Legislature(2011 - 2012)BARNES 124
02/25/2011 01:00 PM House RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| HB110 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 110 | TELECONFERENCED | |
| + | TELECONFERENCED |
HB 110-PRODUCTION TAX ON OIL AND GAS
1:12:23 PM
CO-CHAIR FEIGE announced that the only order of business is
HOUSE BILL NO. 110, "An Act relating to the interest rate
applicable to certain amounts due for fees, taxes, and payments
made and property delivered to the Department of Revenue;
relating to the oil and gas production tax rate; relating to
monthly installment payments of estimated oil and gas production
tax; relating to oil and gas production tax credits for certain
expenditures, including qualified capital credits for
exploration, development, and production; relating to the
limitation on assessment of oil and gas production taxes;
relating to the determination of oil and gas production tax
values; making conforming amendments; and providing for an
effective date."
1:12:46 PM
CO-CHAIR FEIGE moved to adopt Amendment 1, labeled 27-
GH1007\A.2, Bullock, 2/22/11, which read:
Page 3, line 10:
Delete "as of December 31, 2010, was or had
previously been"
Insert "on December 31, 2008, was"
REPRESENTATIVE P. WILSON objected for discussion.
1:13:28 PM
CO-CHAIR FEIGE explained that HB 110 would divide the unitized
and non-unitized areas as a means to apply a lower base rate
with progressivity for the non-unitized areas. He offered his
belief that the intent of the governor was to offer a lower tax
rate to induce more exploration and future production. He
pointed out that some areas were already unitized, but did not
yet have any production or exploration. He explained that
Amendment 1 would adjust the date on page 3, line 10, to include
these units in the lower non-unitized base tax rate.
1:15:19 PM
CO-CHAIR SEATON noted that the Point Thomson unit is currently
under contest and may be de-unitized; if it was re-unitized,
would the 15 percent [tax] rate be permanent, he asked.
CO-CHAIR FEIGE replied that because Point Thomson was a unit on
that date it would not receive the 15 percent rate.
CO-CHAIR SEATON, referring to proposed Amendment 1, asked
whether the deletion of "or had previously been" would allow
leases that were de-unitized, and then re-unitized at a later
date, to qualify for the 15 percent tax rate.
CO-CHAIR FEIGE offered his belief that it would not. He stated
that "if they were a unit on that date [December 31, 2008], they
would fall under the higher base rate."
1:17:03 PM
CO-CHAIR SEATON expressed concern with removing "or had
previously been" from proposed Amendment 1. He explained that a
unit could be de-unitized, and then, if re-unitized after
December 31, 2010, it would be recognized as a new unit, and
qualify for the lower tax rate of 15 percent.
JOE BALASH, Deputy Commissioner, Office of the Commissioner,
Department of Natural Resources (DNR) explained that the
language in proposed Amendment 1, "or had previously been," was
speaking to individual leases, and would preserve the
designations as of December 31, 2008. Directing his remarks to
Point Thomson, he stated that designations would be determined
by what existed on December 31, 2008.
1:20:23 PM
CO-CHAIR SEATON offered his belief that removal of "or had
previously been" would allow units to re-unitize in order to
qualify for the 15 percent tax rate, as it removed the statutory
restriction.
MR. BALASH pointed out that many individual land parcels had,
over the past 35 years, been in a unit at one time or another.
He explained that leases were initially individual, were
unitized, and then were contracted out. He noted that many
leases, currently not in a unit, had been in another unit at
some point in the last 35 years. He offered his understanding
that the intent of proposed Amendment 1 was to ensure that when
a lease was returned for re-leasing, the process would begin
again, and the lease was eligible for the lower tax rate.
1:22:45 PM
CO-CHAIR SEATON allowed that proposed Amendment 1 was a possible
solution for that issue, but surmised that it could open the
potential problem he described earlier. He stated his desire to
avoid this "loophole" problem.
MR. BALASH responded that DNR did not see any legal problem or
concern with the language as written for proposed Amendment 1.
1:24:14 PM
CO-CHAIR SEATON cited an example of expansion to a unit with a
subsequent re-unitizing, and asked if this would qualify as a
new unit, eligible for the lower tax rate.
MR. BALASH offered his belief that this was not the case because
all the leases that were in those units would be static as of
the amended date.
CO-CHAIR SEATON expressed his disagreement with this assessment.
REPRESENTATIVE MUNOZ agreed with Representative Seaton that the
language was confusing.
1:27:16 PM
CO-CHAIR FEIGE stated that proposed Amendment 1 would amend HB
110 to read that "if a piece of property was within a unit on
December 31, 2008, it gets taxed at ... the base rate of 25
percent plus progressivity. Places that weren't unitized on
that date do not; they get taxed at the lower rate, which is
designed to encourage production." He pointed out that units
existing prior to December 31, 2008, which did not have
production, were areas of exploration, with the potential for
oil.
