Legislature(2011 - 2012)BARNES 124

02/20/2012 01:00 PM RESOURCES


Download Mp3. <- Right click and save file as

* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
*+ HCR 23 ALASKA ARCTIC POLICY COMMISSION TELECONFERENCED
Moved CSHCR 23(RES) Out of Committee
*+ HB 263 PRODUCTION TAX CREDIT; DISCLOSURES TELECONFERENCED
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
           HB 263-PRODUCTION TAX CREDIT; DISCLOSURES                                                                        
                                                                                                                                
1:42:48 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SEATON announced  that the next order  of business would                                                               
be  HOUSE  BILL   NO.  263,  "An  Act   relating  to  information                                                               
concerning  oil  and  gas   taxes,  including  information  about                                                               
expenditures that must  be provided in order to claim  an oil and                                                               
gas production  tax credit for  those expenditures,  and relating                                                               
to  the disclosure  of  that information;  and  providing for  an                                                               
effective date."                                                                                                                
                                                                                                                                
1:43:18 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  GARDNER  moved to  adopt  CSHB  263, Version  27-                                                               
LS1053\E,  Bullock,  2/17/12, as  the  working  document.   There                                                               
being no objection, Version E was before the committee.                                                                         
                                                                                                                                
1:43:50 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  GARDNER,  speaking  as  one of  the  joint  prime                                                               
sponsors of HB  263, informed the committee that  [Version E] was                                                               
offered  as  an amendment  to  HB  110  [in the  House  Resources                                                               
Standing  Committee]  and  on  the House  floor.    Although  she                                                               
ultimately  pulled  the  amendment  to   HB  110,  she  said  she                                                               
understood  there  was  support  for   it  from  members  of  the                                                               
committee.   She  then directed  attention to  a document  in the                                                               
committee packet  entitled "Disclosure Requirements for  Film Tax                                                               
Credits".  Those in the film  industry who want to do business in                                                               
Alaska  and  claim  the  film   tax  credits  must  disclose  the                                                               
following:   name of the  taxpayer, project title, amount  of the                                                               
Alaska   expenditure,  production   schedule,  production   type,                                                               
communities where expenditures occurred,  wages paid to residents                                                               
and nonresidents, costs in in-state  Alaska shipping, shipping to                                                               
Alaska,   location  fees,   facility  rentals,   services,  food,                                                               
lodging, and amount  of tax credit that is rewarded.   All of the                                                               
aforementioned is public  record for the film tax  credits.  Over                                                               
a  two-and-a-half  year  period,  the tax  credits  have  totaled                                                               
$24,329,051.20, which isn't  a huge amount.  However,  for the $4                                                               
billion  that the  state has  invested  in the  oil industry  tax                                                               
credit, there is relatively little known.                                                                                       
                                                                                                                                
1:46:07 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  GARDNER  surmised  that  most  [legislators]  are                                                               
supporters of various tax incentives  and credits, and have goals                                                               
in terms of those.  However,  very little is known about what has                                                               
been  purchased  with those  tax  incentives  and credits.    She                                                               
opined  that  it's  the  legislature's  problem  that  it  didn't                                                               
establish [disclosure requirements for  the oil and gas industry]                                                               
in the  beginning.  There  is no knowledge, with  any specificity                                                               
or detail,  on what  $4 billion [in  tax incentives  and credits]                                                               
has  been  spent.   Therefore,  the  legislature  can't  pinpoint                                                               
what's really working,  that is where the  incentives are working                                                               
and  where they  are  paying  for work  that  would be  performed                                                               
regardless  of the  incentives.   She reminded  the committee  of                                                               
testimony from various experts including  Dr. Pedro van Meurs and                                                               
Robin  Brena, regarding  how little  the legislature  knows about                                                               
what is  being spent  on the  North Slope  in comparison  to what                                                               
Norway and  other countries  with much  tighter control  of their                                                               
data  know.     Although  she   acknowledged  that   perhaps  the                                                               
Department of Revenue (DOR) may  know the information, it doesn't                                                               
help  the legislature  make  decisions.   Representative  Gardner                                                               
emphasized  when the  state spends  $4  billion, the  legislature                                                               
should know  how effective [the  tax incentives and  credits] are                                                               
in getting oil in the pipeline.                                                                                                 
                                                                                                                                
