilling, casing, cementing, 14 and logging of an exploration well, and, in the case of a dry hole, for the 15 expenses required for abandonment if the well is abandoned within 18 months 16 after the date the well was spudded; 17 (4) [(3)] may not be for administration, supervision, engineering, or 18 lease operating costs; geological or management costs; community relations or 19 environmental costs; bonuses, taxes, or other payments to governments related to the 20 well; costs, including repairs and replacements, arising from or associated with fraud, 21 wilful misconduct, gross negligence, criminal negligence, or violation of law, 22 including a violation of 33 U.S.C. 1319(c)(1) or 1321(b)(3) (Clean Water Act); or 23 other costs that are generally recognized as indirect costs or financing costs; and 24 (5) [(4)] may not be incurred for an exploration well or seismic 25 exploration that is included in a plan of exploration or a plan of development for any 26 unit before May 14, 2003. 27 * Sec. 14. AS 43.55.025(f) is amended to read: 28 (f) For a production tax credit under this section, 29 (1) an explorer shall, in a form prescribed by the department and, 30 except for a credit under (k) of this section, within six months of the completion of the 31 exploration activity, claim the credit and submit information sufficient to demonstrate

01 to the department's satisfaction that the claimed exploration expenditures qualify under 02 this section; in addition, the explorer shall submit information necessary for the 03 commissioner of natural resources to evaluate the validity of the explorer's compliance 04 with the requirements of this section; 05 (2) an explorer shall agree, in writing, 06 (A) to notify the Department of Natural Resources, within 30 07 days after completion of seismic or geophysical data processing, completion of 08 well drilling, or filing of a claim for credit, whichever is the latest, for which 09 exploration costs are claimed, of the date of completion and submit a report to 10 that department describing the processing sequence and providing a list of data 11 sets available; 12 (B) to provide to the Department of Natural Resources, within 13 30 days after the date of a request, unless a longer period is provided by the 14 Department of Natural Resources, specific data sets, ancillary data, and reports 15 identified in (A) of this paragraph; in this subparagraph, 16 (i) a seismic or geophysical data set includes the data 17 for an entire seismic survey, irrespective of whether the survey area 18 covers nonstate land in addition to state land or land in a unit in 19 addition to land outside a unit; 20 (ii) well data include all analyses conducted on physical 21 material, and well logs collected from the well, results, and copies of 22 data collected and data analyses for the well, including well logs; 23 sample analyses; testing geophysical and velocity data including 24 seismic profiles and check shot surveys; testing data and analyses; age 25 data; geochemical analyses; and tangible material; 26 (C) that, notwithstanding any provision of AS 38, information 27 provided under this paragraph will be held confidential by the Department of 28 Natural Resources, 29 (i) in the case of well data, until the expiration of the 30 24-month period of confidentiality described in AS 31.05.035(c), at 31 which time the Department of Natural Resources will release the

01 information after 30 days' public notice unless, in the discretion of the 02 commissioner of natural resources, it is necessary to protect 03 information relating to the valuation of unleased acreage in the same 04 vicinity, or unless the well is on private land and the owner, including 05 the lessor but not the lessee, of the oil and gas resources has not given 06 permission to release the well data; 07 (ii) in the case of seismic or other geophysical data, 08 other than seismic data acquired by seismic exploration subject to (k) of 09 this section, for 10 years following the completion date, at which time 10 the Department of Natural Resources will release the information after 11 30 days' public notice, except as to seismic or other geophysical data 12 acquired from private land, unless the owner, including a lessor but not 13 a lessee, of the oil and gas resources in the private land gives 14 permission to release the seismic or other geophysical data associated 15 with the private land; 16 (iii) in the case of seismic data obtained by seismic 17 exploration subject to (k) of this section, only until the expiration of 30 18 days' public notice issued on or after the date the production tax credit 19 certificate is issued under (5) of this subsection; 20 (3) if more than one explorer holds an interest in a well or seismic 21 exploration, each explorer may claim an amount of credit that is proportional to the 22 explorer's cost incurred; 23 (4) the department may exercise the full extent of its powers as though 24 the explorer were a taxpayer under this title, in order to verify that the claimed 25 expenditures are qualified exploration expenditures under this section; and 26 (5) if the department is satisfied that the explorer's claimed 27 expenditures are qualified under this section and that all data required to be submitted 28 under this section have been submitted, the department shall issue to the explorer a 29 production tax credit certificate for the amount of credit to be allowed against 30 production taxes levied by AS 43.55.011(e) and, if the credit is for exploration 31 expenditures incurred for work performed on or after July 1, 2016, against taxes

