Legislature(2013 - 2014)BARNES 124

03/10/2014 01:00 PM House RESOURCES


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
*+ HB 334 OIL & GAS TRANSFERABLE TAX CREDIT CERT. TELECONFERENCED
Heard & Held
*+ HB 344 INVASIVE AQUATIC PLANT SPECIES CONTROL TELECONFERENCED
<Bill Hearing Canceled>
*+ HB 351 USES OF NANCY LAKE STATE RECREATION AREA TELECONFERENCED
<Bill Hearing Canceled>
*+ HJR 30 IZEMBEK LAND EXCHANGE TELECONFERENCED
Moved Out of Committee
+ Bills Previously Heard/Scheduled TELECONFERENCED
         HB 334-OIL & GAS TRANSFERABLE TAX CREDIT CERT.                                                                     
                                                                                                                                
CO-CHAIR  SADDLER  announced that  the  first  order of  business                                                               
would be  HOUSE BILL NO. 334,  "An Act relating to  the qualified                                                               
oil and gas service industry  expenditure credit; and relating to                                                               
a  credit  against  oil  and  gas  exploration,  production,  and                                                               
pipeline transportation property taxes."                                                                                        
                                                                                                                                
1:08:39 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  LANCE PRUITT,  Alaska  State Legislature,  stated                                                               
that  he will  speak to  the  work draft  for HB  334, Version  U                                                               
[labeled  28-LS1407\U,  Nauman, 3/4/14  and  not  yet before  the                                                               
committee].  Relating  the reason for his introducing  HB 334, he                                                               
said he visited the [Alaska Ship  and Dry Dock, Inc. shipyard] in                                                               
Ketchikan this past summer.   During this visit he discovered the                                                               
shipyard  facility could  not use  a tax  credit the  legislature                                                               
passed last  year [to AS 43.20.049].   He explained that  the tax                                                               
credit requires  the party must be  a taxpayer to qualify,  but a                                                               
government entity,  the Alaska Industrial Development  and Export                                                               
Authority (AIDEA) owns  the actual yard.  He  discussed this with                                                               
Mike  Pawlowski, Department  of  Revenue (DOR),  who suggested  a                                                               
possible  remedy for  an  entity  that is  not  a state  taxpayer                                                               
without providing  a blanket exemption.   After  some discussion,                                                               
he  developed the  work  draft [Version  U].   It  would apply  a                                                               
credit to the state property tax on  the asset by the owner.  The                                                               
owner could  take a credit  over five years, although  the credit                                                               
cannot reduce the  tax to less than zero.   It would also include                                                               
an option for  a municipality to use the credit.   He described a                                                               
scenario that illustrated how Seward's  Ship Dry Dock [and Ship's                                                               
Chandlery]  might also  be  interested  in the  tax  credit.   He                                                               
stated the goal of  HB 334 is to ensure that  as many Alaskans as                                                               
possible have an opportunity to  participate in what he viewed as                                                               
the "renaissance"  from SB 21  and bring manufacturing  back home                                                               
to Alaska.                                                                                                                      
                                                                                                                                
1:13:09 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON  moved  to adopt  the  proposed  committee                                                               
substitute  (CS)  for HB  334,  Version  U, labeled  28-LS1407\U,                                                               
Nauman,  3/4/14,  as  the  working  document.    There  being  no                                                               
objection, Version U was before the committee.                                                                                  
                                                                                                                                
REPRESENTATIVE P. WILSON remarked  that [SB 21] acknowledges that                                                               
North Slope  companies often order  equipment to be built  in the                                                               
Lower 48 or another country.  The  goal of [SB 21] was to provide                                                               
an incentive  that would  provide jobs for  Alaskans and  that if                                                               
the product  was produced in  Alaska, the company could  obtain a                                                               
tax credit.                                                                                                                     
                                                                                                                                
1:15:02 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HAWKER  related  his understanding  that  HB  334                                                               
would allow  a transferable  tax credit  for improvements  to the                                                               
tangible  personal  property under  AS  43.20.049  to be  applied                                                               
against taxes under  AS 43.56.  He asked the  reason to allow the                                                               
tax  credit  to property  tax  since  the broader  interpretation                                                               
would  allow  the  tax  credit   against  corporate  income  tax,                                                               
production tax, or property tax liabilities.                                                                                    
                                                                                                                                
REPRESENTATIVE PRUITT deferred to the bill drafter.                                                                             
                                                                                                                                
EMILY  NAUMAN, Attorney,  Legislative Legal  Counsel, Legislative                                                               
Legal and Research Services,  Legislative Affairs Agency, replied                                                               
the  question raised  by Representative  Hawker  is completely  a                                                               
policy call.                                                                                                                    
                                                                                                                                