MR. BALASH expressed his agreement with Co-Chair Feige.
CO-CHAIR FEIGE stated that throughout Alaska history there had
been many leases that were parts of units, and these had been
released for whatever reason. He ascertained that inclusion of
"had previously been" in proposed Amendment 1 would maintain the
higher tax rate for all of these leases, and would not encourage
additional exploration.
1:30:22 PM
REPRESENTATIVE P. WILSON asked what the tax rate would be if the
lease was dissolved for Point Thomson.
MR. BALASH declined to speak about the Point Thomson lease due
to the current litigation. However, he offered the Rockflower
Unit as an example, which was a collection of leases south of
Prudhoe Bay. The unit was formed by Eni, which subsequently
released the leases, all of which had been in a unit as of
December 31, 2008. He shared that Great Bear Petroleum picked
up these leases at the lease sale in the fall of 2010. He
pointed out the intent to ensure these leases were available at
the lower tax rate, as they were not part of a unit currently in
production. In further response, he agreed that the Great Bear
Petroleum leases would be taxed at the lower rate, if proposed
Amendment 1 was approved.
1:33:14 PM
CO-CHAIR SEATON asked when Point Thomson was unitized.
MR. BALASH offered his belief that it was unitized in 1981.
CO-CHAIR SEATON, referring to "was within a unit or in
commercial production," asked if this pertained to a non-
producing lease within a unit.
MR. BALASH explained that, as HB 110 would be applied statewide,
it was necessary to draft language to address all scenarios. He
agreed that individual leases producing prior to the date in
statute would be taxed at the higher tax rate.
1:35:01 PM
CO-CHAIR FEIGE moved to adopt Amendment 1.
REPRESENTATIVE P. WILSON removed her objection. There being no
further objection, it was so ordered.
1:35:36 PM
The committee took a brief at-ease.
1:36:45 PM
CO-CHAIR SEATON moved to adopt Amendment 2, labeled 27-
GH1007\A.36, Bullock, 2/24/11, which read:
Page 1, line 6, following "production":
Insert "relating to certain additional
nontransferable oil and gas production tax credits;"
Page 12, following line 5:
Insert new bill sections to read:
"* Sec. 17. AS 43.55.024(b) is amended to read:
(b) A producer may not take a tax credit under
(a) of this section for any calendar year after the
later of
(1) 2021 [2016]; or
(2) the ninth calendar year after the
calendar year during which the producer first has
commercial oil or gas production before May 1, 2021
[2016], from at least one lease or property in the
state outside the Cook Inlet sedimentary basin, no
part of which is north of 68 degrees North latitude,
if the producer did not have commercial oil or gas
production from a lease or property in the state
outside the Cook Inlet sedimentary basin, no part of
which is north of 68 degrees North latitude, before
April 1, 2006.
* Sec. 18. AS 43.55.024(d) is amended to read:
(d) A producer may not take a tax credit under
(c) of this section for any calendar year after the
later of
(1) 2021 [2016]; or
(2) if the producer did not have commercial
oil or gas production from a lease or property in the
state before April 1, 2006, the ninth calendar year
after the calendar year during which the producer
first has commercial oil or gas production before
May 1, 2021 [2016], from at least one lease or
property in the state."
Renumber the following bill sections accordingly.
Page 16, line 10:
Delete "Sections 6 - 9 and 20"
Insert "Sections 6 - 9 and 22"
Page 16, line 12:
Delete "Section 19"
Insert "Section 21"
Page 16, line 20:
Delete "Sections 11, 12, 14 - 18, 24, and 25(a)"
Insert "Sections 11, 12, 14 - 16, 19, 20, 26, and
27(a)"
Page 16, line 21:
Delete "Sections 6 - 9, 20, and 25(b)"
Insert "Sections 6 - 9, 22, and 27(b)"
Page 16, line 22:
Delete "Sections 19 and 25(c)"
Insert "Sections 21 and 27(c)"
Page 16, line 23:
Delete "secs. 27 - 29"
Insert "secs. 29 - 31"
1:37:05 PM
REPRESENTATIVE P. WILSON objected for discussion.
CO-CHAIR SEATON explained that proposed Amendment 2 related to
the small producer tax credits, a $12 million credit for
producers of less than 100,000 barrels per day. He declared
that the proposed amendment extended the sunset date of this
credit for an additional five years, from 2016 to 2021.
REPRESENTATIVE P. WILSON understood that proposed Amendment 2
extended the tax credit period from 5 years to 10 years.
CO-CHAIR SEATON agreed.
REPRESENTATIVE P. WILSON removed her objection.
1:39:07 PM
The committee took an at-ease from 1:39 p.m. to 1:41 p.m.
1:41:05 PM
There being no objection, Amendment 2 was adopted.