01 levied by AS 43.20; notwithstanding any contrary provision of AS 38, AS 40.25.100, 02 or AS 43.05.230, the following information is not confidential: 03 (A) the explorer's name; 04 (B) the date of the application; 05 (C) the location of the well or seismic exploration; 06 (D) the date of the department's issuance of the certificate; and 07 (E) the date on which the information required to be submitted 08 under this section will be released. 09 * Sec. 15. AS 43.55.025(g) is amended to read: 10 (g) An explorer, other than an entity that is exempt from taxation under this 11 chapter, may transfer, convey, or sell its production tax credit certificate to any person, 12 and any person who receives a production tax credit certificate may also transfer, 13 convey, or sell the certificate. A production tax credit certificate that is 14 transferred, conveyed, or sold under this section may not be applied against the 15 tax levied by AS 43.20. 16 * Sec. 16. AS 43.55.025(h) is amended to read: 17 (h) A producer that purchases a production tax credit certificate may apply the 18 credits against its production tax levied by AS 43.55.011(e). Regardless of the price 19 the producer paid for the certificate, the producer may receive a credit against its 20 production tax liability for the full amount of the credit, but for not more than the 21 amount for which the certificate is issued. A production tax credit or a portion of a 22 production tax credit or a production tax credit certificate or a portion of a 23 production tax credit certificate allowed under this section 24 (1) may not be applied more than once; 25 (2) may be applied in a later calendar year; 26 (3) may, regardless of when the credit was earned, be applied to 27 satisfy a tax, interest, penalty, fee, or other charge that 28 (A) is related to the tax due under this chapter for a prior 29 year, except for a surcharge under AS 43.55.201 - 43.55.299 or 43.55.300 30 or the tax levied by AS 43.55.011(i) or 43.55.014; and 31 (B) has not, for the purpose of art. IX, sec. 17(a),

01 Constitution of the State of Alaska, been subject to an administrative 02 proceeding or litigation. 03 * Sec. 17. AS 43.55.025(i) is amended to read: 04 (i) For a production tax credit under this section, 05 (1) a credit may not be applied to reduce a taxpayer's tax liability under 06 AS 43.55.011(e) below zero for a calendar year; 07 (2) if the production tax credit is for exploration expenditures 08 incurred for work performed on or after July 1, 2016, the explorer may apply the 09 credit to reduce the explorer's tax liability under AS 43.20, except that the credit 10 may not be applied to reduce the explorer's tax liability under AS 43.20 below 11 zero for a tax year; and 12 (3) [(2)] an amount of the production tax credit in excess of the amount 13 that may be applied for a calendar or tax year under this subsection may be carried 14 forward and applied against the taxpayer's tax liability under AS 43.55.011(e) in one 15 or more later calendar years or under AS 43.20 in one or more later tax years. 16 * Sec. 18. AS 43.55.025(k) is amended to read: 17 (k) Subject to the terms and conditions of this section, if a claim is filed under 18 (f)(1) of this section before January 1, 2016, a credit against the production tax levied 19 by AS 43.55.011(e) is allowed in an amount equal to five percent of an eligible 20 expenditure under this subsection incurred for seismic exploration performed before 21 July 1, 2003. To be eligible under this subsection, an expenditure must 22 (1) have been for seismic exploration that 23 (A) obtained data that the commissioner of natural resources 24 considers to be in the best interest of the state to acquire for public distribution; 25 and 26 (B) was conducted outside the boundaries of a production unit; 27 however, the amount of the expenditure that is otherwise eligible under this 28 section is reduced proportionately by the portion of the seismic exploration 29 activity that crossed into a production unit; and 30 (2) qualify under (b)(4) [(b)(3)] of this section. 31 * Sec. 19. AS 43.55.025 is amended by adding a new subsection to read:

01 (q) On the day on which an application for a tax credit certificate is submitted 02 under (f) of this section, the department shall issue to the explorer a conditional tax 03 credit certificate. For the purposes of AS 43.55.028(e), the department may, at the 04 time of an application under AS 43.55.028(e), accept from an explorer a conditional 05 tax credit certificate issued under this subsection; however, the department may not 06 purchase a conditional tax credit certificate. A conditional tax credit certificate under 07 this subsection 08 (1) may be used to apply for the purchase of a tax credit certificate 09 under AS 43.55.028(e) if the conditional tax credit certificate is for exploration 10 expenditures incurred before July 1, 2017; 11 (2) may not be sold, transferred, or conveyed; 12 (3) has no value; and 13 (4) expires on the day on which the department issues a transferable 14 tax credit certificate under (f) of this section. 15 * Sec. 20. AS 43.55.028(a) is amended to read: 16 (a) The oil and gas tax credit fund is established as a separate fund of the state. 17 The purpose of the fund is to purchase transferable tax credit certificates issued under 18 AS 43.55.023 and production tax credit certificates issued under AS 43.55.025 and to 19 pay refunds and payments claimed under AS 43.20.046, 43.20.047, or 43.20.053. The 20 oil and gas tax credit fund established under this subsection may not be used to 21 purchase a tax credit certificate for a credit earned under this chapter for activity 22 occurring on or after July 1, 2017. 23 * Sec. 21. AS 43.55.028(e) is amended to read: 24 (e) The department, on the written application of a person to whom a 25 transferable tax credit certificate has been issued under AS 43.55.023(d) or former 26 AS 43.55.023(m) for an expenditure incurred before July 1, 2017, or to whom a 27 production tax credit certificate has been issued under AS 43.55.025(f) for an 28 expenditure incurred before July 1, 2017, may use available money in the oil and 29 gas tax credit fund to purchase, in whole or in part, the certificate. The department 30 may not purchase a total of more than $70,000,000 in tax credit certificates from a 31 person in a calendar year. Before purchasing a certificate or part of a certificate, the

01 department shall find that 02 (1) the calendar year of the purchase is not earlier than the first 03 calendar year for which the credit shown on the certificate would otherwise be allowed 04 to be applied against a tax; 05 (2) the application is not the result of the division of a single entity into 06 multiple entities that would reasonably be expected to apply as a single entity if the 07 $70,000,000 limitation in this subsection did not exist; 08 (3) the applicant's total tax liability under AS 43.55.011(e), after 09 application of all available tax credits, for the calendar year in which the application is 10 made is zero; 11 (4) the applicant's average daily production of oil and gas taxable 12 under AS 43.55.011(e) during the calendar year preceding the calendar year in which 13 the application is made was not more than 50,000 BTU equivalent barrels; and 14 (5) the purchase is consistent with this section and regulations adopted 15 under this section. 16 * Sec. 22. AS 43.55.029(a) is amended to read: 17 (a) An explorer or producer that has applied for a production tax credit under 18 AS 43.55.023(a) or (l) [AS 43.55.023(a), (b), OR (l)] or 43.55.025(a) may make a 19 present assignment of the production tax credit certificate expected to be issued by the 20 department to a third-party assignee. The assignment may be made either at the time 21 the application is filed with the department or not later than 30 days after the date of 22 filing with the department. Once a notice of assignment in compliance with this 23 section is filed with the department, the assignment is irrevocable and cannot be 24 modified by the explorer or producer without the written consent of the assignee 25 named in the assignment. If a production tax credit certificate is issued to the explorer 26 or producer, the notice of assignment remains effective and shall be filed with the 27 department by the explorer or producer together with any application for the 28 department to purchase the certificate under AS 43.55.028(e). 29 * Sec. 23. AS 43.55.160(d) is amended to read: 30 (d) Irrespective of whether a producer produces taxable oil or gas during a 31 calendar year or month, the producer is considered to have generated a positive

