Legislature(2015 - 2016)BILL RAY CENTER 208
06/01/2016 03:00 PM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| HB4003 || HB4003 | |
| HB4005 | |
| HB4006 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB4003 | TELECONFERENCED | |
| += | HB4005 | TELECONFERENCED | |
| += | HB4006 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE BILL NO. 4005
"An Act relating to the mining license tax; relating
to the exploration incentive credit; relating to
mining license application, renewal, and fees; and
providing for an effective date."
4:00:27 PM
Co-Chair Thompson noted there had initially been an
Amendment 1, but he had determined it to be out of order
due to ongoing litigation.
Representative Wilson MOVED to ADOPT Amendment 2, 29-
GH2457\A.5 (Glover/Nauman, 5/28/16) (copy on file):
Page 4, line 1:
Delete "2"
Insert "8"
Co-Chair Thompson OBJECTED for discussion.
4:01:16 PM
AT EASE
4:01:51 PM
RECONVENED
Representative Wilson explained Amendment 2. She discussed
the committee had heard plenty of testimony from the mining
community, which was willing to do its part, but felt a 29
percent increase in taxes was too high. The amendment would
decrease the 9 percent back to the 8 percent multiple
committees had discussed. She remarked the increase would
still not be a good thing and its impact was unknown. She
hoped reducing the number to 8 percent would have a reduced
impact on the community. She believed everyone needed to
take part in making sure they were paying for what was going
forward.
Co-Chair Thompson remarked that "dueling amendments" had
been submitted - one would increase the tax and the other
would reduce it.
Vice-Chair Saddler relayed that he had previously chaired
the House Resources Committee. He knew mining provided
numerous benefits to rural Alaska including jobs,
infrastructure, income, tax-base, a way to keep people
anchored to their lands, and other. He was concerned he had
not seen analysis of what the governor's proposed 9 percent
tax would do to the benefits of mining in rural Alaska. In
absence of the analysis he could not help but be cautious,
which meant supporting the amendment.
Representative Gara spoke in opposition to the amendment. He
stated that at some none of the bills under discussion would
be worth passing. Currently there was a profits-based mining
tax that had not been changed in approximately 60 years.
Companies were given exploration credits to help develop a
mine. Additionally, taxes only came in when profits were
made. Lastly, the tax only applied to income levels above
$100,000 per year. He discussed that at profits above
$100,000 to roll back $3.5 million in tax revenue that was
needed in a state with a $3.2 billion to $3.7 billion
deficit. He continued that every time someone said no to a
tax on a profitable industry the money would have to come
from somewhere else. He reasoned if it was in the budget the
money had to come from somewhere - at times it had come from
schools, the university, municipal revenue sharing, seniors,
or other. He stated the money would have to come from
somewhere if it they did not determine a way to raise it.
Alternatively, there were other revenue raising options,
which would need to be increased (e.g. a larger Permanent
Fund Dividend cut or a larger income tax). At higher profits
he believed it was fair to adjust the tax. He furthered that
companies were coming to Alaska for its valuable ore. He
reiterated the tax only applied if a business was making
over $100,000 in profits.
4:06:45 PM
Co-Chair Neuman did not believe the state paid mining
companies. He detailed there was a "tax holiday" for the
first two or three years on new mines.
Vice-Chair Saddler stated that in the mining industry he did
not believe $100,000 in profits was substantial relative to
the investment. He referenced various types of capital
investment mining companies made in order to operate. He
referred to much discussion about the need to diversify the
state's economy away from mining and gas. He reasoned mining
was a way to increase diversification. He believed the state
needed to do what it could to support the mining industry in
Alaska and not use it as a "cash cow." He elaborated mining
already provided benefits to the state well in excess of the
amount the state spent to regulate it. He did not believe it
was the proper place to try to get revenue.