CO-CHAIR SEATON moved to adopt Amendment 3, labeled 27-
GH1007\A.3, Mischel/Bullock, 2/23/11, which read:
Page 1, lines 4 - 5:
Delete "for certain expenditures"
Page 12, following line 5:
Insert a new bill section to read:
"* Sec. 17. AS 43.55.024(c) is amended to read:
(c) For a calendar year for which a producer's
tax liability under AS 43.55.011(e) exceeds zero
before application of any credits under this chapter,
other than a credit under (a) of this section but
after application of any credit under (a) of this
section, a producer that is qualified under (e) of
this section and whose average amount of oil and gas
produced a day and taxable under AS 43.55.011(e) is
less than 100,000 BTU equivalent barrels a day may
apply a tax credit under this subsection against that
liability. A producer whose average amount of oil and
gas produced a day and taxable under AS 43.55.011(e)
is
(1) not more than 50,000 BTU equivalent
barrels may apply a tax credit of not more than
$15,000,000 [$12,000,000] for the calendar year;
(2) more than 50,000 and less than 100,000
BTU equivalent barrels may apply a tax credit of not
more than $15,000,000 [$12,000,000] multiplied by the
following fraction for the calendar year:
1 - [2 X (AP - 50,000)] / 100,000
where AP = the average amount of oil and gas taxable
under AS 43.55.011(e), produced a day during the
calendar year in BTU equivalent barrels."
Renumber the following bill sections accordingly.
Page 16, line 10:
Delete "Sections 6 - 9 and 20"
Insert "Sections 6 - 9 and 21"
Page 16, line 12:
Delete "Section 19"
Insert "Section 20"
Page 16, line 20:
Delete "Sections 11, 12, 14 - 18, 24, and 25(a)"
Insert "Sections 11, 12, 14 - 16, 18, 19, 25, and
26(a)"
Page 16, line 21:
Delete "Sections 6 - 9, 20, and 25(b)"
Insert "Sections 6 - 9, 21, and 26(b)"
Page 16, line 22:
Delete "Sections 19 and 25(c)"
Insert "Sections 20 and 26(c)"
Page 16, line 23:
Delete "secs. 27 - 29"
Insert "secs. 28 - 30"
REPRESENTATIVE P. WILSON objected for discussion.
1:41:51 PM
CO-CHAIR SEATON reported that proposed Amendment 3, relating to
the credits extended in Amendment 2, would insert Section 17 in
proposed HB 110. He explained that the proposed amendment would
increase the small producer tax credits, which producers had
declared important for the financing of exploration and
development, from $12 million to $15 million. He emphasized
that these annual credits could not be sold, could only be used
if there was oil production, and were applied to any production
under 100,000 barrels per day. He shared that this was an
existing law, which merely changed the credit from $12 million
annually to $15 million annually.
CO-CHAIR FEIGE asked why it was necessary to change the bill
title.
CO-CHAIR SEATON replied that the bill did not address the small
producer tax credit. He referred to the testimony stating that
the short date on the tax credits was delaying the project
financing. In response to Representative Herron, he pointed out
that the producers had indicated that an increase in the credit
amount would be helpful.
1:44:55 PM
REPRESENTATIVE MUNOZ reflected that the primary criticism from
the small producers had been for the tax credit extension over
two years, instead of one year.
CO-CHAIR FEIGE agreed that was one criticism.
REPRESENTATIVE MUNOZ asked if the small producers had offered a
suggestion for a specific credit amount.
CO-CHAIR SEATON referred to a conversation between
Representative Herron and the producers for the increase in the
tax credit. He indicated that the earlier amount had needed an
adjustment for inflation. He stated that a committee goal was
to offer reasonable support for the small producers to attract
investment capital.
BRYAN BUTCHER, Acting Commissioner, Department of Revenue (DOR),
replied that DOR did not have any concerns with proposed
Amendment 3.
REPRESENTATIVE P. WILSON removed her objection. There being no
further objection, it was so ordered.
1:47:31 PM
CO-CHAIR SEATON moved to adopt Amendment 4, labeled 27-
GH1007\A.4, Mischel/Bullock, 2/23/11, which read:
Page 12, following line 5:
Insert new bill sections to read:
"* Sec. 17. AS 43.55.025(b) is amended to read:
(b) To qualify for the production tax credit
under (a) of this section, an exploration expenditure
must be incurred for work performed after June 30,
2008, and before July 1, 2021 [2016], and
(1) may be for seismic or other geophysical
exploration costs not connected with a specific well;
(2) if for an exploration well,
(A) must be incurred by an explorer
that holds an interest in the exploration well for
which the production tax credit is claimed;
(B) may be for either a well that
encounters an oil or gas deposit or a dry hole;
(C) must be for a well that has been
completed, suspended, or abandoned at the time the
explorer claims the tax credit under (f) of this
section; and
(D) must be for goods, services, or
rentals of personal property reasonably required for
the surface preparation, drilling, casing, cementing,
and logging of an exploration well, and, in the case
of a dry hole, for the expenses required for
abandonment if the well is abandoned within 18 months
after the date the well was spudded;
(3) may not be for administration,
supervision, engineering, or lease operating costs;
geological or management costs; community relations or
environmental costs; bonuses, taxes, or other payments
to governments related to the well; costs, including
repairs and replacements, arising from or associated
with fraud, wilful misconduct, gross negligence,
criminal negligence, or violation of law, including a
violation of 33 U.S.C. 1319(c)(1) or 1321(b)(3) (Clean
Water Act); or other costs that are generally
recognized as indirect costs or financing costs; and
(4) may not be incurred for an exploration
well or seismic exploration that is included in a plan
of exploration or a plan of development for any unit
before May 14, 2003.