1:16:36 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER,  referring to  the difference  between the                                                               
original  version  of the  bill  and  Version  U, said  that  the                                                               
original version of HB 334 limited  the tax credit to the initial                                                               
purchaser  of the  tangible personal  property.   He offered  his                                                               
belief  that Version  U broadens  this substantially  by allowing                                                               
the tax credit to be traded freely on the open market                                                                           
                                                                                                                                
DIRK  CRAFT, Staff,  Representative  Lance  Pruitt, Alaska  State                                                               
Legislature, stated that the initial  language was more limiting.                                                               
He explained that  Version U was broadened to  make it applicable                                                               
to  anyone  associated  with  the   property.    He  related  his                                                               
understanding  that the  tax credit  is still  limited to  anyone                                                               
associated with the property.                                                                                                   
                                                                                                                                
1:17:49 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HAWKER questioned  whether that  allowance is  in                                                               
the [bill].  He read from AS 43.20.052 (a), as follows:                                                                         
                                                                                                                                
     A person  that is  entitled to take  a credit  under AS                                                                    
     43.20.049 that wishes to transfer  the unused credit to                                                                    
     another  person  may  apply to  the  department  for  a                                                                    
     transferable tax credit certificate.                                                                                       
                                                                                                                                
REPRESENTATIVE  HAWKER  said  that any  restriction  to  "another                                                               
person" would not exist.                                                                                                        
                                                                                                                                
MR. CRAFT replied correct.                                                                                                      
                                                                                                                                
1:18:37 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON asked  for  further  clarification on  the                                                               
reason  to  allow  the  credit  to be  applied  to  property  tax                                                               
liability instead of limiting the  tax credit to corporate income                                                               
tax liability.   He didn't think  the language in the  bill would                                                               
limit the tax credit to the construction.                                                                                       
                                                                                                                                
REPRESENTATIVE PRUITT answered that  the genesis for allowing tax                                                               
credits against the property tax  liability was to avoid creating                                                               
a  tax credit  similar  to  the film  tax  credit  that could  be                                                               
applied  by  someone  without  an existing  tax  liability.    He                                                               
related  a  scenario to  illustrate  how  a company  might  build                                                               
something yet  not have a  tax liability.   This would  allow not                                                               
only  the  major  investors  but also  the  service  industry  to                                                               
benefit.  These parties may own the  asset but not have a tax yet                                                               
Version  U  would  allow  them  to apply  tax  credits  to  their                                                               
personal property tax liability.                                                                                                
                                                                                                                                
1:21:05 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON  said it  seems like the  tax credit  is so                                                               
broadly  applied that  it doesn't  limit  the tax  credit to  the                                                               
party  who owns  the  asset.   The  tax  credits  could apply  to                                                               
someone who builds something but  if the company doesn't have any                                                               
corporate tax liability,  the tax credit could  be transferred to                                                               
anyone who  has a  property tax liability.   Further,  it doesn't                                                               
seem to be limited  just to oil and gas properties.   He asked if                                                               
the tax  credit will be limited  to oil and gas  properties or if                                                               
it will include other properties as well.                                                                                       
                                                                                                                                
REPRESENTATIVE PRUITT answered  that the intent was  to apply the                                                               
tax credit to  the oil and gas industry, although  it is a policy                                                               
call if the committee wants to  go beyond the industry.  The bill                                                               
evolved  due  to  recognition  of some  limitations  to  the  tax                                                               
credit.  He hoped that  companies in places like Southeast Alaska                                                               
and Seward could  participate in the oil  development that occurs                                                               
in other parts of the state.                                                                                                    
                                                                                                                                
1:22:50 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HAWKER understood  that,  as  written, Version  U                                                               
would allow  the tax  credit to be  applied against  taxes levied                                                               
under AS 43.56.  He said the title  of the chapter is oil and gas                                                               
exploration,  production,  and pipeline  transportation  property                                                               
taxes, which  provides a  broad scope for  the industry  since it                                                               
includes pipeline transportation.                                                                                               
                                                                                                                                
REPRESENTATIVE PRUITT agreed.                                                                                                   
                                                                                                                                
1:23:33 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON understood the tax  credit could be used by                                                               
someone building modules,  but it will have to  be transferred to                                                               
the oil companies or to someone with pipeline taxes.                                                                            
                                                                                                                                
REPRESENTATIVE  PRUITT  replied yes.    He  explained that  Vigor                                                               
Industrial and  Alaska Ship and  Dry Dock,  Inc. do not  have any                                                               
tax liability  to the state.   Thus, the bill would  make the tax                                                               
credits transferable to any company producing their products.                                                                   
                                                                                                                                
1:25:00 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   KAWASAKI  understood   that  an   oil  and   gas                                                               
corporation  that is  making money  under AS  43.20 would  have a                                                               
transferable tax credit  that could be purchased by  a company in                                                               
the  same  field to  apply  towards  the company's  property  tax                                                               
liability.                                                                                                                      
                                                                                                                                