4:08:07 PM
Representative Edgmon spoke against the amendment. He stated
that if there was ad hoc feel to all of the taxes, all of
the criticism the legislature directed at the administration
for bringing them forward with not enough analysis, he could
equally say there was an ad hoc feel to the amendments being
offered. He discussed the net taxable income in 2014 for the
six major mines paying 95 percent of the mining taxes was
$570 million in total. He reasoned the proposed 9 percent
tax would be $7 million - when divided amongst 6 major
multi-national companies was not a significant amount of
money. Additionally, the companies were able to deduct the
state taxes from federal taxes; therefore, they were able to
further reduce the $7 million. He addressed the amendment
which would reduce the tax from 9 percent to 8 percent,
which left him questioning why the committee was "messing
around with the tax in the first place." He stated if every
tax the state levied was going to be counter to industry
investing in Alaska, it should not be levying any increases
on the resource-based companies. He reiterated many of the
companies were very large. He furthered that as much as his
enthusiasm for the previous version of taxes had been
dampened (if it ever had been called enthusiasm), he was
uncertain he could support the measures if the committee
kept chipping away at all of the proposed taxes. He
explained the impact of the proposed taxes would go from
marginal to negligible. He wondered what the committee was
doing messing around with the taxes for the amount of
political dust the issues were kicking up. He referred to
discussion about the cause and effect relationship between
the original taxes the governor had proposed. When the
committee decided whether it would report the bills out of
committee he would have to look at the issue from an equity
standpoint. He currently did not see it. He did not believe
there was an analysis to support the amendment, which he
believed undermined the whole intentions in the first place.
4:11:20 PM
Representative Munoz supported the amendment for a number
of reasons. One of her concerns that during the
administration's presentation on the bill comparisons had
been made with other states, but the states did not have
similar hard rock mining operations. She detailed Arizona,
Nevada, and Alaska, had similar operations and Alaska was
the highest taxing jurisdiction. She discussed that Juneau
had two of Alaska's large mines - the Kensington Mine had
taken over 20 years to begin operation. She continued that
mining was a capital intensive industry and added hundreds
of jobs to the state's economy. She believed additional
analysis was necessary on what a tax increase from 7 percent
to 9 percent would do.
4:12:43 PM
Representative Guttenberg spoke in opposition to the
amendment. He reported that based on information in the
committee packet, the tax had not changed since 1955. He
stated it was possible to say it was a 25 percent increase,
but it was also a 2 percent increase. In 2014 there were
only 14 taxpayers in the bracket (5 of which were the very
large mines and the remaining 9 were small and very
profitable). He reasoned the tax was profit-based, which
companies only paid when profitable. He furthered "mom and
pop" companies would only pay an annual license fee if their
company earned less than $100,000. He thought increasing the
tax by 1 percent after 55 years would do nothing at all. He
reasoned that some of the mines were very profitable and he
believed it was completely appropriate to implement a 2
percent increase.
Representative Wilson countered that it was not a 2 percent
tax, but a 29 percent increase. She addressed the state cut.
She had asked the Fort Knox mine (in her district) what it
paid; the mine had paid $7.6 million to the borough and over
$47 million in revenue over the past 10 years - it was the
largest property tax payer in the borough. Additionally, the
mine had paid $17.1 million in taxes and fees to the state
in 2014; $7.3 million in mining license taxes (which
accounted for 31 percent of the mining license tax revenue
collected by the state); $9.8 million in payments to Alaska
Mental Health Trust Authority, the Department of
Environmental Conservation, and others; and in 2016 it would
pay $8.4 million to the borough. She stressed the amounts
were not even part of the discussion.
Co-Chair Thompson asked how much the increase would be if
the bill was implemented.
Representative Wilson answered there would be a 29 percent
increase in taxes if the tax was increased from 7 percent to
9 percent. She read from a prepared statement:
We've heard from the mining industry this increase
would result in deterring new investment in Alaska and
will shorten the lives of existing mines.
Representative Wilson continued that the 8 percent tax
proposal had been vetted in another committee with all the
mines participating. She discussed the legislation would
impact the industry, but the impact was not known because
the legislature had not received a complete analysis. She
stressed that any tax increase would have a detrimental
impact on the mining industry and would place future
investment, jobs, and significant local economic impacts at
risk. She emphasized the issue was about more than the
state, it was about the state's communities. She was
frustrated the committee had not received information about
how much state resources were put in. She believed they were
merely trying to fill the state's coffers with profits made
by the various industries.
Co-Chair Thompson WITHDREW his OBJECTION.
Vice-Chair Saddler asked to be a cosponsor of Amendment 2
and Amendment 3.