1:48:16 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE GARDNER explained that HB  263 is an effort to get                                                               
oil   in  the   pipeline.     The   legislation  specifies   that                                                               
notwithstanding the  normal taxpayer confidentiality,  a taxpayer                                                               
that  asks the  state  for  money under  the  tax incentives  and                                                               
credit program needs to be prepared  to release to the public the                                                               
following:   the taxpayer's  name, a  general description  of the                                                               
category  of work  being performed,  and the  location where  the                                                               
work is being  performed.  A lease that is  being explored merely                                                               
requires the name  of the lease or  a broad idea of a  unit.  She                                                               
stressed  that there  is no  desire  to obtain  trade secrets  or                                                               
proprietary    information   rather    she   seeks    responsible                                                               
accountability for what is being spent on the North Slope.                                                                      
                                                                                                                                
1:50:45 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  P. WILSON  said she  didn't recall  whether other                                                               
legislation includes  the requirement to publish  the information                                                               
on the Internet.                                                                                                                
                                                                                                                                
REPRESENTATIVE  GARDNER explained  that  she  discussed with  DOR                                                               
what would be the easiest and  most cost effective way to provide                                                               
the  required information.   She  said she  was merely  trying to                                                               
avoid any additional expense and was only seeking efficiency.                                                                   
                                                                                                                                
1:51:37 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SEATON  referred to a memorandum  from Legislative Legal                                                               
Services dated  February 16, 2012, regarding  confidentiality and                                                               
the belief  that perhaps the  legislation should  include another                                                               
section.   He  asked if  that was  accomplished with  [the latest                                                               
version] of HB 263.                                                                                                             
                                                                                                                                
REPRESENTATIVE GARDNER  responded that was the  intention and she                                                               
believes  it  was  accomplished  with the  language  on  page  3,                                                               
beginning on line 15 of Version E.                                                                                              
                                                                                                                                
1:53:19 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE FEIGE asked if the  language in HB 263, Version E,                                                               
is the same  language that applies to other tax  credits.  Or, if                                                               
information is  what is sought,  then he questioned why  it isn't                                                               
required for all tax credits.                                                                                                   
                                                                                                                                
REPRESENTATIVE GARDNER  answered that is something  that might be                                                               
considered,  but in  this case  it's  the volume  of money  [that                                                               
raises the need for the information  to be on the Internet].  For                                                               
smaller credits,  she wasn't sure  that it was necessary  to have                                                               
regular  reports and  postings  on the  Internet,  although as  a                                                               
matter of principle  it's probably a good idea.   She offered the                                                               
public disclosures candidates  for public office must  file as an                                                               
example.  In this case, the  state is spending $4 billion and she                                                               
opined that  it's irresponsible of  legislators not to  know with                                                               
certainty [whether tax incentives and  credits are working].  She                                                               
acknowledged that there is always  a cost/benefit ratio, but as a                                                               
matter of principle everyone should have the information.                                                                       
                                                                                                                                
1:55:00 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  FEIGE expressed  the need  for  the rules  to apply  to                                                               
everyone  fairly  and  evenly.    Applying  this  to  one  single                                                               
industry seems to be selective,  even though he acknowledged that                                                               
the [oil and gas industry]  does provide a considerable amount of                                                               
revenue to  the state.   Referring to  the language  in paragraph                                                               
(10)  [on page  2], Co-Chair  Feige reminded  the committee  that                                                               
there are existing laws that  preclude the release of information                                                               
that would give  competitive advantage to other  companies in the                                                               
same  industry.   He  recalled DOR's  testimony  from a  previous                                                               
hearing, in which  the department reminded the  committee that it                                                               
can't make  information public unless  it's lumped  together with                                                               
information from at least three  other companies.  Therefore, one                                                               
company can't determine what a  particular company is spending in                                                               
a  particular area.   He  opined that  the language  in paragraph                                                               
(10) "notwithstanding AS 40.25.100(a)  and AS 43.05.230(a)" can't                                                           
be  ignored  otherwise  it  would   be  taking  away  competitive                                                               
advantages from these companies.                                                                                                
                                                                                                                                