REPRESENTATIVE PRUITT believed it would be applicable.                                                                          
                                                                                                                                
REPRESENTATIVE KAWASAKI surmised  that a North Slope  oil and gas                                                               
company could go to a Fairbanks  or Anchorage company and use the                                                               
tax   credit  to   reduce  property   taxes  for   their  related                                                               
facilities.                                                                                                                     
                                                                                                                                
REPRESENTATIVE PRUITT  acknowledged that  he raises a  good point                                                               
that a company in Fairbanks might  be able to reduce its property                                                               
tax liability.                                                                                                                  
                                                                                                                                
1:26:41 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON recalled that  often small companies cannot                                                               
use the  tax credit, unless  they are  oil and gas  companies, so                                                               
the parties  must transfer these  credits.  He wondered  how this                                                               
would  stimulate  in-state  manufacturing  if  the  parties  must                                                               
transfer their  tax credits -  probably at  a discount -  to gain                                                               
any benefit.                                                                                                                    
                                                                                                                                
REPRESENTATIVE  PRUITT suggested  Vigor Industrial,  Inc. may  be                                                               
able to address the question.                                                                                                   
                                                                                                                                
1:29:02 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  P.  WILSON  related her  understanding  that  the                                                               
company  will obtain  a discount  by having  the product  made in                                                               
Alaska, which could  encourage manufacturing in Alaska.   It will                                                               
provide the  indirect benefit by  creating manufacturing  jobs in                                                               
Alaska   even  though   it  might   not   directly  benefit   the                                                               
manufacturer.                                                                                                                   
                                                                                                                                
REPRESENTATIVE  TARR  offered  her  understanding  that  the  tax                                                               
credit would only apply to oil  and gas property taxes due to the                                                               
state and not to municipal tax liabilities.                                                                                     
                                                                                                                                
REPRESENTATIVE PRUITT said yes, but said  the goal is to allow an                                                               
option to use the tax credits for municipal property taxes.                                                                     
                                                                                                                                
1:31:02 PM                                                                                                                    
                                                                                                                                
CO-CHAIR FEIGE  related a scenario  to illustrate the  tax credit                                                               
limitations for  an oil and  gas company when contracting  with a                                                               
manufacturer  to produce  something  for a  North Slope  project.                                                               
The oil  and gas  company would  be limited to  no more  than $10                                                               
million  in tax  credits in  any year,  although the  company can                                                               
hold  the  tax  credits  in  up to  five  successive  tax  years.                                                               
However, under Version U, the  question is whether the tax credit                                                               
is transferrable and  if an oil and gas company  can transfer tax                                                               
credits in excess of $10 million to another company to use.                                                                     
                                                                                                                                
1:33:12 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON asked for  clarification on the language in                                                               
Version  U  that   allows  an  option  for   taxpayers  in  other                                                               
communities to use the tax credit.                                                                                              
                                                                                                                                
MR. CRAFT replied that the option  is under discussion but is not                                                               
yet in the bill.                                                                                                                
                                                                                                                                
REPRESENTATIVE  PRUITT  agreed.    He acknowledged  that  is  the                                                               
intent, but the bill is a work in progress.                                                                                     
                                                                                                                                
1:34:12 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE TARR  referred to page  2 of the fiscal  note that                                                               
states the department cannot determine  the amount of tax credits                                                               
that may be claimed by  taxpayers as the department currently has                                                               
no information about  the amount of this type of  activity in the                                                               
state.   She  wondered  whether the  department  could provide  a                                                               
general idea  of the impact  since this could amount  to millions                                                               
of dollars in tax credits.                                                                                                      
                                                                                                                                
MATT  FONDER,  Director,  Tax  Division,  Department  of  Revenue                                                               
(DOR),   responded  that   Representative   Tarr's  question   is                                                               
difficult to answer.  He  explained that the manufacturing credit                                                               
under discussion was adopted under SB  21, which has not yet been                                                               
in effect  for a  full year  so the  department doesn't  have any                                                               
solid information on the proposed tax credit.                                                                                   
                                                                                                                                
REPRESENTATIVE PRUITT  remarked that  currently the  state hasn't                                                               
been looking  in-state for manufacturing, especially  in terms of                                                               
maritime oil  and gas development.   He said if the  state allows                                                               
someone to  manufacture offshore platforms or  other equipment in                                                               
the  state,   it  could  then  potentially   impact  the  state's                                                               
revenues.                                                                                                                       
                                                                                                                                
1:37:03 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HAWKER  recalled  prior  discussions  during  the                                                               
legislative process  on SB  21, about who  would be  qualified to                                                               
take  the corporate  income tax  credit.   It was  envisioned the                                                               
credit would seldom  be used.  He  further recalled conversations                                                               
about limiting the applicability  of the front-loaded tax credits                                                               
that had  unbalanced the tax  system.   He wondered if  this bill                                                               
would  change the  intent of  SB 21.   He  proffered that  HB 334                                                               
would substantially  increase applicability  of this  tax credit,                                                               
but seems to go against the philosophy for development of SB 21.                                                                
                                                                                                                                