* Sec. 18. AS 43.55.025(k) is amended to read:
(k) Subject to the terms and conditions of this
section, if a claim is filed under (f)(1) of this
section before January 1, 2021 [2016], a credit
against the production tax levied by AS 43.55.011(e)
is allowed in an amount equal to five percent of an
eligible expenditure under this subsection incurred
for seismic exploration performed before July 1, 2003.
To be eligible under this subsection, an expenditure
must
(1) have been for seismic exploration that
(A) obtained data that the
commissioner of natural resources considers to be in
the best interest of the state to acquire for public
distribution; and
(B) was conducted outside the
boundaries of a production unit; however, the amount
of the expenditure that is otherwise eligible under
this section is reduced proportionately by the portion
of the seismic exploration activity that crossed into
a production unit; and
(2) qualify under (b)(3) of this section."
Renumber the following bill sections accordingly.
Page 16, line 10:
Delete "Sections 6 - 9 and 20"
Insert "Sections 6 - 9 and 22"
Page 16, line 12:
Delete "Section 19"
Insert "Section 21"
Page 16, line 20:
Delete "Sections 11, 12, 14 - 18, 24, and 25(a)"
Insert "Sections 11, 12, 14 - 16, 19, 20, 26, and
27(a)"
Page 16, line 21:
Delete "Sections 6 - 9, 20, and 25(b)"
Insert "Sections 6 - 9, 22, and 27(b)"
Page 16, line 22:
Delete "Sections 19 and 25(c)"
Insert "Sections 21 and 27(c)"
Page 16, line 23:
Delete "secs. 27 - 29"
Insert "secs. 29 - 31"
REPRESENTATIVE P. WILSON objected for discussion.
CO-CHAIR SEATON explained that proposed Amendment 4 extended the
production tax credit date from 2016 to 2021.
1:48:40 PM
The committee took an at-ease from 1:48 p.m. to 1:50 p.m.
1:50:13 PM
REPRESENTATIVE P. WILSON requested an explanation of proposed
Amendment 4.
CO-CHAIR SEATON explained that proposed Amendment 4 would extend
the sunset date for exploration tax credits by five years, from
2016 to 2021, with the goal of enhancing exploration. In
further response, he confirmed that the only change effected by
proposed Amendment 4 would be an addition of five years for the
exploration tax credits.
REPRESENTATIVE P. WILSON removed her objection.
1:52:28 PM
ACTING COMMISSIONER BUTCHER, in response to Co-Chair Feige, said
that proposed Amendment 4 was "a policy call for the committee
and the Department of Revenue is fine either way."
There being no further objection, Amendment 4 was adopted.
1:53:07 PM
The committee took a brief at-ease.
1:53:56 PM
CO-CHAIR SEATON moved to adopt Amendment 5, labeled 27-
GH1007\A.6, Mischel/Bullock, 2/23/11, which read:
Page 16, line 8:
Delete "Sections 11, 12, 15, and 16"
Insert "Sections 15 and 16"
Page 16, line 20:
Delete "Sections 11, 12, 14 - 18, 24, and 25(a)"
Insert "Sections 14 - 18, 24, and 25(a)"
Page 16, following line 22:
Insert a new bill section to read:
"* Sec. 30. Sections 11 and 12 of this Act take
effect immediately under AS 01.10.070(c)."
Renumber the following bill section accordingly.
Page 16, line 23:
Delete "secs. 27 - 29"
Insert "secs. 27 - 30"
REPRESENTATIVE P. WILSON objected for discussion.
CO-CHAIR SEATON explained that proposed Amendment 5 would modify
the refundable tax credits given to explorers and small
producers to be immediately effective.
1:56:10 PM
REPRESENTATIVE P. WILSON asked whether this affected DOR.
ACTING COMMISSIONER BUTCHER said it was more difficult for DOR
to administer tax credits in the middle of a year. He suggested
making the date retroactive to January 1, 2011.
CO-CHAIR SEATON moved to adopt Conceptual Amendment 1 to
Amendment 5, which would change the effective date retroactive
to January 1, 2011.