REPRESENTATIVE  GARDNER said  that as  a matter  of policy  it is                                                               
left to the  legislature to determine if every  single tax credit                                                               
should  be a  matter of  public record.   Although  she said  she                                                               
wouldn't object  to the  aforementioned, that's  not what  she is                                                               
trying to  do with HB  263.  She  explained that she's  not doing                                                               
the aforementioned, in  part, because of the  economies of scale.                                                               
Again, $4  billion is a  lot of money as  is the $24  million for                                                               
the film  tax credits.  Where  state money is being  spent, there                                                               
should be accountability  in terms of the  public knowing exactly                                                               
what the money is being spent  on and who is the beneficiary, she                                                               
said.   Representative  Gardner  opined that  while she  supports                                                               
taxpayer    confidentiality,    she    also    supports    fiscal                                                               
responsibility  on the  legislature's part.   She  explained that                                                               
with  this  legislation,  she is  suggesting  that  the  taxpayer                                                               
determines whether to participate in  a state program and part of                                                               
the  price of  participating in  this generous  state tax  credit                                                               
program  is to  release  broad categories  of  information.   She                                                               
specified that she wants to be  able to tell Alaskans whether the                                                               
state  is  buying  maintenance  and  what  kinds  of  repairs  or                                                               
exploration are being purchased,  in general terms.  Furthermore,                                                               
a  taxpayer who  wants to  participate in  the tax  credit system                                                               
should  have his/her  name  attached to  the  funds the  taxpayer                                                               
receives.                                                                                                                       
                                                                                                                                
1:59:00 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SEATON related his belief  that legislators have been in                                                               
the  dark about  heavy  oil  production and  tests  on the  North                                                               
Slope.   He  then  expressed concern  that  if legislators  don't                                                               
understand  whether tax  credits  are being  effectively used  to                                                               
develop heavy oil, it doesn't seem  that the state can target its                                                               
tax credits  and determine whether  more or less tax  credits are                                                               
necessary.   Is  the purpose  of HB  263 to  obtain that  sort of                                                               
discrimination of  information in order to  determine whether the                                                               
tax credits are going toward shale oil or heavy oil, he asked.                                                                  
                                                                                                                                
REPRESENTATIVE GARDNER agreed  that is exactly what  she wants to                                                               
know.   She clarified  that she  wants to have  a better  idea in                                                               
terms of accountability, where the  same money [tax credit] could                                                               
be  more  effective, or  where  to  invest  more because  of  the                                                               
ability to see  that it actually stimulates the  type of activity                                                               
desired.                                                                                                                        
                                                                                                                                
2:00:40 PM                                                                                                                    
                                                                                                                                
CO-CHAIR FEIGE  asked whether it would  make more sense to  tie a                                                               
tax credit to actual performance.                                                                                               
                                                                                                                                
REPRESENTATIVE GARDNER acknowledged that's another approach.                                                                    
                                                                                                                                
CO-CHAIR FEIGE pointed out that  with such an approach, the state                                                               
wouldn't  have to  deal with  issues of  giving away  competitive                                                               
edge.                                                                                                                           
                                                                                                                                
REPRESENTATIVE  GARDNER  opined  that  there  are  complications,                                                               
strengths, and  weaknesses with any  approach.   Currently, there                                                               
isn't enough  information to  know where  the incentives  and tax                                                               
credits are being  effective.  Therefore, HB 263  is her proposal                                                               
to address the issue.                                                                                                           
                                                                                                                                