REPRESENTATIVE  PRUITT   remarked  that  he   didn't  necessarily                                                               
disagree.   He introduced HB  334 since  some areas of  the state                                                               
currently cannot  participate in  the development of  the state's                                                               
oil and gas  resources.  Certainly, it's important  not to burden                                                               
the state in the capacity the  state had under Alaska's Clear and                                                               
Equitable  Share (ACES),  but this  seemed  to create  a way  for                                                               
people  to potentially  use  this  tax credit,  even  if it  only                                                               
allows a  few people  in Southeast Alaska  to participate  in oil                                                               
and gas development in Alaska.   Additionally, it would allow the                                                               
state to use the shipyard, one of its assets, on a larger scale.                                                                
                                                                                                                                
REPRESENTATIVE  HAWKER absolutely  agreed.   One reason  he liked                                                               
the  original  version  of  HB   334  is  that  he  envisioned  a                                                               
participant in the North Slope  might have a corporate income tax                                                               
liability.  However,  taking the corporate income  tax and making                                                               
it transferable to property taxes  also creates some complexities                                                               
due to the interplay between state  and local property taxes.  He                                                               
suggested that  the sponsor may  wish to ensure the  bill targets                                                               
the parties it intends to benefit in the most efficient way.                                                                    
                                                                                                                                
REPRESENTATIVE PRUITT answered "duly noted."                                                                                    
                                                                                                                                
1:43:18 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE KAWASAKI shared some  of the concerns mentioned in                                                               
terms  of   local  taxation  issues.     He  asked   for  further                                                               
clarification on what constitutes a modification.                                                                               
                                                                                                                                
REPRESENTATIVE PRUITT deferred to the DOR.                                                                                      
                                                                                                                                
1:44:19 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON  said his reading  of this is that  the oil                                                               
service industry  could build  a pipeline from  the west  side of                                                               
Cook Inlet  to the  Tesoro Refinery  to use the  tax credit.   He                                                               
asked for further  clarification on whether this  bill would mean                                                               
10 percent of the pipeline would be eligible.                                                                                   
                                                                                                                                
REPRESENTATIVE PRUITT  answered no;  the intent  is not  any work                                                               
that is done,  but whether the asset is  manufactured or modified                                                               
at the  facility in-state,  pointing out  a pipeline  wouldn't be                                                               
manufactured in-state.                                                                                                          
                                                                                                                                
REPRESENTATIVE  SEATON  said  he  will go  back  and  review  the                                                               
constraints on SB 21 expenditure  credits.  He was unsure whether                                                               
a  service  industry would  qualify  for  tax  credits if  a  gas                                                               
treatment plant was built on the North Slope.                                                                                   
                                                                                                                                
REPRESENTATIVE  HAWKER  clarified  the  credits  relate  only  to                                                               
tangible personal property.                                                                                                     
                                                                                                                                
1:46:28 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOHNSON recalled  the  purpose of  SB  21 was  to                                                               
apply against corporate income tax.   He recalled the goal was to                                                               
encourage companies to become  corporations, which could increase                                                               
the tax rolls.   However, he wondered if this  would run afoul of                                                               
the interstate commerce  if the state offers a  discount beyond a                                                               
normal discount for in-state purchase.                                                                                          
                                                                                                                                
REPRESENTATIVE  P.  WILSON  suggested  there  could  be  optional                                                               
language  inserted to  avoid  problems  with interstate  commerce                                                               
since she didn't currently see that language in the bill.                                                                       
                                                                                                                                
1:48:27 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOHNSON,  recalling the state couldn't  go above a                                                               
certain  number for  local hire,  wondered whether  the threshold                                                               
was at  10 or  15 percent  or 50 percent  before the  state would                                                               
have issues with  federal interstate commerce.  He  said he would                                                               
be curious how that relates to projects.                                                                                        
                                                                                                                                
REPRESENTATIVE PRUITT  deferred to the legislative  attorney.  In                                                               
terms  of encouraging  companies to  become corporations  and pay                                                               
corporate income  tax, he suggested  the bill was another  way to                                                               
allow LLCs to benefit.   He did not see a  way for companies like                                                               
Vigor Alaska  to qualify for tax  credits which is the  reason he                                                               
was  looking  towards  using  tax   credits  to  offset  personal                                                               
property taxes.                                                                                                                 
                                                                                                                                
1:50:25 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SADDLER opened public testimony on HB 334.                                                                             
                                                                                                                                
