Legislature(2005 - 2006)HOUSE FINANCE 519
04/15/2005 01:30 PM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| HB71 | |
| HB33 | |
| HB147 | |
| HB71 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HB 147 | TELECONFERENCED | |
| + | HB 144 | TELECONFERENCED | |
| + | HB 33 | TELECONFERENCED | |
| += | HB 71 | TELECONFERENCED | |
HOUSE BILL NO. 71
"An Act relating to a credit for certain exploration
expenses against oil and gas properties production
taxes on oil and gas produced from a lease or property
in the state; relating to the deadline for certain
exploration expenditures used as credits against
production tax on oil and gas produced from a lease or
property in the Alaska Peninsula competitive oil and
gas area wide lease sale area after July 1, 2004; and
providing for an effective date."
SUZANNE CUNNINGHAM, STAFF, CO-CHAIR MEYER, explained that
the new CS, version P addresses concerns about the ability
to potentially collect 80 percent of incentives. The new CS
clarifies incentives in Section 1, page 1, where it
discusses 20 percent of the total exploration expenditures
that qualify only under (c) of this section. Subparagraph
(2) deals with 20 percent of the total exploration
expenditures that qualify only under (d) of this section.
Subparagraph (3) addressed 40 percent of the total
exploration expenditures that qualify under both (c) and
(d) of this section.
Co-Chair Chenault MOVED to adopt the work draft to HB 71,
version 24-GH1040\P, Chenoweth, 4/15/05. There being NO
OBJECTION, it was so ordered.
1:49:31 PM
Ms. Cunningham continued to explain that subparagraph (4)
deals with 40 percent of the total exploration expenditures
that qualify only under (e) of this section and pertain to
seismic exploration. This prohibits layering and reaching
80 percent. The new CS also incorporates the Cook Inlet
area for work performed on or after July 1, 2005, and before
July 1, 2010. The House Resources version of the bill added
Nenana Basin, and there was discussion about adding the
Healy and Red Dog areas. Areas south of 68 degrees, 15
minutes are eligible for incentives for exploration and
production, which takes the North Slope and ANWR off the
table.
Co-Chair Meyer clarified that it includes the Red Dog area.
1:51:37 PM
STEVE PORTER, DEPUTY COMMISSIONER, DEPARTMENT OF REVENUE,
addressed principles of the tax credit. Tax credits look at
reservoirs that need assistance. For those that are not
getting good exploration in a particular area, but there are
decent prospects, an incentive may be appropriate. That
decision should happen in the Department of Natural
Resources. Once that discussion occurs, then the Department
of Revenue determines the level of incentive to provide. It
is designed to benefit the taxpayer. There is currently a
discussion as to whether or not to incentivize new areas in
the North Slope. He suggested working with the Department
of Revenue to decide, and he encouraged exploration there.
He also suggested that the committee get an exploration
manager to tell them what kind of benefit those incentives
are to exploration programs.
1:54:58 PM
Co-Chair Meyer expressed confusion because HB 71 was the
governor's bill and it dealt with the Bristol Bay area. Now
other areas have been added. From a policy standpoint the
committee wants to encourage exploration and production. He
related that he does not know what areas to add to the bill
and has to rely on the department and the governor's office
for advice.
Mr. Porter responded that from Department of Revenue's point
of view, the expansion is a policy call based on
conversations with the Department of Natural Resources. He
agreed if incentives are needed, then it is fine to go ahead
with the expansion.
1:56:58 PM
JERRY BURNETT, LEGISLATIVE LIAISON, DEPARTMENT OF REVENUE,
clarified that Section 8 in the new CS says that provisions
of this section do not apply to taxes applicable under this
chapter, attributable to production from oil and gas
produced from an oil and gas lease, or gas produced from a
gas only lease, located north of 68 degrees, 15 minutes,
North latitude, or on the ANWR. He asked if the intent for
this section is to take away credit immediately, or if the
credit is meant to be for exploration or production. This a
major change in how the tax incentive works.