2:01:47 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  FEIGE pointed  out that  [on page  3, lines  13-14] the                                                               
legislation provides  a "detailed  description of the  purpose of                                                           
the  expenditure".   He inquired  as to  what exactly  "detailed"                                                       
means and how much extra would  it cost to implement.  He further                                                               
inquired as to what entity would establish the level of detail.                                                                 
                                                                                                                                
2:02:39 PM                                                                                                                    
                                                                                                                                
JOHN   LARSEN,   Audit   Master,  Tax-Production   Audit   Group,                                                               
Department of  Revenue, responded that  there may be a  couple of                                                               
different answers.  Generally, when  DOR obtains cost information                                                               
from  companies,  it  has  attached  the  account  code  and  the                                                               
description of  the account.   Most  often that  description will                                                               
relate what's necessary to know  about the expense without having                                                               
an additional language burden on the taxpayer.                                                                                  
                                                                                                                                
2:03:21 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SEATON  asked whether a  modifier should be  placed with                                                               
the language "detailed description" so  that it's by account code                                                           
or  something that  reaches  the level  of  description that  the                                                               
sponsor  has  discussed  but  wouldn't   be  of  concern  to  the                                                               
industry.                                                                                                                       
                                                                                                                                
MR. LARSEN said a modifier  doesn't immediately come to mind, but                                                               
he offered to give it some thought.                                                                                             
                                                                                                                                
2:04:33 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  SEATON, referring  to  Version E,  asked whether  there                                                               
would be confusion among DOR  as to what "detailed description of                                                           
the purpose of  the expenditure" means and whether  a modifier is                                                           
necessary so that the industry  would know exactly what is meant.                                                               
He  asked whether  the  language  is confined/explanatory  enough                                                               
that both  DOR and the  industry would understand the  meaning of                                                               
it or is a modifier necessary.                                                                                                  
                                                                                                                                
2:05:35 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  SEATON,  while  waiting  for Mr.  Larsen  to  join  the                                                               
meeting, opened  public testimony on  HB 263.   Upon ascertaining                                                               
that no one wished to testify, he closed public testimony.                                                                      
                                                                                                                                
2:07:08 PM                                                                                                                    
                                                                                                                                
MR. LARSEN said that he doesn't  see the benefit of modifying the                                                               
language in the legislation.   He offered to inform the committee                                                               
in regard to the information DOR is currently receiving.                                                                        
                                                                                                                                
CO-CHAIR SEATON clarified that he  didn't want to insert language                                                               
in statute  if it's unclear.   He opined  that it's clear  to him                                                               
that the  language "detailed  description of  the purpose  of the                                                           
expenditure" is a  more general description, but he  wanted to be                                                           
sure DOR  and industry  understands the  language.   He requested                                                               
that Mr. Larsen provide the answer to the committee in writing.                                                                 
                                                                                                                                
2:08:41 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  P. WILSON  inquired as  to whether  DOR would  be                                                               
able to obtain  that [detailed description of the  purpose of the                                                               
expenditure] information  without "stepping on toes"  in terms of                                                               
the  proprietary  information  that  has to  be  protected.    In                                                               
further  clarification to  Mr. Larsen,  Representative P.  Wilson                                                               
specified  that  she  is  referring   to  the  information  being                                                               
requested from the producers.                                                                                                   
                                                                                                                                
MR. LARSEN answered that DOR  currently receives information very                                                               
similar  to  what  the  legislation requests,  if  not  the  same                                                               
information.   He said he  didn't believe that would  violate any                                                               
proprietary  information  because  it's   coming  from  a  single                                                               
source.   When information is  received from a company  it's only                                                               
coming  from  them about  their  operations  and it's  not  being                                                               
shared on an individual basis with anyone else.                                                                                 
                                                                                                                                
REPRESENTATIVE  P.  WILSON  pointed   out  that  the  legislation                                                               
specifies that the information will  be published on the Internet                                                               
and in a  report to the legislature.  Therefore,  can DOR do that                                                               
without worrying about the proprietary information, she asked.                                                                  
                                                                                                                                