There being no objection, Conceptual Amendment 1 to Amendment 5
was approved.
CO-CHAIR FEIGE asked for an explanation of lines 1-3 of proposed
Amendment 5.
CO-CHAIR SEATON replied that this would reorder the sections,
and move Sections 11 and 12 to the new Section 30 of the bill,
making them effective immediately. He said there were no
substantive changes to the amounts of credit.
1:58:39 PM
REPRESENTATIVE MUNOZ requested an interpretation of proposed
Amendment 5 by an attorney from Legislative Legal and Research
Services.
REPRESENTATIVE P. WILSON explained that proposed Amendment 5 did
not remove Sections 11 and 12, but merely reinserted them
elsewhere.
REPRESENTATIVE MUNOZ agreed to this interpretation.
CO-CHAIR FEIGE restated that proposed Amendment 5 would make
Sections 11 and 12 retroactive to January 1, 2011.
CO-CHAIR SEATON confirmed, noting that this was only the case
for the one tax credit.
2:00:40 PM
REPRESENTATIVE P. WILSON understood that proposed Amendment 5
would move Sections 11 and 12 into Section 30 of the bill, and
would change the effective date to January 1, 2011. She removed
her objection.
CO-CHAIR FEIGE moved to adopt Amendment 5, as amended. There
being no objection, it was so ordered.
2:01:39 PM
CO-CHAIR SEATON moved to adopt Amendment 6, labeled 27-
GH1007\A.19, Bullock, 2/23/11, which read:
Page 12, following line 5:
Insert new bill sections to read:
"* Sec. 17. AS 43.55.025(a) is amended to read:
(a) Subject to the terms and conditions of this
section, a credit against the production tax levied by
AS 43.55.011(e) is allowed for exploration
expenditures that qualify under (b) of this section in
an amount equal to one of the following:
(1) 30 percent of the total exploration
expenditures that qualify only under (b) and (c) of
this section;
(2) 30 percent of the total exploration
expenditures that qualify only under (b) and (d) of
this section;
(3) 40 percent of the total exploration
expenditures that qualify under (b), (c), and (d) of
this section;
(4) 40 percent of the total exploration
expenditures that qualify only under (b) and (e) of
this section; [OR]
(5) 80, 90, or 100 percent, or a lesser
amount described in (l) of this section, of the total
exploration expenditures described in (b)(1) and (2)
of this section and not excluded by (b)(3) and (4) of
this section that qualify only under (l) of this
section; or
(6) 30 percent of the total exploration
expenditures that qualify only under (b) and (n) of
this section.
* Sec. 18. AS 43.55.025 is amended by adding a new
subsection to read:
(n) To be eligible for the 30 percent production
tax credit authorized by (a)(6) of this section,
exploration expenditures must be for a well drilled
north of 68 degrees North latitude that is
(1) outside of a unit; or
(2) within a unit formed after June 30,
2008, and the exploration expenditures are incurred
before the later of the date that is four years after
the date the
(A) unit is formed; or
(B) first exploration well is drilled
on a lease or property that is within the unit."
Renumber the following bill sections accordingly.
Page 16, line 8:
Delete "Sections 11, 12, 15, and 16"
Insert "Sections 11, 12, and 15 - 18"
Page 16, line 10:
Delete "Sections 6 - 9 and 20"
Insert "Sections 6 - 9 and 22"
Page 16, line 12:
Delete "Section 19"
Insert "Section 21"
Page 16, line 20:
Delete "Sections 11, 12, 14 - 18, 24, and 25(a)"
Insert "Sections 11, 12, 14 - 20, 26, and 27(a)"
Page 16, line 21:
Delete "Sections 6 - 9, 20, and 25(b)"
Insert "Sections 6 - 9, 22, and 27(b)"
Page 16, line 22:
Delete "Sections 19 and 25(c)"
Insert "Sections 21 and 27(c)"
Page 16, line 23:
Delete "secs. 27 - 29"
Insert "secs. 29 - 31"
REPRESENTATIVE P. WILSON objected for discussion.
2:02:00 PM
CO-CHAIR SEATON noting that the exploration tax credits were
extended to 2021, directed attention to the Division of Oil &
Gas drilling technology handout [included in members' packets].
He explained that wells were previously drilled vertically, but
that current technology allows for lateral drilling. He stated
that the current limitation on exploration required a minimum
three mile distance from the bottom of another well. Proposed
Amendment 6 would allow the 30 percent exploration credits
within or outside a unit, and would remove the distance
requirement. It would apply to wells outside a unit and wells
within a unit for 4 years after the first well was drilled and
would therefore not create a permanent obligation for a 30
percent tax credit. He stated that this was an incentive to
drill more rapidly, to stimulate production, and to not limit
proximate exploration.