4:17:16 PM
AT EASE
4:17:38 PM
RECONVENED
Representative Guttenberg OBJECTED.
A roll call vote was taken on the motion.
IN FAVOR: Gattis, Munoz, Pruitt, Saddler, Wilson
OPPOSED: Gara, Guttenberg, Kawasaki, Edgmon, Thompson,
Neuman
The MOTION to adopt Amendment 2 FAILED (5/6).
4:18:30 PM
Representative Wilson MOVED to ADOPT Amendment 3, 29-
GH2457\A.6 (Glover/Nauman, 5/28/16) (copy on file):
Page 3, lines 19 - 23:
Delete all material.
Renumber the following bill sections accordingly.
Page 4, lines 13 - 14:
Delete all material.
Reletter the following subsection accordingly.
Page 4, line 15:
Delete "sec. 6"
Insert "sec. 5"
Page 4, line 17:
Delete "sec. 6"
Insert "sec. 5"
Page 4, line 30:
Delete "Section 10"
Insert "Section 9"
Page 4, line 31:
Delete "sec. 11"
Insert "sec. 10"
Co-Chair Thompson OBJECTED for discussion.
Representative Wilson addressed the amendment. She noted a
significant amount had been heard related to the issue. She
read from a prepared statement:
The exemption for new mines is critical as projects
look to recoup their investments as quickly as possible
and work towards positive cash flow. The more mines
that we have open, the faster it will fill our deficit.
Representative Gara asked if the amendment gave companies a
3.5-year tax holiday as opposed to the 2-year tax holiday in
the bill.
Co-Chair Thompson and Representative Wilson answered in the
affirmative.
Representative Gara opposed the amendment. He stressed the
mining tax only applied when profits were made.
Additionally, the state offered tax credits to help
companies pay for exploration and development (operating and
capital costs). Companies received the benefit of state help
during development. He added it was not one of the more
outrageous tax credits the state had on its books.
Co-Chair Thompson asked Representative Gara to clarify what
he meant by state help. He explained it had taken Kensington
Mine 20 years [to begin operations]. He asked if the state
had funded the mine during the entire 20-year period.
Representative Gara answered the state paid an exploration
credit up to $20 million companies could deduct after they
became profitable. The credits could be deducted as long as
it took to earn enough profits to the deductions (companies
could deduct up to half their profits). After the mine began
operations companies were allowed to deduct the costs.
4:21:08 PM
Co-Chair Neuman requested to hear from DOR.
Mr. Burnett deferred the question to Mr. Spanos.
Mr. Spanos asked Co-Chair Neuman to repeat his question.
Co-Chair Neuman asked Mr. Spanos to explain the mining tax
credits. Mr. Spanos answered that mines were given
exploration tax credits of up to $20 million. He detailed
that expenses incurred during exploration could be taken
over a 15 year-period after a mine began production.
Co-Chair Neuman provided a hypothetical situation in which a
mine took 10 years to become operational. He asked for
verification the mine could deduct up to $20 million over
the first 15 years.
Mr. Spanos answered that no matter how long a company took
to incur the costs (such as 20 years) it had 15 years after
production began to take the credit.
Co-Chair Thompson asked how the 2-year or 3.5-year tax
holiday fit into the 15-year credit deduction process.
Mr. Spanos explained that the 3.5-year exemption was
currently in statute. He asked if the question pertained to
how the tax holiday fit with the 15-year credit deduction
period as well.
Co-Chair Thompson replied in the affirmative.
Mr. Spanos believed companies had 15 years of taxes due. He
would have to follow up on the question.
Co-Chair Thompson surmised companies would receive a 3-year
tax holiday followed by a 15-year period during which they
could use their credit deductions. He asked for verification
it was a total of 18 years.
Mr. Spanos replied that he believed it was how the system
worked. He would have to double check, but he believed it
included the first 3.5 years.
Representative Gara asked for verification that currently
larger mines received a 3.5-year tax holiday even if they
were making profits. The amendment would maintain the 3.5-
year tax holiday, whereas the bill would decrease the tax
holiday to a 2-year period. He observed it would not be
possible for a company to deduct credits when it was not
asked to pay a profits tax. He provided an example where a
company started paying for profits in its fourth year of
operation and made $40 million. He asked for verification
the company could take all $20 million in credits in the
first year.