MR. LARSEN stated that personally  he would want some advice from                                                               
the Department of Law regarding the  applications of HB 263 as it                                                               
applies to AS 40.25.100 and  AS 43.05.230.  Additionally, DOR can                                                               
submit  information under  AS 43.55.890  and not  be in  conflict                                                               
with confidentiality provisions.                                                                                                
                                                                                                                                
2:11:17 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SEATON related his understanding  that HB 263 would only                                                               
be   for   information,    generalized   description   of   those                                                               
expenditures, submitted by companies  that wanted to obtain funds                                                               
from the state;  that information would be  publicly available to                                                               
the  legislature.   Basically, the  state  is buying  information                                                               
that would  then be public,  he surmised.   In other  words, this                                                               
[information becoming  public] refers  only to  expenditures that                                                               
qualify for  credit, such  that if the  company didn't  apply for                                                               
the credit the disclosure wouldn't occur.                                                                                       
                                                                                                                                
2:12:39 PM                                                                                                                    
                                                                                                                                
LENNIE   DEES,   Audit   Master,  Tax-Production   Audit   Group,                                                               
Department  of  Revenue,  stated   his  agreement  with  Co-Chair                                                               
Seaton's understanding, and added that  he understood that HB 263                                                               
would ask for  information pertinent to expenditures  for which a                                                               
tax credit  was claimed.   In accordance  with AS  43.55.890, DOR                                                               
would  be able  to  aggregate  the information  in  order not  to                                                               
violate any of the confidentiality provisions.                                                                                  
                                                                                                                                
CO-CHAIR  SEATON   surmised  that   Mr.  Dees  is   referring  to                                                               
expenditures that are not the basis  of a credit claim, for which                                                               
HB 263 wouldn't apply.                                                                                                          
                                                                                                                                
MR. DEES  agreed that the information  for which a credit  is not                                                               
claimed wouldn't be part of this particular disclosure.                                                                         
                                                                                                                                
2:14:24 PM                                                                                                                    
                                                                                                                                
CO-CHAIR FEIGE reminded the committee  that these credit programs                                                               
were  placed  in  statute  to  encourage  a  particular  kind  of                                                               
activity.  Therefore, the committee  must consider if requiring a                                                               
detailed   description  causes   companies  not   to  make   that                                                               
expenditure,  in   which  case  the  state   isn't  accomplishing                                                               
anything with  its credit  program.  He  then requested  that DOR                                                               
provide a  list of  the types  of expenditures  and the  level of                                                               
detail that  the department currently  receives.  He  related his                                                               
understanding  that DOR  receives  a fair  amount of  information                                                               
with  regard  to  production and  expenditures  related  to  that                                                               
production,  much of  which  details  down to  the  level of  the                                                               
individual wellhead.   However, due to  confidentiality laws that                                                               
data can't  be released to  the public, although the  state knows                                                               
that information.                                                                                                               
                                                                                                                                
MR. DEES confirmed that as part  of DOR's data assessment, it has                                                               
been determining the many different  levels of data received from                                                               
the various companies.   The department would be  able to provide                                                               
the committee with  a list in order  that it can have  a sense of                                                               
the level of data the department currently receives.                                                                            
                                                                                                                                
2:17:38 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SEATON  requested that the  list also indicate  what DOR                                                               
would interpret to  be a "detailed description of  the purpose of                                                           
the  expenditure" for  a group.   He  asked whether  it would  be                                                           
enough for a detailed description of  a company to say they would                                                               
be building  a pipeline or would  it be necessary that  there are                                                               
20 pre-welded  elbows.  He reiterated  the need to know  what DOR                                                               
would interpret as a "detailed  description of the purpose of the                                                           
expenditure".                                                                                                               
                                                                                                                                