01 production tax value if a calculation described in (a) of this section yields a positive 02 number because the producer's adjusted lease expenditures for a calendar year under 03 AS 43.55.165 and 43.55.170 are less than zero as a result of the producer's receiving a 04 payment or credit under AS 43.55.170. An explorer that has [TAKEN A TAX 05 CREDIT UNDER AS 43.55.023(b) OR THAT HAS] obtained a transferable tax credit 06 certificate under AS 43.55.023(d) for the amount of a tax credit under former 07 AS 43.55.023(b) is considered a producer, subject to the tax levied by [UNDER] 08 AS 43.55.011(e), to the extent that the explorer generates a positive production tax 09 value as the result of the explorer's receiving a payment or credit under AS 43.55.170. 10 * Sec. 24. AS 43.55.160(e) is amended to read: 11 (e) Any adjusted lease expenditures under AS 43.55.165 and 43.55.170 12 incurred to explore for, develop, or produce oil or gas from a lease or property 13 outside the Cook Inlet sedimentary basin that would otherwise be deductible by a 14 producer in a calendar year but whose deduction would cause an annual production tax 15 value calculated under (a)(1) or (h) of this section of taxable oil or gas produced 16 during the calendar year to be less than zero may be used to establish a carried- 17 forward annual loss under AS 43.55.165(a)(3). A reduction under (f) or (g) of this 18 section must be added back to the calculation of production tax values for that 19 calendar year before the determination of a carried-forward annual loss under 20 this subsection [AS 43.55.023(b)]. However, the department shall provide by 21 regulation a method to ensure that, for a period for which a producer's tax liability is 22 limited by AS 43.55.011(o) or (p) [AS 43.55.011(j), (k), (o), OR (p)], any adjusted 23 lease expenditures under AS 43.55.165 and 43.55.170 that would otherwise be 24 deductible by a producer for that period but whose deduction would cause a 25 production tax value calculated under (a)(1)(E) or (F) or (h)(3) [(a)(1)(C), (D), (E), 26 OR (F), OR (h)(3)] of this section to be less than zero are accounted for as though the 27 adjusted lease expenditures had first been used as deductions in calculating the 28 production tax values of oil or gas subject to any of the limitations under 29 AS 43.55.011(o) or (p) [AS 43.55.011(j), (k), (o), OR (p)] that have positive 30 production tax values so as to reduce the tax liability calculated without regard to the 31 limitation to the maximum amount provided for under the applicable provision of