Co-Chair Chenault replied that it is not the intent to take
away from any tax credit currently available. The intent is
to provide for credit in a specific area.
1:59:08 PM
Ms. Cunningham said that is correct. The intent is not to
adversely impact areas that would have incentives expire in
2007. It is to extend the areas south of 68 degrees, 15
minutes, to 2010. She suggested that a conceptual amendment
would be in order.
2:00:05 PM
DAN DICKINSON, DIRECTOR, TAX DIVISION, DEPARTMENT OF
REVENUE, ANCHORAGE, (via teleconference) said the point
raised is correct. It will not apply to north of 68
degrees. He agreed that a conceptual amendment is in order.
He asked if the discussion is about exploration or
production in this area.
2:01:19 PM
Representative Croft requested clarification from Mr.
Dickinson regarding Section 8. He inquired if anything
North of 68 degrees, 15 minutes expires in 2007. Mr.
Dickinson replied yes and suggested that there needn't be
any limitation on exploration. The only way the credit can
be modified is by selling to someone who does not pay
production tax. He stressed focusing on exploration.
Co-Chair Meyer asked how it impacts the production side.
Mr. Dickinson replied that it does not need to impact the
production side. He explained that the credit could be
taken by someone who has production tax and is producing, or
by someone who is not producing or lacks sufficient
production tax. There is no intent to restrict the market
for selling the credit.
2:04:26 PM
Co-Chair Meyer noted that the committee would return to
Section 8 to make the necessary amendments.
Co-Chair Chenault informed the committee about provisions in
the new CS for Cook Inlet oil and gas credit. The dates for
the Cook Inlet Basin incentive credits would be extended
from 2003 until 2010. It provides language that allows
exploration wells in the Cook Inlet to be within the 3-mile
limit, subject to review and approval by the commissioner.
That would provide a 20 percent credit. It provides
language that decreases the 25-mile boundary limit to 10
miles, which also provides a 20 percent credit.
2:06:15 PM
Mr. Dickinson added that there is a $20 million limit for
the amount of credits granted in the Cook Inlet under these
rules.
Co-Chair Meyer set HB 71 aside.
Representative Kelly asked how requirements in Cook Inlet
were lessened. Co-Chair Chenault responded that the 3-mile
limit is one area that the commissioner would look at, and
the 10-mile limit would be statutory.
2:08:38 PM
HOUSE BILL NO. 71
"An Act relating to a credit for certain exploration
expenses against oil and gas properties production
taxes on oil and gas produced from a lease or property
in the state; relating to the deadline for certain
exploration expenditures used as credits against
production tax on oil and gas produced from a lease or
property in the Alaska Peninsula competitive oil and
gas area wide lease sale area after July 1, 2004; and
providing for an effective date."
SUZANNE CUNNINGHAM, STAFF, REPRESENTATIVE KEVIN MEYER, noted
that two amendments have been drafted to HB 71. Amendment 1
is to page 2, Lines 13-17.
Co-Chair Meyer MOVED to ADOPT Amendment 1:
Page 2, lines 13-17
Delete All Material
Insert New Material
(b) To qualify for the production tax credit under (a)
of this section, an exploration expenditure must be
incurred for work performed on or after July 1, 2003,
and before July 1, 2007, except that an exploration
expenditure, in whole or in part, south of 68 degrees,
15 minutes, North latitude must be incurred for work
performed before July 1, 2010, and except that an
exploration expenditure for a Cook Inlet prospect must
be incurred for work performed on or after July 1,
2005, and before July 1, 2010, and
Page 6, line 12
Following: "do not apply to"
Delete: "taxes applicable under this chapter
attributable to production from oil and gas produced
from an oil and gas lease, or to gas produced from a
gas only lease, located north of 68 degrees, 15
minutes, North latitude or on"
Representative Hawker OBJECTED.