2:18:33 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  FEIGE  surmised that  by  requiring  further levels  of                                                               
detailed   expenditures  and   to   expose   what  is   currently                                                               
confidential  data, the  language seems  to imply  that the  data                                                               
being  provided to  the  state is  either  somehow incomplete  or                                                               
somehow erroneous or not representative  of the purpose for which                                                               
the tax credit  is being granted.  He asked  whether DOR has ever                                                               
had instances in which there  were integrity issues with the data                                                               
that was provided.                                                                                                              
                                                                                                                                
MR. DEES informed  the committee that DOR  performs due diligence                                                               
and  audits on  those  tax  credits.   Of  course,  there may  be                                                               
instances  in which  the department  disagrees with  some of  the                                                               
particulars of  the expenditures, but  that's at a  very detailed                                                               
invoice level.  Over the  last year, in cooperation with industry                                                               
DOR   has   tried  to   develop   some   broader  categories   of                                                               
expenditures.   The department is  trying to  develop definitions                                                               
of various  categories of cost that  would mean the same  to each                                                               
company  from which  the data  is obtained.   The  aforementioned                                                               
would provide  an indication for  what the money is  being spent.                                                               
The department is  still in the process of  developing that list,                                                               
he said, particularly in terms of  further refining the data to a                                                               
lower level  that is meaningful  to DOR and the  industry without                                                               
getting into minutia.                                                                                                           
                                                                                                                                
2:21:55 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SEATON  acknowledged that without some  sort of detailed                                                               
description  requirement, some  charge that  most of  the credits                                                               
are being spent on maintenance  rather than capital improvements.                                                               
Furthermore, at this point there  is no statutory requirement for                                                               
DOR  to  provide  the  legislature  with  enough  information  to                                                               
determine whether the [tax credits]  were spent on maintenance or                                                               
drilling a well.                                                                                                                
                                                                                                                                
2:22:52 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  GARDNER  clarified it  is  not  her intention  or                                                               
belief that any of the  tax filings are incomplete, erroneous, or                                                               
not  representative.   She  further  clarified  that she  doesn't                                                               
fault  the oil  industry  for not  having  this information,  but                                                               
rather faults  the legislature  for not  having the  foresight to                                                               
realize the  information would be  necessary when it  embarked on                                                               
the  tax  credit  process.    The  information,  she  opined,  is                                                               
necessary to understand  in order to know how  effective [the tax                                                               
credit  process]  is  and  to   determine  how  it  can  be  more                                                               
effective.  She  then emphasized that her goal with  HB 263 is to                                                               
protect  members  of  DOR  and   protect  them  from  erroneously                                                               
releasing information.   From the  Gleason decision she  read the                                                             
following:                                                                                                                      
                                                                                                                                
     The  division  broadly  interprets  what  it  considers                                                                    
     taxpayer  confidential   information  under  applicable                                                                    
     statutes and will not disclose  such information to the                                                                    
     municipalities   specifically   or    to   the   public                                                                    
     generally.    The  division considers  all  information                                                                    
     that   it  receives   from  a   taxpayer  as   taxpayer                                                                    
     confidential,   even   if   it  doesn't   contain   the                                                                    
     particularities  of a  taxpayer's business  affairs and                                                                    
     is obtainable from the public domain.                                                                                      
                                                                                                                                
REPRESENTATIVE  GARDNER noted  that  the Gleason  case was  about                                                             
property taxes.   She  then explained that  she wants  to protect                                                               
DOR  from having  to make  a judgment  decision.   Therefore, she                                                               
wants the  taxpayer to  specify who  they are  and what  they are                                                               
applying  for  in  categories  that  make  it  adequate  for  the                                                               
legislature to know what they are doing in broad terms.                                                                         
                                                                                                                                
2:24:51 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE P. WILSON  said she knows the  oil industry tracks                                                               
legislation being  considered, and therefore she  assumed it does                                                               
not object  to HB 263  because no oil industry  representative is                                                               
present to object to it.                                                                                                        
                                                                                                                                