1:50:51 PM                                                                                                                    
                                                                                                                                
FRED   KIGA,  Senior   Vice   President,   Vigor  Alaska,   Vigor                                                               
Industrial,  Inc., testified  in support  of HB  334 and  thanked                                                               
members for considering the concept embodied  in HB 334.  He said                                                               
that Vigor reviewed  SB 21 last year in terms  of ways to enhance                                                               
tangible  personal  property  for  oil and  gas  development  and                                                               
production.   Over  a six-month  period,  Vigor held  discussions                                                               
with  Mike Pawlowski  of DOR  to consider  a variety  of ways  to                                                               
frame  tax credits  designed to  enhance employment  for Alaskans                                                               
and  economic  development  in   Alaska.    Ultimately,  using  a                                                               
property  tax credit  under  AS 43.56  seemed to  be  the way  to                                                               
develop  that  concept.   He  acknowledged  that  "it's  somewhat                                                               
squishy" when  considering the production  income tax  credit and                                                               
whether companies have tax nexus for purposes of using it.                                                                      
                                                                                                                                
MR.  KIGA  said  parties  with tangible  property  are  generally                                                               
subject to  the state property  taxes.  In terms  of out-of-state                                                               
oil  and gas  companies, the  provisions  of AS  43.56 provide  a                                                               
credit  against expenses  going forward.   From  the 10,000  foot                                                               
level, this  concept could  help oil  and gas  companies evaluate                                                               
the  economic  cost of  whether  to  invest  or use  an  in-state                                                               
manufacturer to create  an asset.  He stated this  as the goal of                                                               
HB 334 and the direction he hoped the legislature would take.                                                                   
                                                                                                                                
1:53:55 PM                                                                                                                    
                                                                                                                                
DOUG WARD,  Director, Shipyard  Development, Vigor  Alaska, Vigor                                                               
Industrial, Inc. (Vigor), stated he  has been associated with the                                                               
Ketchikan Shipyard  for over twenty  years.  He lauded  the pride                                                               
and joy that young workers have  in building ships in Alaska.  He                                                               
highlighted some  challenges his  company faces as  a shipbuilder                                                               
in Alaska. He offered his belief  that Alaska has one of the most                                                               
modern  shipbuilding  factories  in  North  America  due  to  the                                                               
partnership  that   exists  between   AIDEA,  the   community  of                                                               
Ketchikan, and  industry.  Certainly,  that's true  in Ketchikan,                                                               
given  the size  of the  Ketchikan shipyard.   This  facility not                                                               
only  focuses  on  the  best practice  for  facility  design  and                                                               
infrastructure,  but  also  on the  human  workforce  development                                                               
plan.   As of 2013,  the company employs 161  productive workers,                                                               
of which 13 percent are women.   The shipyard project began as an                                                               
economic development project  through AIDEA.  It  initially was a                                                               
DOT&PF maintenance facility, but  ship building and repairs began                                                               
once AIDEA took it over.                                                                                                        
                                                                                                                                
1:55:42 PM                                                                                                                    
                                                                                                                                
MR. WARD  advised that the shipbuilding  component provides year-                                                               
round stability for the workforce  and a stable economic base for                                                               
seasonal  boat   repairs.    He  detailed   shipbuilding  at  the                                                               
facilities, such that the shipyard  built two airport ferries for                                                               
the Ketchikan airport, a marine  fueling station for the Olympics                                                               
in Vancouver,  the Susitna ferry,  and an  ice-strength twin-hull                                                               
vessel destined for  service in Cook Inlet,  which may ultimately                                                               
operate on the  North Slope serving the oil and  gas industry due                                                               
to  the ice-breaking  capabilities.   Additionally, the  shipyard                                                               
has completed building a longliner destined for the Bering Sea.                                                                 
                                                                                                                                
MR. WARD  said as  Vigor looks forward,  HB 334  could accelerate                                                               
the state's return on its investment  in the shipyard.  He stated                                                               
that  an influx  of businesses  are moving  to Ketchikan,  noting                                                               
that  two naval  architecture  firms recently  opened offices  in                                                               
Ketchikan.   Additionally,  two international  marine electronics                                                               
firms  are looking  to open  shops  in Ketchikan.   However,  the                                                               
vendor  base is  lacking in  Alaska as  compared to  the Gulf  of                                                               
Mexico or Puget Sound.  He  emphasized that Vigor believes HB 334                                                               
will help to  move the company to participate in  the oil and gas                                                               
industry sooner and it will  encourage additional customers to do                                                               
business in  Alaska, such as  marine operators who buy  ships and                                                               
operate  vessels.   Further, HB  334 could  be valuable  to those                                                               
types of customers, he said.   Vigor has also been looking at the                                                               
Seward shipyard since Cook Inlet has begun taking off.                                                                          
                                                                                                                                