01 AS 43.55.011(o) or (p) [AS 43.55.011(j), (k), (o), OR (p)]. Only the amount of those 02 adjusted lease expenditures remaining after the accounting provided for under this 03 subsection may be used to establish a carried-forward annual loss under 04 AS 43.55.165(a)(3) [AS 43.55.023(b)]. In this subsection, "producer" includes 05 "explorer." 06 * Sec. 25. AS 43.55.165(a), as amended by sec. 29, ch. 4, 4SSLA 2016, is amended to read: 07 (a) For purposes of this chapter, a producer's lease expenditures for a calendar 08 year are 09 (1) costs, other than items listed in (e) of this section, that are 10 (A) incurred by the producer during the calendar year after 11 March 31, 2006, to explore for, develop, or produce oil or gas deposits located 12 within the producer's leases or properties in the state or, in the case of land in 13 which the producer does not own an operating right, operating interest, or 14 working interest, to explore for oil or gas deposits within other land in the 15 state; and 16 (B) allowed by the department by regulation, based on the 17 department's determination that the costs satisfy the following three 18 requirements: 19 (i) the costs must be incurred upstream of the point of 20 production of oil and gas; 21 (ii) the costs must be ordinary and necessary costs of 22 exploring for, developing, or producing, as applicable, oil or gas 23 deposits; and 24 (iii) the costs must be direct costs of exploring for, 25 developing, or producing, as applicable, oil or gas deposits; [AND] 26 (2) a reasonable allowance for that calendar year, as determined under 27 regulations adopted by the department, for overhead expenses that are directly related 28 to exploring for, developing, or producing, as applicable, the oil or gas deposits; and 29 (3) lease expenditures incurred in a previous calendar year, 30 subject to (m) - (s) of this section, that 31 (A) met the requirements of AS 43.55.160(e) in the year in

01 which the lease expenditures were incurred; 02 (B) have not been deducted in the determination of the 03 production tax value of oil and gas under AS 43.55.160(a) or (h) in a 04 previous calendar year; 05 (C) were not the basis of a credit under this title; and 06 (D) were incurred to explore for, develop, or produce an oil 07 or gas deposit located in the state outside the Cook Inlet sedimentary 08 basin. 09 * Sec. 26. AS 43.55.165(f) is amended to read: 10 (f) For purposes of AS 43.55.023(a) [AND (b)] and only as to expenditures 11 incurred to explore for an oil or gas deposit located within land in which an explorer 12 does not own a working interest, the term "producer" in this section includes 13 "explorer." 14 * Sec. 27. AS 43.55.165(l) is amended by adding a new paragraph to read: 15 (4) "carried-forward annual loss" means a loss established under (a)(3) 16 of this section. 17 * Sec. 28. AS 43.55.165 is amended by adding new subsections to read: 18 (m) In a calendar year, after application of a producer's lease expenditures that 19 are incurred in that calendar year, the producer may choose to apply all or a portion of 20 a carried-forward annual loss or carry any unused portion forward. The department 21 may not require a producer to apply all or a portion of a carried-forward annual loss in 22 a calendar year. 23 (n) During a calendar year in which a taxpayer's liability under 24 AS 43.55.011(e) is determined under AS 43.55.011(f), the maximum amount of 25 carried-forward annual loss that a taxpayer may apply in that year is equal to the 26 amount, when combined with the lease expenditures of the current year and any 27 credits under this chapter, necessary to reduce the amount calculated under 28 AS 43.55.011(e) to the equivalent amount of tax due under AS 43.55.011(f) before the 29 application of any credits under this chapter. An amount of carried-forward annual 30 loss not applied under this subsection may continue to be carried forward. 31 (o) A carried-forward annual loss may only be applied

01 (1) to determine the production tax value of oil or gas for a category 02 for which a separate annual production tax value is required to be calculated under 03 AS 43.55.160(a) or (h) if the lease expenditure resulting in the carried-forward annual 04 loss was incurred in the same category; 05 (2) beginning in the calendar year in which regular production of oil or 06 gas from the lease or property where the lease expenditure resulting in the carried- 07 forward annual loss was incurred commences. 08 (p) A carried-forward annual loss for a lease expenditure incurred on a lease 09 or property that 10 (1) did not commence regular production of oil or gas before or during 11 the year the lease expenditure was incurred decreases in value each year by one-tenth 12 of the value of the carried-forward annual loss in the preceding year, beginning 13 January 1 of the 11th calendar year after the lease expenditure is carried forward under 14 (a)(3) of this section; a decrease in value under this paragraph does not apply for a 15 year in which the department determines that regular production of oil or gas did not 16 commence because of a natural disaster, an injunction or other court order, or an 17 administrative order; 18 (2) commenced regular production of oil or gas before or during the 19 year the lease expenditure was incurred decreases in value each year by one-tenth of 20 the value of the carried-forward annual loss in the preceding year, beginning January 1 21 of the eighth calendar year after the lease expenditure is carried forward under (a)(3) 22 of this section. 23 (q) A carried-forward annual loss under (p) of this section may not decrease in 24 value for a partial calendar year. 25 (r) For purposes of (o)(2) and (p) of this section, the Alaska Oil and Gas 26 Conservation Commission shall determine the commencement of regular production. 27 (s) In adopting a regulation that defines the lease or property where a lease 28 expenditure resulting in a carried-forward annual loss is incurred for the purpose of (o) 29 and (p) of this section, the department shall include an exploration lease expenditure 30 that is reasonably related to the lease or property. 31 * Sec. 29. AS 43.55.170(c) is amended to read:

01 (c) For purposes of AS 43.55.023(a) [AND (b)] and only as to expenditures 02 incurred to explore for an oil or gas deposit located within land in which an explorer 03 does not own a working interest, the term "producer" in this section includes 04 "explorer." 05 * Sec. 30. AS 43.55.023(b) is repealed January 1, 2018. 06 * Sec. 31. AS 43.05.230(l); AS 43.20.046(e), 43.20.047(e), 43.20.053(e); AS 43.55.025(q), 07 43.55.028, and 43.55.029 are repealed. 08 * Sec. 32. The uncodified law of the State of Alaska is amended by adding a new section to 09 read: 10 LEGISLATIVE WORKING GROUP. (a) A legislative working group is established 11 to analyze the state's fiscal regime for oil and gas, review the state's tax structure and rates on 12 oil and gas produced in the state, recommend changes to the legislature for consideration 13 during the Second Regular Session of the Thirtieth Alaska State Legislature, and develop 14 terms for a comprehensive fiscal regime, including 15 (1) a tax structure that accounts for the unique circumstances for each oil and 16 gas producing area in the state; 17 (2) incentives other than direct monetary support from the state for the 18 exploration, development, and production of oil and gas in the state; 19 (3) consideration of the competitiveness of each area of the state to attract new 20 oil and gas development; 21 (4) alternative means of state support for the exploration, development, and 22 production of oil and gas in the state, including loan guarantees or other financial support 23 through the Alaska Industrial Development and Export Authority, or other state corporation or 24 entity; 25 (5) consideration of the unique market considerations of the Cook Inlet 26 sedimentary basin and the need to support energy supply security for communities in 27 Southcentral Alaska; 28 (6) the applicability of the recommended tax structure to gas currently subject 29 to AS 43.55.011(o). 30 (b) The working group consists of 31 (1) two co-chairs, one of whom is a member of the house of representatives