Ms. Cunningham explained the two parts of Amendment 1.
Co-Chair Meyer inquired about the reference to 68 degrees,
15 minutes. Ms. Cunningham clarified that it is south of
the Brooks Range.
3:27:28 PM
Representative Hawker questioned the wording on page 6, line
12 "the provisions of this section do not apply to". Ms.
Cunningham clarified that the language is correct.
Co-Chair Chenault referenced lines 13-17 on page 2, the new
language in Amendment 1. He voiced concerned that the added
language would allow credits for work from 2003
retroactively. He questioned if that would change the
legislation from the 25-mile to the 10-mile, and also
possibly within the 3-mile, with the commissioner's
approval. He emphasized that it was not the original intent
for work already performed to be included.
3:30:08 PM
Ms. Cunningham replied that there would need to be an
exemption for Cook Inlet for July 1, 2005 to 2010.
DAN DICKINSON, DIRECTOR, TAX DIVISION, DEPARTMENT OF
REVENUE, ANCHORAGE, (via teleconference) spoke to the
proposed change. The current language existing on page 2,
after the 2010 date, should be there. The new language
should only change lines 13-15. Ms. Cunningham responded
that on line 15, 2010 should be deleted because the current
program goes until 2007.
Mr. Dickinson explained that if the amendment were used to
replace all the language, through and including 2010, then
the clause that starts with "except" would accomplish the
intent.
Representative Croft asked what would happen on page 6 if
the provisions do not apply. He suggested eliminating
Section 8. Ms. Cunningham replied that the rewrite on page
6, would not apply to ANWR. Representative Croft
acknowledged his mistake.
3:34:16 PM
Co-Chair Chenault restated the potential conceptual
amendment. Representative Kelly noted that the termination
date would change.
3:35:00 PM
Co-Chair Chenault MOVED to ADOPT a Conceptual Amendment to
Amendment 1 that adds back the language that expiration
expenditures for Cook Inlet prospect must be incurred for
work performed on or after July 1, 2005, and before July 1,
2010.
Representative Hawker WITHDREW his OBJECTION to adopt
Amendment 1, as amended. There being no further OBJECTION,
Amendment 1 was adopted.
3:35:54 PM
Co-Chair Meyer MOVED to ADOPT Amendment 2:
Page 2, lines 1, 3, and 9
Following: "under"
Delete" [(b) AND]
Insert: (b) and
Page 2, line 7
Following: "under"
Insert: (b),
Representative Hawker OBJECTED for discussion purposes.
Ms. Cunningham explained that the amendment reinserts
subsections (b) and (c) and clarifies that in order to get
the credit, a company has to meet the qualifications under
(b) which sets out the timeframes that exploration work
occurs and (c), which is the 3-mile limit.
Representative Croft noted that it is not the 40/80 issue;
it is a timing issue. Ms. Cunningham replied that is
correct. She elaborated on the timeframe.
3:38:21 PM
Representative Hawker WITHDREW his OBJECTION to adopt
Amendment 2. There being NO OBJECTION, Amendment 2 was
adopted.
3:39:13 PM
Representative Kelly asked for an opinion from Department of
Revenue.
3:39:40 PM
JERRY BURNETT, LEGISLATIVE LIAISON, DEPARTMENT OF REVENUE,
stated that the bill preserves the intent of the statute.
Co-Chair Meyer declared a potential conflict of interest.
Representatives Kelly and Hawker objected.
3:41:25 PM
Representative Hawker also declared a conflict of interest.
Representative Kelly objected.
3:42:05 PM
Representative Foster MOVED to report CSHB 71 out of
Committee with individual recommendations and the
accompanying fiscal notes. There being NO OBJECTION, it was
so ordered.
CSHB 71 (FIN) was REPORTED out of Committee with a "do pass"
recommendation and with a zero fiscal impact note by the
Department of Revenue and with a new indeterminate fiscal
impact note by the Department of Natural Resources.
3:44:19 PM
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