2:25:36 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  SEATON announced  that HB  263 would  be held  over for                                                               
another hearing  so anyone having  concerns with HB 263  can come                                                               
forward.   If  no one  comes forward  to testify  he, too,  would                                                               
assume there  is not  a problem with  the legislation.   Co-Chair                                                               
Seaton then asked  whether there is any  current information that                                                               
the state is  legally entitled to receive and that  DOR has asked                                                               
companies to report that companies have refused to report.                                                                      
                                                                                                                                
2:27:03 PM                                                                                                                    
                                                                                                                                
DONNA   KEPPERS,  Audit   Master,  Tax-Production   Audit  Group,                                                               
Department of Revenue, answered that  all the information DOR has                                                               
requested of  the companies  has been  provided by  the companies                                                               
through a series of workshops that  has taken place over the last                                                               
year.    The  department  has   been  able  to  provide  all  the                                                               
information   it  can   while  maintaining   the  confidentiality                                                               
provisions that  are in place.   She informed the  committee that                                                               
with the five-year  look back DOR could not disclose  some of the                                                               
cost categories  of some of  the independents and  majors because                                                               
of the inability to meet  the three producer/explorer aggregation                                                               
rules of AS 43.55.890.                                                                                                          
                                                                                                                                
2:28:09 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SEATON  related his understanding  that there  were some                                                               
categories of information requested that  the state had the legal                                                               
right to obtain,  but wasn't being provided to DOR.   However, he                                                               
understood Ms. Keppers' testimony to  be that all information the                                                               
state has a right to obtain  and the state has requested has been                                                               
provided by the producers.                                                                                                      
                                                                                                                                
MS.  KEPPERS clarified  that  all the  information  that DOR  has                                                               
asked for from taxpayers for  purposes of the five-year look back                                                               
and the cost  categories has been provided.  She  said she wasn't                                                               
familiar with another  type of information request  for which the                                                               
information wasn't provided.                                                                                                    
                                                                                                                                
MR.  LARSEN prefaced  his comments  by saying  he wasn't  sure if                                                               
this was to what Co-Chair Seaton  was referring.  He then related                                                               
that in  the process of  developing the categories for  the five-                                                               
year look  back DOR ran  into difficulty because  every company's                                                               
accounting  system  is  unique   to  that  company.    Therefore,                                                               
depending  upon how  a  company aggregates  data  within its  own                                                               
organization,  particularly in  a  look-back  situation in  which                                                               
historical information  is being  requested, to a  certain degree                                                               
DOR  had  to  settle  on   the  "lowest  common  denominator"  of                                                               
categories of cost.   When the workshop process began,  DOR had a                                                               
larger  list than  just the  five categories  of cost.   In  some                                                               
instances,  some  companies  could  provide a  greater  level  of                                                               
detail on a particular cost  category than others.  Therefore, in                                                               
order  to maintain  consistency in  the data  and reporting,  DOR                                                               
felt that  it was important  for every  company to report  on the                                                               
same categories  of cost for purposes  of the look back.   In the                                                               
current  workshops, DOR  is trying  to expand  the categories  of                                                               
cost to obtain a greater level  of detail.  He related his belief                                                               
that the aforementioned  should be attainable in the  future.  In                                                               
order to  obtain the information  DOR requests, the  company must                                                               
program its  system such that  how the company records  its costs                                                               
can be mapped into what DOR wants reported.                                                                                     
                                                                                                                                
2:32:15 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SEATON  said he was  not referring  to the look  back or                                                               
the  categories   for  future  accounting,  but   rather  he  was                                                               
referring to  any categories under  Alaska's Clear  and Equitable                                                               
Share  (ACES)  that DOR  wasn't  receiving.   He  reiterated  his                                                               
understanding that DOR  is being provided all  the information it                                                               
needs for auditing purposes.                                                                                                    
                                                                                                                                
MR. DEES replied that is correct;  currently, in the area of cost                                                               
data, there isn't any that DOR isn't being provided.                                                                            
                                                                                                                                