Mr. Spanos replied that the credit was limited to one half
of a company's net income. He referred to the gross profits
tax [Note: audio quality poor].
4:25:57 PM
Representative Gara asked for verification that a company
could use the entire $20 million in deductions during its
first taxable year if it made $40 million in profits. Mr.
Spanos answered in the affirmative.
Representative Gara spoke to his opposition to the
amendment. He stressed that the tax was profits-based;
companies that were not making profits were not taxed.
Additionally, under the legislation the state gave companies
a 2-year tax holiday even when profitable. He believed it
made sense to not tax companies when they were not
profitable. He did not support extending the tax holiday to
3.5 years, which he believed was excessive. He wished he
received the tax holiday on his income taxes. He thought the
2-year period seemed fair to generous. He stated that the
bill raised $7 million and he did not support continuing to
whittle away at the amount. He believed the public would
have a hard time swallowing that individual Alaskans had to
pay for the deficit, while companies received tax holidays.
Vice-Chair Saddler spoke in support of the amendment. He
reasoned that in order to become profitable, it sometimes
took a mineral development company 20 to 30 years. He stated
the presumption a company could open up a mine and begin
making profits within a year was false. He stated it took
many years and significant expense for a company to reach
profitability. He stressed that Alaska was built on mining
and he believed the land underneath the building may be
built on mine tailings [Bill Ray Center, Juneau, Alaska]. He
underscored a mine could last for decades when properly
built with infrastructure investment. He referred to mines
that triggered infrastructure like airports, mills, and
other facilities. He believed it was cost-effective to make
the investment to find more ore (e.g. Red Dog Mine and
others). He opined that shortening the tax holiday was
nonsensical. He furthered that shortening the tax holiday to
a 2-year period would be like penalizing "a child for not
being able to do the work of a grown man." He believed
restoring the tax holiday to the 3.5-year period was
appropriate.
4:30:20 PM
Representative Wilson provided closing remarks on Amendment
3. She read from a prepared statement:
The State of Alaska has very few incentives to track
mining investment to the state and doing away with this
one would tell the industry that we are not open for
business. Investment capital is globally in short
supply and retaining this exemption will help us remain
competitive. If we kill our industry or we have
investors go somewhere else, what truly have we gained?
Representative Wilson wondered what would happen with every
investor who chose to invest in another location besides
Alaska. She referred to questions about why the state did
not lower some costs because investors were going other
places. She stressed the state was rich in resources. She
reasoned that it was necessary to ask why investors were not
coming. She believed the state should be incentivizing
investment. She underscored that the issue was about the
state's long-term future. She believed the discussion should
be about what the state would look like if industry decided
to invest elsewhere. She concluded the state would still
receive profits by maintaining the current 3.5-year tax
holiday. She hoped the state would stay open for business
and would not discourage industry from investing in Alaska.
Co-Chair Thompson MAINTAINED his OBJECTION.
A roll call vote was taken on the motion to adopt Amendment
3.
IN FAVOR: Munoz, Saddler, Wilson
OPPOSED: Gara, Guttenberg, Kawasaki, Edgmon, Thompson,
Neuman, Pruitt
Representative Gattis was absent from the vote.
The MOTION to adopt Amendment 3 FAILED (3/7). [Note: The
committee later rescinded action on Amendment 3 and re-
voted; the amendment passed at that time. See approximately
5:14 p.m. for detail.]
4:33:17 PM
AT EASE
4:46:05 PM
RECONVENED
Representative Gara MOVED to ADOPT Amendment 4, 29-
GH2457\A.l (Martin/Nauman, 5/27/16) (copy on file):
Page 3, lines 21 - 23:
Delete "All new mining operations are exempt from the
tax levied by this chapter for two [THREE AND ONE-HALF]
years after production begins"
Insert "A new mining operation with a net income under
(c) of this section of
(1) not more than $100,000 is exempt from the tax
levied by this chapter for two years after
production begins;
(2) more than $100,000 shall pay half of the
license tax on mining provided in (c) of this
section for two [ALL NEW MINING OPERATIONS ARE
EXEMPT FROM THE TAX LEVIED BY THIS CHAPTER FOR
THREE and ONE-HALF] years after production begins"
Co-Chair Thompson OBJECTED for discussion.
