Legislature(2005 - 2006)
2006-05-20 Senate Journal
Full Journal pdf2006-05-20 Senate Journal Page 3428 SB 2001 SENATE BILL NO. 2001 BY THE SENATE RULES COMMITTEE BY REQUEST OF THE GOVERNOR, entitled: "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; providing that provisions of AS 43.55 do not apply to certain oil and gas subject to a contract executed under the Alaska Stranded Gas Development Act; 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." 2006-05-20 Senate Journal Page 3429 was read the first time and referred to the Finance Committee. The following fiscal information was published today: Fiscal Note No. 1, zero, Department of Natural Resources Fiscal Note No. 2, Department of Revenue Governor's transmittal letter dated May 20: Dear President Stevens: Under the authority of art. III, sec. 18, of the Alaska Constitution, I am transmitting a bill relating to the oil and gas production tax. This bill is substantially similar to HCS CSSB 305(FIN) am H, which was the version of SB 305 that passed the House on May 8, 2006. Like SB 305, this bill would eliminate the economic limit factor (ELF) from the determination of production tax, and would replace it with a more progressive and investment-friendly tax system. This bill does make some changes to the final House version of SB 305. Apart from editorial adjustments, those changes are as follows: 1. Section 5 of the bill replaces the 21.5 percent tax rate that appeared in the final House version of SB 305 with what we believe is the more appropriate 20 percent rate. 2. The additional "progressivity" tax based on a price index, added by the House and contained in sec. 5 of the final House version of SB 305, is eliminated as excessive, along with the related "high energy cost offset fund" provision. 3. The treatment of cost deductions ("lease expenditures") in sec. 25 of the bill is reorganized and clarified, and the reference to industry practices and standards is limited to the better defined and more relevant in-state practices and standards rather than the entire United States. The cost adjustment provision, AS 43.55.160(e), is clarified to avoid double- counting adjustments that are made in the calculation of lease expenditures. 2006-05-20 Senate Journal Page 3430 4. Several revisions have been made in the list of items excluded from deductible costs in sec. 25 of the bill. The term "gross negligence" is substituted for the term "negligence" in AS 43.55.160(d)(6); "well pad" is substituted for "well" in AS 43.55.160(d)(16), and the scope of the exclusion is clarified with respect to projects that replace, renovate, or improve facilities. The exclusion for oil spill costs is slightly narrowed to exempt a spill confined to a gravel pad. 5. The 50,000 barrel a day phase-out provision for the sec. 170 tax credit in sec. 25 of the bill is eliminated, so that all producers qualify equally for the same credit. 6. A new section is added to the bill on the relationship of the production tax statute to the Alaska Stranded Gas Development Act. This section affirms that the production tax and oil conservation surcharges will not apply to oil or gas for which a producer is obligated to make payments in lieu of taxes and surcharges (including gas delivered in kind) under a stranded gas contract. 7. The starting date for the new production tax provisions is changed from April 1 to July 1, 2006. The 20 percent tax credits for qualified investments and for annual losses remain the same. The credits could not be used to reduce a taxpayer's liability below zero. A credit not used in a given period may still either be carried forward or sold to another taxpayer who might better be able to use it. The transitional investment expenditure provisions also are unchanged from the House-passed bill. As explained more fully in my transmittal letter accompanying the original Administration bills, this bill will greatly improve Alaska's oil and gas tax system, encouraging investment in the state, making tax administration more predictable, and better reflecting the variable economics of oil and gas development. This bill will provide 2006-05-20 Senate Journal Page 3431 Alaskans with a fairer share of the value of the oil and gas taken out of the ground in our state and provide fiscal certainty for future generations of Alaskans. I urge your prompt and favorable action on the bill. Sincerely, /s/ Frank H. Murkowski Governor