01 appointed by the speaker of the house of representatives, and one of whom is a member of the 02 senate appointed by the president of the senate; and 03 (2) members appointed by the co-chairs; members must be legislators and 04 must include members of the majority and minority caucuses. 05 (c) The co-chairs of the working group may form an advisory group to the working 06 group, composed of members who are not legislators and who have expertise and skills to 07 assist in the review and development of a new plan for the tax structure and rates on oil and 08 gas produced in the state. The members of an advisory group may include commissioners or 09 employees of state departments, members of the oil and gas industry or trade associations, and 10 economists. 11 (d) The working group may be supported by legislative consultants under contract 12 through the Legislative Budget and Audit Committee. 13 * Sec. 33. The uncodified law of the State of Alaska is amended by adding a new section to 14 read: 15 APPLICABILITY: TAX CREDITS UNDER AS 43.55.025 APPLIED AGAINST 16 TAX DUE UNDER AS 43.20. AS 43.20.044(a), as amended by sec. 4 of this Act, and 17 AS 43.55.025(a), (f), and (i), as amended by secs. 11, 14, and 17 of this Act, apply to a tax 18 credit that has been earned under AS 43.55.025 for work performed on or after July 1, 2016. 19 * Sec. 34. The uncodified law of the State of Alaska is amended by adding a new section to 20 read: 21 APPLICABILITY: TAX CREDIT AND CREDIT CERTIFICATE CARRYBACK. 22 AS 43.55.023(c), as amended by sec. 6 of this Act, AS 43.55.023(e), as amended by sec. 9 of 23 this Act, and AS 43.55.025(h), as amended by sec. 16 of this Act, apply to a tax credit earned 24 or transferable tax credit certificate issued under AS 43.55.023 or a production tax credit 25 certificate issued under AS 43.55.025(f), regardless of when the credit was earned or the 26 certificate was issued. 27 * Sec. 35. The uncodified law of the State of Alaska is amended by adding a new section to 28 read: 29 APPLICABILITY: LEASE EXPENDITURES. AS 43.55.165(a)(3) and (m) - (s), 30 added by secs. 25 and 28 of this Act, apply to a lease expenditure incurred on or after the 31 effective date of secs. 25 and 28 of this Act.

01 * Sec. 36. The uncodified law of the State of Alaska is amended by adding a new section to 02 read: 03 TRANSITION: INTEREST ON DELINQUENT TAXES. Notwithstanding the 04 effective date of sec. 3 of this Act, a delinquent tax under AS 43.55 bears interest in each 05 calendar quarter of 2017 as provided under AS 43.05.225(1) as that paragraph read on the day 06 before the effective date of sec. 3 of this Act. 07 * Sec. 37. The uncodified law of the State of Alaska is amended by adding a new section to 08 read: 09 TRANSITION: PUBLIC INFORMATION UNDER AS 43.05.230(l). 10 Notwithstanding the repeal of AS 43.05.230(l) by sec. 31 of this Act, on April 30 of the year 11 following the calendar year in which sec. 31 of this Act takes effect, the Department of 12 Revenue shall make public the information required under AS 43.05.230(l), as that section 13 read on the day before the effective date of sec. 31 of this Act. 14 * Sec. 38. The uncodified law of the State of Alaska is amended by adding a new section to 15 read: 16 TRANSITION: CASH PAYMENT FOR A TAX CREDIT EARNED FOR A 17 CARRIED-FORWARD ANNUAL LOSS UNDER AS 43.55.023(b) IN CALENDAR YEAR 18 2017. Notwithstanding AS 43.55.023(d) and 43.55.028(a) and (e), as amended by secs. 7, 20, 19 and 21 of this Act, a producer or explorer who earns a tax credit for a carried-forward annual 20 loss under AS 43.55.023(b) in calendar year 2017 may apply to the Department of Revenue 21 for a transferable tax credit certificate under AS 43.55.023(d), as that subsection read on the 22 day before the effective date of sec. 7 of this Act, for the entire amount of the credit earned 23 during calendar year 2017. However, the Department of Revenue may not purchase more than 24 half of the value of a transferable tax credit certificate issued under AS 43.55.023(d), as that 25 subsection read on the day before the effective date of sec. 7 of this Act, for a carried-forward 26 annual loss earned during calendar year 2017 under AS 43.55.023(b); the remainder of the tax 27 credit certificate may be applied against a tax levied by AS 43.55.011(e). 28 * Sec. 39. The uncodified law of the State of Alaska is amended by adding a new section to 29 read: 30 TRANSITION: CARRIED-FORWARD ANNUAL LOSSES. (a) Notwithstanding the 31 repeal of AS 43.55.023(b) by sec. 30 of this Act and the amendments to AS 43.55.160(d) and