1:58:18 PM                                                                                                                    
                                                                                                                                
MR.  WARD anticipated  that  HB 334  could  help small  liquefied                                                               
natural gas (LNG)  projects in the future.  He  clarified that it                                                               
could  potentially   reduce  costs   by  20-30  percent   in  the                                                               
distribution of the small LNG  projects by using marine transport                                                               
to  move  products throughout  the  state,  which in  turn  could                                                               
stimulate more  manufacturing in  Southeast Alaska.   Since these                                                               
assets are  expensive and time-consuming  to build, HB  334 could                                                               
be a useful financing tool for shipbuilding in Alaska.                                                                          
                                                                                                                                
1:59:31 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  TARR  recapped  that  current  projects  wouldn't                                                               
qualify but this bill might encourage more activity to occur.                                                                   
                                                                                                                                
MR.  WARD  answered  absolutely.    Currently  the  oil  and  gas                                                               
industry defaults to the Gulf of  Mexico, with nearly 60 years of                                                               
oil  and gas  experience.   He characterized  the Gulf  of Mexico                                                               
area as  a very mature  industry with competitive shipyards.   As                                                               
the state  works towards building  industrial activity,  it faces                                                               
obstacles in  Alaska, such as great  distances between population                                                               
bases,  the lack  of a  vendor base,  more onerous  environmental                                                               
regulations than in  the Gulf of Mexico, and  higher labor rates.                                                               
He  surmised  that  the  workers  are paid  40  percent  more  in                                                               
Southeast Alaska than in the Gulf  of Mexico region.  Thus, these                                                               
types of  tax credits could  help encourage people to  use Alaska                                                               
manufacturers  in  the  future,   noting,  of  course,  that  the                                                               
activity would  need to  meet the  definition of  modification or                                                               
manufacturing as defined by the DOR.                                                                                            
                                                                                                                                
2:01:23 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  TARR understood  some physical  limitations could                                                               
exclude Alaska from being involved in  some of the projects.  She                                                               
asked  for  further  clarification   on  Alaska's  shipyard  size                                                               
limitations.                                                                                                                    
                                                                                                                                
MR. WARD responded that those  with manufacturing capacity in the                                                               
state  need to  be selective  on projects  as the  industry moves                                                               
into the oil and gas arena.   For example, the Ketchikan shipyard                                                               
is limited to  building an optimal 250-foot  vessel, although the                                                               
shipyard  could accommodate  a 500-foot  vessel.   Considerations                                                               
companies will make  will be to assess services  available in any                                                               
community  and  what the  facility  is  designed  to build.    He                                                               
anticipated  significant  opportunities  in shipbuilding  in  the                                                               
next  10-20 years.    Once  Alaska reaches  the  vendor base  and                                                               
scale, the state could be looking at larger projects, he said.                                                                  
                                                                                                                                
2:03:22 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  FEIGE inquired  what types  of projects  does the                                                               
shipyard envision manufacturing and  how would these projects fit                                                               
under the  definition of qualified  oil and gas  service industry                                                               
expenditures [under HB 334].                                                                                                    
                                                                                                                                
MR.  WARD said  representatives of  ExxonMobil Corporation,  Inc.                                                               
will visit  the shipyard in  the near future to  discuss projects                                                               
for  Point Thomson.    One opportunity  could  be to  manufacture                                                               
1,000 gallon  double-walled storage tanks.   Additionally, on the                                                               
main transportation side, small LNG  carriers - cryogenic ships -                                                               
are  being  developed  in  Norway  to  distribute  gas  to  small                                                               
communities.   He  suggested a  series of  barges with  cryogenic                                                               
containers  could be  dropped  off in  coastal  communities on  a                                                               
monthly  basis.   He anticipated  that Vigor  will also  consider                                                               
articulated  tug and  barge setups,  potentially performing  some                                                               
work at  liquefaction plants or  re-liquefaction plants,  as well                                                               
as providing the marine  transportation component of distributing                                                               
gas in the state.                                                                                                               
                                                                                                                                
MR. KIGA  added that as oil  and gas exploration develops  on the                                                               
Chukchi and  Beaufort Seas,  the likelihood  exists that  some of                                                               
the supply vessels  that accompany the drill rigs  could stop for                                                               
service at Ketchikan  or Seward shipyards.   He acknowledged this                                                               
assumes the  activity will meet  the definition  of modifications                                                               
or  manufacturing under  the  existing statutes.    If so,  these                                                               
activities could also qualify for the tax credits.                                                                              
                                                                                                                                
2:05:51 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SADDLER asked for the size of the small LNG carriers.                                                                  
                                                                                                                                
MR. WARD  anticipated that the ship  sizes range from 250  to 650                                                               
foot LNG carriers, although he  was unsure of the exact capacity.                                                               
He characterized them as being  relatively small LNG carriers and                                                               
within his company's range to build in Ketchikan.                                                                               
                                                                                                                                