2:06:14 PM
REPRESENTATIVE P. WILSON read line 19 of proposed Amendment 6:
"30 percent of the total exploration expenditures that qualify
only under (b)...." She asked to what (b) referred.
CO-CHAIR SEATON explained that "(b) says you're drilling a well
and it's not in a producing field."
REPRESENTATIVE P. WILSON asked if it was in a unit.
CO-CHAIR SEATON replied that it was not in a producing field or
unit.
2:07:11 PM
REPRESENTATIVE P. WILSON, directing attention to line 20 of
proposed Amendment 6, asked for an explanation of (n).
CO-CHAIR SEATON explained that (n) was the new Section 18,
starting on line 21, which stated that eligibility was limited
to the North Slope, north of 68 degrees, and required a well to
be outside a unit, or within a unit formed after June [30],
2008.
REPRESENTATIVE P. WILSON understood it was in a currently non-
producing field, or on the North Slope that is outside of a unit
or within a unit formed after June [30], 2008.
CO-CHAIR SEATON replied correct. He elaborated that this
eliminated the requirement for spacing and distance.
2:09:08 PM
The committee took an at-ease from 2:09 p.m. to 2:13 p.m.
2:13:20 PM
ACTING COMMISSIONER BUTCHER, in response to Co-Chair Feige, said
DOR and DNR were comfortable with proposed Amendment 6.
REPRESENTATIVE P. WILSON removed her objection. There being no
further objection, Amendment 6 was adopted.
2:14:43 PM
REPRESENTATIVE P. WILSON moved to adopt Amendment 7, labeled 27-
GH1007\A.38, Bullock, 2/25/11, which read:
Page 1, line 7, following "values;":
Insert "relating to the disclosure of certain tax
information;"
Page 15, following line 15:
Insert a new bill section to read:
"* Sec. 21. AS 43.55.890 is amended to read:
Sec. 43.55.890. Disclosure of tax
information. Notwithstanding any contrary
provision of AS 40.25.100, and regardless of
whether the information is considered under
AS 43.05.230(e) to constitute statistics
classified to prevent the identification of
particular returns or reports, the department may
publish the following information under this
chapter, if aggregated among three or more
producers or explorers, showing, by month or
calendar year and by lease or property, unit, or
area of the state:
(1) the amount of oil or gas production;
(2) the amount of taxes levied under this
chapter or paid under this chapter;
(3) the effective tax rates under this
chapter;
(4) the gross value of oil or gas at the
point of production;
(5) the transportation costs for oil or
gas;
(6) qualified capital expenditures, as
defined in AS 43.55.023;
(7) exploration expenditures under
AS 43.55.025;
(8) production tax values of oil or gas
under AS 43.55.160;
(9) lease expenditures under AS 43.55.165;
(10) adjustments to lease expenditures
under AS 43.55.170;
(11) tax credits applicable or potentially
applicable against taxes levied by this chapter;
the information relating to tax credits under this
paragraph, to the extent the information is available
to the department, must include the statutory
authority for each type of credit taken, the amount of
credits taken under each statute authorizing a tax
credit, and whether the credit is for an expenditure
related to oil or gas exploration, development, or
production, including the drilling of wells;
performing work on existing wells; conducting
geological or geophysical exploration; acquiring,
constructing, or installing new facilities or
equipment; and maintaining, repairing, or replacing
existing facilities or equipment."
Renumber the following bill sections accordingly.
Page 16, following line 19:
Insert a new bill section to read:
"* Sec. 28. Section 21 of this Act takes effect
immediately under AS 01.10.070(c)."
Renumber the following bill sections accordingly.
Page 16, line 20:
Delete "Sections 11, 12, 14 - 18, 24, and 25(a)"
Insert "Sections 11, 12, 14 - 18, 25, and 26(a)"
Page 16, line 21:
Delete "Sections 6 - 9, 20, and 25(b)"
Insert "Sections 6 - 9, 20, and 26(b)"
Page 16, line 22:
Delete "Sections 19 and 25(c)"
Insert "Sections 19 and 26(c)"
Page 16, line 23:
Delete "secs. 27 - 29"
Insert "secs. 28 - 31"
CO-CHAIR SEATON objected for discussion.
2:14:58 PM
REPRESENTATIVE P. WILSON pointed out that Alaska statute did not
allow state auditors to share financial information with the
legislature. She noted that this tax credit information had to
include the statutory authority for each type of credit taken.
She read from page 2, lines 2-10, of proposed Amendment 7: "the
amount of credits taken under each statute authorizing a tax
credit, and whether the credit is for an expenditure related to
oil or gas exploration, development, or production including the
drilling of wells; performing work on existing wells; conducting
geological or geophysical exploration; acquiring, constructing,
or installing new facilities or equipment; and maintaining,
repairing, or replacing existing facilities or equipment." She
opined that this would reveal how the tax credits were being
used.