Representative Gara explained the amendment. He addressed
that the mining tax was profits-based. He did not believe
anyone wanted to increase taxes on small "mom and pop"
mining operations. The amendment would maintain the 2-year
tax holiday for businesses making less than $100,000 in
profits per year. While businesses making over $100,000
would only pay half the tax rate during the first two years.
He thought the state should receive some revenue when
companies were profitable. He believed the proposed tax rate
in the bill was around 9 percent; the amendment would reduce
the tax to around 4.5 percent for profitable companies
earning over $100,000 per year.
4:49:02 PM
Co-Chair Thompson MAINTAINED his OBJECTION.
A roll call vote was taken on the motion.
IN FAVOR: Guttenberg, Kawasaki, Gara
OPPOSED: Munoz, Pruitt, Saddler, Wilson, Edgmon, Gattis,
Neuman, Thompson
The MOTION to adopt Amendment 4 FAILED (3/8).
4:49:52 PM
Representative Kawasaki MOVED to ADOPT Amendment 5, 29-
GH2457\A.3 (Martin/Nauman, 5/27/16) (copy on file):
Page 3, line 24, through page 4, line 1:
Delete all material and insert:
"*Sec. 6. AS 43.65.0lO(c) is repealed and reenacted to
read:
(c) The license tax on mining is imposed on the net
income of the taxpayer from the property in the state,
computed with allowable depletion, plus royalty
received in connection with mining property in the
state. The tax rates applicable to the amount of a
taxpayer's net income are as follows:
· over $100,000 and not over $250,000: five percent
· over $250,000 and not over $500,000: $7,500 plus
seven percent of the excess over $250,000
· over $500,000 and not over $1,000,000: $25,000
plus nine percent of the excess over $500,000
· over $1,000,000: $70,000 plus 11 percent of the
excess over $1,000,000."
Page 4, line 15:
Delete "amended"
Insert "repealed and reenacted"
Co-Chair Thompson OBJECTED for discussion.
Representative Kawasaki explained that the amendment sought
to change the brackets [related to the tax rates applicable
to the amount of a taxpayer's net income]. He detailed the
brackets had been established during territorial days (prior
to statehood) in 1955 as a way to fairly distribute the
burden on mining operations within Alaska. He referenced
Section 6, page 3 of the legislation, which showed the
original brackets still in statute. He specified that mining
companies earning less than $40,000 in profits did not pay a
license tax. Mines making between $50,000 and $100,000 paid
an assessment of 5 percent and $1,500. He noted the next
bracket was for companies earning over $100,000. He
reiterated that the brackets had been in place for 60 years.
Representative Kawasaki furthered amendment was an attempt
to make the brackets fair by adjusting for inflation. The
amendment would exempt small mining companies earning below
$100,000. The first bracket would apply to companies earning
between $100,000 and $250,000; the second bracket applied to
companies earning over $250,000 to $500,000; the third
bracket applied to companies earning over $500,000 to
$1,000,000; and the fourth bracket applied to companies
earning $1,000,000 and above. There were roughly two or
three mines within each of the first three brackets (the
exact number was unknown due to taxpayer confidentiality)
and there were 5 mines making over $1,000,000. He believed
the amendment was very fair; it removed the unfair burden
off small miners and addressed the issue of inflation.
4:52:42 PM
Co-Chair Thompson MAINTAINED his OBJECTION to Amendment 5.
A roll call vote was taken on the motion.
IN FAVOR: Gara, Guttenberg, Kawasaki
OPPOSED: Munoz, Pruitt, Saddler, Wilson, Edgmon, Gattis,
Thompson, Neuman
The MOTION to adopt Amendment 5 FAILED (3/8).
Representative Gara MOVED to ADOPT Amendment 6, 29-
GH2457\A.2 (Martin/Nauman, 5/27/16) (copy on file):
Page 3, line 31, following "$100,000":
Insert "and not over $250,000"
Page 4, line 1, following "$100,000":
Insert new material to read:
· over $250,000: $6,000 plus 11 percent of the
excess over $250,000
Co-Chair Thompson OBJECTED for discussion.