2:07:04 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HAWKER thanked  the  committee  for furnishing  a                                                               
copy  of AS  43.20.049.    He said  that  this  statute allows  a                                                               
taxpayer  to  apply a  credit  against  the  tax due  under  this                                                               
chapter,  which  relates to  corporation  income  tax, against  a                                                               
qualified oil  and gas service  industry expenditure  incurred in                                                               
the state.   He  said the  definition of  "qualified oil  and gas                                                               
service  industry  expenditure"  means  an  expenditure  directly                                                               
attributable to an in-state  manufacture or in-state modification                                                               
of  tangible  personal  property  used in  the  exploration  for,                                                               
development of,  or production of  oil or gas deposits,  but does                                                               
not include  components or equipment  used for or in  the process                                                               
of that manufacturing or modification.                                                                                          
                                                                                                                                
REPRESENTATIVE HAWKER  questioned layering  this tax credit.   He                                                               
related a scenario to illustrate the  point that not only does an                                                               
oil and gas  operator incur expenditures with  vendors, but those                                                               
vendors are  doing business with  other vendors, who in  turn are                                                               
conducting business with yet other  vendors.  He wondered whether                                                               
the language  in SB 21 or  HB 334 clearly states  that the intent                                                               
is to  offer one tax  credit against tangible  personal property.                                                               
Although this  question might be considered  rhetorical, he would                                                               
like the record to be clear that  HB 334 intends to offer one tax                                                               
credit  to a  single tangible  personal property.   He  suggested                                                               
that the language in HB 334 might need to be clarified.                                                                         
                                                                                                                                
MIKE PAWLOWSKI, Deputy Commissioner,  Office of the Commissioner,                                                               
Department of  Revenue (DOR), offered  to discuss  the underlying                                                               
statute.    First,  the  nexus  to  the  definition  of  tangible                                                               
personal property  used in the  exploration for,  development of,                                                               
or  production of  oil or  gas was  written specifically  because                                                               
it's a nexus to the property tax  statute.  He said that AS 43.56                                                               
levies  oil  and gas  property  taxes  at  a statewide  level  on                                                               
tangible  personal property  used so  it was  the manufacture  of                                                               
something that  was going to  create a tax  base in the  state to                                                               
begin  with.    Secondly,  he  referred to  the  language  in  AS                                                               
43.20.049(c), which prevents the  expenditure from being used for                                                               
a  deduction against  the  tax  levied under  this  chapter or  a                                                               
credit or  deduction under another  provision of this title.   In                                                               
Representative Hawker's  example of an exploration  company, with                                                               
the  "loss  carry  forward"  which   he  reminded  the  committee                                                               
retained in  SB 21 for  the benefit  of new entrants,  along with                                                               
the exploration credits  "on the books, at least  in middle earth                                                               
for a little  while," the use of that expenditure  for a producer                                                               
or  explorer  is  more  valuable as  a  deduction  or  qualifying                                                               
expenditure for  one of the  other credits  in this chapter.   He                                                               
summarized  that this  was the  limiting utility  in the  way the                                                               
underlying statute was  drafted.  This narrowly would  apply to a                                                               
group that  really is  a corporate income  taxpayer who  might be                                                               
the service  company working with  the producer or explorer.   He                                                               
offered a willingness  to continue to work with  the committee to                                                               
develop  "sideboards" on  the language.    However, the  limiting                                                               
factor in  the development  of the credit  was to  recognize that                                                               
the expenditures  are more valuable  in other places  in statute,                                                               
he said.                                                                                                                        
                                                                                                                                
2:12:47 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HAWKER  appreciated  the  relative  value  of  an                                                               
individual expenditure.   He said  that someone claiming  the tax                                                               
credit will  be limited to  a one-time credit; however,  a person                                                               
contracting with the company couldn't  also claim the credit.  He                                                               
suggested that  at some point it  will be necessary to  fine tune                                                               
who actually is eligible for tax credit.                                                                                        
                                                                                                                                
MR. PAWLOWSKI answered correct.                                                                                                 
                                                                                                                                
2:13:18 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HAWKER  returned  to [AS  43.20.049]  (c),  which                                                               
read:                                                                                                                           
                                                                                                                                
      An expenditure that is the basis of the credit under                                                                      
     this section may not be the basis for                                                                                      
       (1) a deduction against the tax levied under this                                                                        
     chapter;                                                                                                                   
      (2) a credit or deduction under another provision of                                                                      
     this title; or                                                                                                             
     (3) any federal credit claimed under this title.                                                                           
                                                                                                                                
REPRESENTATIVE HAWKER asked to parse  through the language noting                                                               
subsection  (c)   relates  to  the  corporate   income  tax,  but                                                               
paragraph (1)  clarifies that  the taxpayer  can't take  a credit                                                               
and deduction  at the  same time.   However, paragraph  (2) would                                                               
preclude using  the credit  under AS 43.20.049  (c) as  the basis                                                               
for a credit or deduction under another provision of this title.                                                                
He questioned whether a specific  exemption is necessary in order                                                               
to allow the  expenditure to be applied to AS  43.56.  He pointed                                                               
out that  the language in  AS 43.20.049  (c) may have  embedded a                                                               
prohibition against what HB 334 is doing.                                                                                       
                                                                                                                                