01 (e), 43.55.165(f), and 43.55.170(c) by secs. 23, 24, 26, and 29 of this Act, a taxpayer who 02 incurs a carried-forward annual loss before the repeal of AS 43.55.023(b) by sec. 30 of this 03 Act that qualifies for a carried-forward annual loss credit under AS 43.55.023(b) may apply 04 for a credit or tax credit certificate under AS 43.55.023(d), subject to the requirements of 05 AS 43.55.160(d) and (e), as those subsections read on the day before the repeal of 06 AS 43.55.023(b) by sec. 30 of this Act. 07 (b) The Department of Revenue may continue to apply and enforce AS 43.55.023(b), 08 as that subsection read on the day before the repeal of AS 43.55.023(b) by sec. 30 of this Act, 09 for a carried-forward annual loss incurred before the repeal of AS 43.55.023(b) by sec. 30 of 10 this Act. 11 * Sec. 40. The uncodified law of the State of Alaska is amended by adding a new section to 12 read: 13 TRANSITION: OIL AND GAS CREDIT FUND. Subject to appropriation, the 14 balance of the oil and gas tax credit fund created under AS 43.55.028(a) and repealed by sec. 15 31 of this Act lapses into the general fund. 16 * Sec. 41. The uncodified law of the State of Alaska is amended by adding a new section to 17 read: 18 TRANSITION: RETROACTIVITY OF REGULATIONS. Notwithstanding any 19 contrary provision of AS 44.62.240, if the 20 (1) Department of Revenue expressly designates in a regulation that the 21 regulation applies retroactively, a regulation adopted by the Department of Revenue to 22 implement, interpret, make specific, or otherwise carry out this Act may apply retroactively to 23 the effective date of the law implemented by the regulation; 24 (2) Department of Natural Resources expressly designates in a regulation that 25 the regulation applies retroactively, a regulation adopted by the Department of Natural 26 Resources to implement, interpret, make specific, or otherwise carry out this Act may apply 27 retroactively to the effective date of the law implemented by the regulation. 28 * Sec. 42. The uncodified law of the State of Alaska is amended by adding a new section to 29 read: 30 RETROACTIVITY. Sections 7 and 19 - 21 of this Act are retroactive to July 1, 2017. 31 * Sec. 43. The uncodified law of the State of Alaska is amended by adding a new section to

01 read: 02 CONDITIONAL EFFECT; NOTIFICATION. (a) Sections 2, 5, 8, 10, 31, 37, and 40 03 of this Act take effect only if the commissioner of revenue notifies the revisor of statutes in 04 writing as required under (b) of this section. 05 (b) The commissioner of revenue shall notify the revisor of statutes in writing when 06 (1) there are no outstanding applications for purchase of tax credit certificates 07 or claims for refunds or payments for which payment has not been made under 08 AS 43.55.028(e); and 09 (2) it has been at least one year since a person has applied for a purchase, 10 payment, or refund under AS 43.55.028. 11 (c) In this section, 12 (1) "claim for refund or payment" means a refund and payment claimed under 13 AS 43.20.046, 43.20.047, or 43.20.053 subject to payment under AS 43.55.028; 14 (2) "tax credit certificate" means a transferable tax credit certificate issued 15 under AS 43.55.023 or a production tax credit certificate issued under AS 43.55.025 subject 16 to purchase under AS 43.55.028. 17 * Sec. 44. Sections 4, 6, 7, 9, 11, 14 - 17, 19 - 21, 32 - 34, 38, and 41 - 43 of this Act take 18 effect immediately under AS 01.10.070(c). 19 * Sec. 45. Section 25 of this Act takes effect on the effective date of sec. 29, ch. 4, 4SSLA 20 2016. 21 * Sec. 46. If, under sec. 43 of this Act, secs. 2, 5, 8, 10, 31, 37, and 40 of this Act take 22 effect, they take effect on the later of 23 (1) January 1, 2022; or 24 (2) January 1 of the calendar year following the year of notice under sec. 43 of 25 this Act. 26 * Sec. 47. Except as provided in secs. 44 - 46 of this Act, this Act takes effect January 1, 27 2018.