Representative Gara explained the amendment that applied to
companies earning over $250,000 per year. He stated it was
the kind of money most Alaskans would never see in any year
of their lives. The amendment would increase the profits tax
rate from 9 percent to 11 percent for companies earning over
$250,000. He detailed that the $7 million in projected
revenue in DOR's fiscal note primarily came from the large
mines making above $250,000 per year. The amendment was
likely to raise around $7 million. He noted his business tax
for the restaurant he owned appeared in his income tax; he
paid a 25 percent tax. He continued a company coming to
Alaska to explore for minerals would do so with the
exploration credit provided by the state. He did not believe
increasing the number to 11 percent would change a company's
decision to invest in Alaska if they were profitable. He
reasoned the company would get to keep the remaining 89 to
91 percent of their profits. He understood the companies
would pay other taxes. He believed the amendment was fair in
the time of a fiscal crisis and also when companies paid
taxes based on profits. He added he would not propose the
amendment on a mining tax if the tax was not profits-based
and was imposed on companies losing money.
4:56:42 PM
Co-Chair Thompson had heard significant discussion during
the current meeting that the mining tax was profits-based.
He had heard statements that it was a gross tax and other
statements that it was a net tax. He asked for
clarification.
Mr. Burnett answered that the mining tax was a tax on the
margin created by a mining operation, which contributed to
the profits of a company. The companies may have other
operations; therefore, the tax was not based on the net
income of the company, but on the net margin remaining after
deducting the costs of mining operation. The tax was based
on the margin because it was not profit until other items
such as corporate overhead were included.
Co-Chair Thompson expressed confusion about the issue. He
elaborated that his business of 35 years paid tax on the net
profit, which deducted his expenses.
Mr. Burnett clarified that the mining tax was based on
profit from mining operations after deducting costs of the
mining operation. He detailed it was different than the
total business profit because a company may have other
businesses; it was a subset of a company's business. He
explained oil and gas taxes were based on cash flow (money
going into and out of a company on an annual basis).
Co-Chair Thompson asked what the tax would be called if a
company had only one mine. Mr. Burnett answered that it
would be a net profits tax. He added the company would pay
other local and corporate income taxes.
Mr. Alper elaborated that if the company that owned the mine
was a corporate tax payer, the state's mining license tax
was a deduction from the formula that went into the state
corporate income tax. He specified the mining license tax
was considered an expense.
4:59:42 PM
Representative Gara asked for clarification on the
department's testimony. He asked for verification the
profits were the profits of an operation, but if parts of
the company related to other business aspects (e.g. a second
mine in Utah) those pieces of the business were not included
in the tax. He surmised the tax aimed to contain the
profitability at the specific mine site in Alaska.
Mr. Burnett answered in the affirmative.
Vice-Chair Saddler asked if the amendment sponsor had any
analysis showing the higher tax bracket would not harm the
mines in that bracket.
Representative Gara replied that logic was the answer. The
amendment only applied to companies making profits exceeding
$250,000 per year. He did not believe a company would leave
Alaska when making over $250,000 because of a 2 percent
change in a profits tax. He believed a company would not go
to the expense of investing in Alaska unless it found the
ore valuable.
Vice-Chair Saddler wondered if there was an analysis on the
percentage of the net proceeds would amount to. He asked if
the logic was based on the idea that it was appropriate to
begin taxing a company when it earned profits slightly over
the breakeven point. He asked whether $250,000 was a large
or small profit for a mining company.
Representative Gara answered that he was trying to avoid
impacting small mining operations on the margins that may go
out of business if taxes were increased. He believed profits
of $250,000 or more represented a significant amount of
money. He thought if a company was making over $250,000 per
year it had the means to contribute to the state's budget
deficit with a slight increase in the tax. Otherwise, the
revenue would have to come from people with less money,
which he was not in favor of.
Vice-Chair Saddler remarked that the scale of costs and
investments required for a large mine in Alaska was
significantly larger than costs for a restaurant in
Anchorage.
5:04:03 PM
AT EASE
5:04:28 PM
RECONVENED
Representative Gara countered that restaurants required a
significant amount of money to run.
Co-Chair Thompson MAINTAINED his OBJECTION to Amendment 6.
A roll call vote was taken on the motion.
IN FAVOR: Kawasaki, Guttenberg, Gara
OPPOSED: Munoz, Pruitt, Saddler, Wilson, Edgmon, Gattis,
Neuman, Thompson
The MOTION to adopt Amendment 6 FAILED (3/8).