MR. PAWLOWSKI responded by acknowledging  that SB 21 was narrowly                                                               
crafted last year  and the decision to broaden  the capability is                                                               
something the department must carefully think through.                                                                          
                                                                                                                                
REPRESENTATIVE HAWKER  commented on  how difficult  it can  be to                                                               
interpret statutes over time.                                                                                                   
                                                                                                                                
2:16:04 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON said  if an  oil company  orders something                                                               
built for them,  but the ten percent tax credit  can't be used as                                                               
a  deduction  for anything  else,  it  would have  absolutely  no                                                               
relative value.   He asked for  an example of how  the tax credit                                                               
[under AS 43.20.049] could be  applied.  Certainly an oil company                                                               
wouldn't  give  away  a  25 percent  tax  credit  to  manufacture                                                               
something for the field to  subsequently receive a 10 percent tax                                                               
credit.                                                                                                                         
                                                                                                                                
REPRESENTATIVE TARR  stated the  as introduced  included language                                                               
that  limited  the  transfer  to the  initial  purchaser  of  the                                                               
tangible personal  property, but  Version U doesn't  contain that                                                               
language.    She  asked whether  the  committee  should  consider                                                               
including that provision.                                                                                                       
                                                                                                                                
2:17:29 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SADDLER held public testimony open on HB 334.                                                                          
                                                                                                                                
[HB 334 was held over].                                                                                                         

Document Name Date/Time Subjects
HB334 Sponsor Statement.pdf HRES 3/10/2014 1:00:00 PM
HB 334
HB334 Ver U Sectional Analysis.pdf HRES 3/10/2014 1:00:00 PM
HB 334
HB334 Version A.pdf HRES 3/10/2014 1:00:00 PM
HB 334
HB334 Version U Work Draft.pdf HRES 3/10/2014 1:00:00 PM
HB 334
HB334-DOR-TAX-03-07-14.pdf HRES 3/10/2014 1:00:00 PM
HB 334
HB351 AQRC Email.xps HRES 3/10/2014 1:00:00 PM
HB 351
HB351 Charles Email.xps HRES 3/10/2014 1:00:00 PM
HB 351
HB351 Frontiersman Article.pdf HRES 3/10/2014 1:00:00 PM
HB 351
HB351 Gilmore Email.xps HRES 3/10/2014 1:00:00 PM
HB 351
HB351 Map.pdf HRES 3/10/2014 1:00:00 PM
HB 351
HB351 Smith Email.xps HRES 3/10/2014 1:00:00 PM
HB 351
HB351 Sponsor Statement.pdf HRES 3/10/2014 1:00:00 PM
HB 351
HB351 Superior Court SOP v. DNR.pdf HRES 3/10/2014 1:00:00 PM
HB 351
HB351 Supreme Court SOP v. DNR Appeal.pdf HRES 3/10/2014 1:00:00 PM
HB 351
HB351 Supreme Court SOP v. DNR.pdf HRES 3/10/2014 1:00:00 PM
HB 351
HB351 Version A.pdf HRES 3/10/2014 1:00:00 PM
HB 351
HB351-DNR-PKS-3-07-14.pdf HRES 3/10/2014 1:00:00 PM
HB 351
HJR30 Coons Email.xps HRES 3/10/2014 1:00:00 PM
HJR 30
HJR30 EIS ExecSum.pdf HRES 3/10/2014 1:00:00 PM
HJR 30
HJR30 KCA Press Release.pdf HRES 3/10/2014 1:00:00 PM
HJR 30
HJR30 KCG Letter to Sec Jewell.pdf HRES 3/10/2014 1:00:00 PM
HJR 30
HJR30 Map.pdf HRES 3/10/2014 1:00:00 PM
HJR 30
HJR30 Press Release 2.13.14.pdf HRES 3/10/2014 1:00:00 PM
HJR 30
HJR30 Sen Murkowski letter to President Obama.pdf HRES 3/10/2014 1:00:00 PM
HJR 30
HJR30 Sponsor Statement.pdf HRES 3/10/2014 1:00:00 PM
HJR 30
HJR30 Version A.pdf HRES 3/10/2014 1:00:00 PM
HJR 30
HJR30-LEG-SESS-03-04-14.pdf HRES 3/10/2014 1:00:00 PM
HJR 30
HB334 AS43.20.049.pdf HRES 3/10/2014 1:00:00 PM
HB 334
HB351 Schmid Email.xps HRES 3/10/2014 1:00:00 PM
HB 351
HJR30 Sen Murkowski HRES Testimony.pdf HRES 3/10/2014 1:00:00 PM
HJR 30