2:18:22 PM
CO-CHAIR SEATON presumed the intention of proposed Amendment 7
was for different categories of information and did not require
that the information be aggregated.
REPRESENTATIVE P. WILSON replied that her desire was to ensure
that this did not include any proprietary information.
2:20:10 PM
REPRESENTATIVE P. WILSON, in response to Co-Chair Feige,
confirmed that aggregating the information would destroy the
individuality of that information, but would allow the
legislature to know what the credits were taken for. In further
response, she confirmed that it would allow the legislature to
know the information as it applies to the credit as a whole.
CO-CHAIR SEATON said he would like to hear from Legislative
Legal and Research Services to ensure that proposed Amendment 7
would fully accomplish the intention.
2:21:37 PM
CO-CHAIR FEIGE referred to page 2, line 16, of proposed
Amendment 7 and asked about the best effective date.
ACTING COMMISSIONER BUTCHER deferred to the DOR auditor.
2:22:35 PM
The committee took an at-ease from 2:22 p.m. to 2:24 p.m.
2:24:09 PM
ACTING COMMISSIONER BUTCHER related that the DOR auditor
suggested an effective date of January 1, 2012, as it would
require new regulations be written.
REPRESENTATIVE P. WILSON said her understanding from talks with
DOR auditors was that the department already has this
information. Her intention was for the legislature's immediate
receipt of this information for use in times like this.
ACTING COMMISSIONER BUTCHER replied it would not make a huge
difference either way because it was still necessary for DOR to
write regulations for the bill and its amendments.
REPRESENTATIVE P. WILSON said she was hesitant to postpone the
effective date.
2:26:04 PM
CO-CHAIR SEATON asked whether there were any regulations for
information which was already being reported to the legislature.
ACTING COMMISSIONER BUTCHER replied that DOR did receive the
information, but it was not in a form that would allow it to be
reported to the legislature.
REPRESENTATIVE P. WILSON understood that DOR had recently
revised the forms on which the producers report. She surmised
these new forms could be used to gather the information
requested by the legislature.
ACTING COMMISSIONER BUTCHER offered his agreement.
2:27:18 PM
REPRESENTATIVE P. WILSON asked whether the effective date change
was still necessary.
LENNIE DEES, Audit Master, Production Audit Group, Tax Division,
Department of Revenue, replied that DOR did request information,
but it was summarized, with expenditures by region, and it was
not presented in the categories listed in proposed Amendment 7.
He opined that it would be necessary to define the categories
through regulations.
2:28:20 PM
REPRESENTATIVE P. WILSON surmised that DOR does not require
taxpayers to specify what the tax credit was spent on.
MR. DEES replied that only the total amount was submitted
annually on the March 31 true-up for the preceding year.
REPRESENTATIVE P. WILSON stated that by all means she wants DOR
to be able to [require taxpayers to specify what the tax credit
was spent on] so in the future the legislature can see whether
the credits went to where the legislature intended.
2:28:59 PM
REPRESENTATIVE P. WILSON moved Conceptual Amendment 1 to
Amendment 7, which would state:
Page 2, line 16:
Delete "immediately"
Insert "January 1, 2012"
There being no objection, Conceptual Amendment 1 to Amendment 7
was adopted.
2:29:55 PM
CO-CHAIR SEATON requested clarification of the categories
included on page 2, [lines 5-10], of Amendment 7.
DONALD BULLOCK JR., Attorney, Legislative Legal Counsel,
Legislative Legal and Research Services, Legislative Affairs
Agency, explained that the semicolons separated the groups of
similar types of expenditures. So, what is separated by commas
within a semicolon is one group of expenditures. In further
response, he said that oil and gas exploration, production, and
development included all the well work, and were types of
expenditures in this category.
2:32:08 PM
CO-CHAIR SEATON asked whether this was a reporting category.
MR. BULLOCK pointed out that this section, AS 43.55.890, did not
impose any obligation on taxpayers to report information, but
rather stated the information which DOR had that could be
published. He acknowledged that there was some information
which was required by statute to be submitted.
2:33:06 PM
CO-CHAIR SEATON opined that the problem was determining capital
expenditures and how much was used for maintenance and how much
is used in the drilling of wells. He understood Mr. Bullock to
be saying that, statutorily, Alaska did not require a separate
reporting for maintenance and for well drilling.
MR. BULLOCK explained that each [tax] credit had specific
requirements under statute, and it was incumbent upon DOR to
determine that the money was spent for the appropriate thing.
He noted that DOR could supplement the statutory requirements
with additional reasonable information requests and
requirements. He pointed out the necessity for initially
receiving as much information as possible to the amount of audit
time later.
2:35:08 PM
CO-CHAIR SEATON offered his belief that DOR was unable to
discriminate between the capital expenditures for maintenance
and capital expenditures for well drilling and production. He
pointed out that the reason for proposed Amendment 7 was to
delineate more discreet categories of expenses, and asked
whether the proposed amendment's wording would accomplish this.