5:05:25 PM
Co-Chair Thompson MOVED to ADOPT Amendment 7 29-GH2457\A.4
(Martin/Nauman, 5/28/16) (copy on file):
Page 1, line 1, following "credit":
Insert "and royalty payments"
Page 3, following line 18:
Insert a new bill section to read:
"*Sec. 5. AS 38.05.150(d) is amended to read:
(d) For the privilege of mining or extracting the coal
in the land covered by the lease, the lessee
(1) shall pay to the state the royalties specified
in the lease; the royalties shall be fixed before
offering the lease, and shall be effective for a
period of not more than 20 years; the royalties
shall be not less than five cents a ton of 2,000
pounds; [THE ROYALTY PAYMENT IS SUBJECT TO THE
EXPLORATION INCENTIVE CREDIT AUTHORIZED BY AS
27.30;]
(2) shall also pay an annual rental, payable at
the date of the lease and annually thereafter, on
the land or coal deposits covered by the lease, at
a rate fixed by the commissioner before offering
the lease; the annual rental shall be effective
for a period of not more than 20 years; the annual
rental shall be not less than 25 cents an acre for
the first year of the lease, not less than 50
cents an acre for the second year, third year,
fourth year and fifth year, and not less than $1
an acre for each year thereafter during the
continuance of the lease; the rental for each year
shall be credited against the royalties as they
accrue for that year; each lease shall provide
that the annual rental payment is subject to
adjustment at intervals of not [NO] more than 20
years and adjustments shall be based on the
current rates for properties similarly situated."
Renumber the following bill sections accordingly.
Page 4, following line 5:
Insert a new bill section to read:
"*Sec. 9. AS 27.30.080 and AS 38.05.212(b)(2) are
repealed."
Renumber the following bill sections accordingly.
Page 4, line 10:
Delete "and"
Page 4, line 11, following "Act,":
Insert "AS 38.05.150(d), as amended by sec. 5 of this
Act, and the repeal of AS 27.30.080 and AS
28.05.212(b)(2) by sec. 9 of this Act,"
Page 4, line 13:
Delete "sec. 5"
Insert "sec. 6"
Page 4, line 14:
Delete "sec. 5"
Insert "sec. 6"
Page 4, line 15:
Delete "sec. 6"
Insert "sec. 7"
Page 4, line 17:
Delete "sec. 6"
Insert "sec. 7"
Page 4, line 30:
Delete "Section 10"
Insert "Section 12"
Page 4, line 31:
Delete "sec. 11"
Insert "sec. 13"
Representative Gara OBJECTED.
Co-Chair Thompson explained that the amendment included
necessary conforming changes identified by the Department
of Labor and Workforce Development. He detailed that AS
27.30.080 should have been repealed because the statute
provided that the amount due to the Permanent Fund was to
be calculated prior to the application of the credit. The
changes in the committee substitute (CS) provided that the
credit was no longer applicable against royalty payments.
He continued the statute was now inapplicable that the
credit could only be applied to tax since only royalty
payments went to the Permanent Fund. He continued that the
royalty payment subject to the exploration incentive credit
authorized under AS 27.30 needed to be deleted from AS
38.05.150(d)(1). Lastly, AS 38.05.212(b)(2) needed to be
repealed. He asked members if they wanted to hear from the
administration.
Representative Gara requested to hear from the
administration.
Mr. Alper affirmed that Co-Chair Thompson's explanation was
accurate. He discussed that the exploration credits could
be used to offset the tax, but under current law the
credits could also be used to offset royalties. He
specified most mines did not pay royalties to the state -
mines only paid royalties to the state if they were
operating on state land (just like with oil and gas). Under
the specific circumstance a mine could use any of the
exploration credits to offset their royalties as well.
During the regular legislative session there had been an
amendment in the House Resources Committee that made the
change. He explained the change had been in a standalone
bill - the idea the tax credit could no longer be used
against royalties. He explained DOR's attorneys had
realized there were a couple of loose ends, which were
addressed in the amendment. The amendment cleaned up
statutory references to the credits and how they interacted
with royalties, which maintained the underlying idea that
it should not be possible to use the credits against
royalty.