MR. BULLOCK replied that proposed Amendment 7 would not
specifically accomplish this. He suggested that DOR be asked
whether it was getting this information. He explained that
taxpayers had to account for these expenses during application
for the tax credit so DOR would have this information.
REPRESENTATIVE P. WILSON asked that Mr. Dees return to testify.
MR. BULLOCK clarified that existing law only specified which
information on hand could be published. The requirement for
what information must be provided by the taxpayer would be
elsewhere.
2:37:50 PM
REPRESENTATIVE P. WILSON explained that the DOR response to her
request for information was that the department could not share
the information. She asked whether proposed Amendment 7 would
now allow this information to be shared with the legislature.
MR. DEES offered his belief that the amended AS.43.55.890 would
allow DOR to distribute the information for the listed
categories. He explained that there were two ways for a company
to acquire [tax] credits: one was to apply to DOR and to
provide detailed expenditure information for the credit.
However, for a company taking the expenditures off its tax
liability, DOR only required that the company report the amount
of the capital expenditures and the amount of credit the company
was using, without the detail of the expenditures. He explained
that the details were not forthcoming until an audit of the tax
filings. The changes in AS 43.55.890, coupled with changes in
other regulations, would allow for more details on the
expenditures. The future effective date for the bill would
allow DOR to determine the categories, and the activities within
each category, to be reported. This would provide more
expenditure detail prior to an audit.
2:42:42 PM
REPRESENTATIVE P. WILSON asked if proposed Amendment 7 would
allow DOR to develop a form which provided the necessary
information for the legislature.
MR. DEES replied that this would be the goal.
CO-CHAIR SEATON asked whether a reporting requirement would
accomplish the goal of requiring companies to submit detailed
information by specific category.
MR. DEES offered his belief that DOR, through existing statute,
had the authority to require this information.
2:45:01 PM
CO-CHAIR SEATON surmised that although the state had the
authority, it had not required these details for past reports,
and it would now be able to distribute this aggregated
information in each category to the legislature.
MR. DEES responded that that was his belief.
ACTING COMMISSIONER BUTCHER added that according to the
Department of Law (DOL), DOR had the authority to collect the
information being discussed, and DOR intended to do so.
2:46:22 PM
CO-CHAIR FEIGE asked if proposed Amendment 7 would place
additional reporting requirements on the taxpayers.
ACTING COMMISSIONER BUTCHER reported that under current statute
DOR could gather this information, although it had not done so.
He noted that proposed Amendment 7 pertained to the reporting of
information, and allowed this.
CO-CHAIR FEIGE asked what additional requirements were placed on
the taxpayers.
ACTING COMMISSIONER BUTCHER replied that DOR did not consider
this to be an onerous amount of work as this information was
already reported and was made available during the audit. This
information would be provided to the legislature under proposed
Amendment 7.
2:47:59 PM
CO-CHAIR FEIGE asked whether this information could be released
prior to the audit.
ACTING COMMISSIONER BUTCHER responded that the information could
be released before the audit. He said the issue here was a
matter of timing and getting an idea of what was going on as it
was going on or soon after, as opposed to waiting three years
for the audits to be finished. In further response, he
concurred that proposed Amendment 7 would facilitate a rapid
dispersal of information to the legislature.
CO-CHAIR SEATON understood Acting Commissioner Butcher to be
saying that when a taxpayer completes its monthly application of
capital credits against its taxes, those will be put into the
categories and reported to DOR at the time the credit is taken
on the company's taxes.
ACTING COMMISSIONER BUTCHER said [the department] has not
discussed in detail whether it would be monthly or quarterly,
but it would be something in that general area.
2:50:18 PM
REPRESENTATIVE P. WILSON asked whether, given the discussion
here and the current statutes, this would be accomplished with
proposed Amendment 7.
MR. BULLOCK answered he believes legislators can get the facts
to see what the expenditures were for because the statutes say
that to qualify for an expenditure the taxpayer must do a
certain thing and the taxpayer must be able to provide
documentation if challenged. This same thing would apply to a
company taking a credit for a well-related expenditure.
However, what legislators will not know is whether that
expenditure would have been incurred without the credit, so
legislators will never really know whether giving a credit
actually caused the activity.
2:51:41 PM
REPRESENTATIVE P. WILSON opined that having the information
would still make analysis easier.
MR. BULLOCK offered his agreement.
CO-CHAIR SEATON removed his objection to proposed Amendment 7.
There being no further objection, Amendment 7, as amended, was
adopted.
2:53:20 PM
The committee took a brief at-ease.
2:54:29 PM
CO-CHAIR SEATON pointed out that DNR was working on the request
for applicable data similar to DOR. He said work on additional
amendments would be ongoing with Mr. Bullock and those
amendments would be distributed as soon as available.
[HB 110 was held over.]