Representative Wilson pointed to AS 27.30.080, which
addressed that amounts due to the Permanent Fund under AS
37.13.010 were to be calculated before the application of a
credit extended. She wondered what the amendment had to do
with the Permanent Fund.
Mr. Alper answered that the Permanent Fund received 25
percent of the royalties for all minerals. He provided a
scenario where the state received a royalty from a mine. He
explained that if the mine used a credit it needed to be
subtracted prior to the calculation of the share that would
go to the Permanent Fund. He clarified the section was no
longer necessary because the credit was being eliminated.
Representative Wilson asked how the amendment would impact
the Permanent Fund.
Mr. Alper replied with an example. He hypothesized if the
state was receiving $1,000 in royalties from a small mine
on state land, $250 would go to the Permanent Fund. If the
company used an exploration credit that was used to offset
its taxes and half its royalty (bringing the royalty down
to $500), under current statute the company could pay one-
quarter of the $500, which would mean only $125 would go to
the Permanent Fund [Note: Mr. Alper subsequently clarified
his explanation was incorrect]. The amendment would mean a
company would no longer have the ability to subtract a
credit from the royalty and would therefore have to pay the
percentage of the full $1,000; therefore, the Permanent
Fund would receive the full $250. He added if anything, the
change would slightly increase the money going into the
Permanent Fund principal, but in many circumstances there
would be no impact.
Co-Chair Neuman asked for verification the Permanent Fund
would receive payments before credits were taken off of any
taxes due.
Mr. Alper asked Representative Wilson to reread the
statutory reference she had provided.
Representative Wilson read from statute:
AS 27.30.080. Relationship to Other Funds.
Amounts due the permanent fund under AS 37.13.010
shall be calculated before the application of a credit
extended under this chapter.
Mr. Alper replied to the question by Co-Chair Neuman. He
explained the Permanent Fund received its money first. He
detailed that under current law, the Permanent Fund
received the 25 percent of the total regardless. He noted
his prior example was incorrect. The amendment made a
conforming change because there was no longer a
circumstance in which there would be a credit to subtract
from the royalty.
5:11:52 PM
Co-Chair Neuman recapped that the Permanent Fund received
its share of the royalty first under current statute. He
asked for verification that any credits were applied after
the Permanent Fund received its share.
Mr. Alper answered in the affirmative.
Representative Gara WITHDREW his OBJECTION. There being NO
further OBJECTION, Amendment 7 was ADOPTED.
Representative Pruitt MOVED to RESCIND the committee's
action on Amendment 3. He requested a revote. He relayed he
had been absent for the discussion on the amendment and had
been confused about which amendment the committee was
addressing when he voted earlier.
Co-Chair Neuman asked members to be present during the
meeting. He stated that if a person missed the vote they
missed the vote.
Co-Chair Thompson addressed Amendment 3 that would remove
the governor's proposal to reduce the existing 3.5-year tax
holiday to 2 years.
A roll call vote was taken on the motion.
IN FAVOR: Munoz, Pruitt, Saddler, Wilson, Gattis, Thompson
OPPOSED: Edgmon, Gara, Guttenberg, Kawasaki, Neuman
The MOTION to adopt Amendment 3 PASSED (6/5). There being
NO further OBJECTION, Amendment 3 was ADOPTED.
Representative Wilson understood that Amendment 1 had not
been heard because it had been deemed out of place. She
understood there was currently a lawsuit related to
severance tax, but she hoped that the issue could be
considered at another time. She believed it was a major
issue that could impact mines throughout the state.
Co-Chair Thompson hoped the issue would be settled in the
coming year so the committee could address it during the
next session.
Representative Gara remarked that one committee member had
been missing and upon his return the vote had changed by
two votes. He was [somewhat facetiously] tempted to ask for
a revote on his amendments.
HB 4005 was HEARD and HELD in committee for further
consideration.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 4006 UFA letter.pdf |
HFIN 6/1/2016 3:00:00 PM |
HB4006 |
| HB 4006 New Amendment 4 Gara.pdf |
HFIN 6/1/2016 3:00:00 PM |
HB4006 |
| HB 4006 New Amendment 3 Wilson.pdf |
HFIN 6/1/2016 3:00:00 PM |
HB4006 |