2:33:05 PM                                                                                                                    
                                                                                                                                
CO-CHAIR FEIGE asked whether there  will be fewer problems making                                                               
the  data public  once the  reporting and  information categories                                                               
are  equalized  between  all the  players  throughout  the  state                                                               
because  DOR will  be able  to  include more  companies into  its                                                               
collective  database, and  thereby be  able to  exceed the  three                                                               
company minimum reporting requirement.                                                                                          
                                                                                                                                
MR. DEES noted  his agreement that an aggregate  should be easier                                                               
to disclose.  The problems  with AS 43.55.890, the aggregation of                                                               
data, arise  when DOR tries to  perform analysis on the  cost and                                                               
consider  independent   companies  versus  major   companies  and                                                               
producers versus  explorers.   In certain  types of  costs, there                                                               
may  only be  one  or  two companies  with  an  expenditure of  a                                                               
certain type.  In terms of  the state as a whole, there shouldn't                                                               
be problems with aggregation.                                                                                                   
                                                                                                                                
2:35:06 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  SEATON  posed  a  situation  in  which  the  state  has                                                               
information  on  credits  for   Prudhoe  Bay  or  Kuparuk,  where                                                               
ConocoPhillips  Alaska,  Inc.,  BP, ExxonMobil  Corporation,  and                                                               
Chevron participate in  the unit.  Since there are  at least four                                                               
companies,   he  asked   whether   DOR   wouldn't  release   that                                                               
information  because   it's  four  companies  in   an  aggregated                                                               
operation  or  would  that  information  be  released  under  the                                                               
current aggregation interpretation.                                                                                             
                                                                                                                                
MR.  LARSEN responded  that he  didn't believe  DOR would  have a                                                               
problem  reporting that  information under  the provisions  of AS                                                               
43.55.890 because  with four companies  the requirement  would be                                                               
met.   He offered to address  any specific question related  to a                                                               
specific report.                                                                                                                
                                                                                                                                
2:36:29 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  SEATON  surmised  then  that  when  credits  are  being                                                               
applied  for  on Prudhoe  Bay  then  that  would be  released  as                                                               
credits applied  for and paid  on Prudhoe Bay.   He asked  if the                                                               
individual  credit and  expenditure amounts  can be  obtained for                                                               
each  [unit] that  has three  or more  participants in  the unit.                                                               
Co-Chair  Seaton   clarified  that  he  is   referring  to  DOR's                                                               
interpretation of aggregate.  Therefore,  is the amount of credit                                                               
that has  been applied for  by Kuparuk public  information that's                                                               
available  to the  legislature because  there are  three or  more                                                               
participants in the field, he asked.                                                                                            
                                                                                                                                
MR. DEES  replied no, he  hasn't provided the  credit information                                                               
by  unit   rather  he  has  strictly   provided  the  information                                                               
regarding  whether the  credits  were earned  via being  deducted                                                               
from  production tax  liability  as opposed  to  those that  were                                                               
applied   for   in  the   form   of   transferrable  tax   credit                                                               
certificates.  In  further response to Co-Chair  Seaton, Mr. Dees                                                               
confirmed that  if the information  is aggregated among  three or                                                               
more producers or explorers, the  information can be disclosed on                                                               
a unit basis per AS 43.55.890.                                                                                                  
                                                                                                                                
2:39:33 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SEATON, referring to language  page 2, lines 21-22, that                                                               
says "detailed  description of the  purpose of  the expenditure",                                                           
asked  whether  that  language  would  describe  the  classes  of                                                               
expenditures that DOR is creating.                                                                                              
                                                                                                                                
MR. LARSEN  pointed out  that the language  in paragraph  (10) on                                                               
page 2 is  the same as the  language in paragraph (3)  on page 3,                                                               
and therefore  DOR will  obtain the  same information  under both                                                               
paragraphs.                                                                                                                     
                                                                                                                                
CO-CHAIR SEATON asked  if a "detailed description  of the purpose                                                           
of the  expenditure" is basically  the description DOR  would use                                                           
and would encompass  the categories that DOR  would require going                                                               
forward.                                                                                                                        
                                                                                                                                
MR. LARSEN replied yes.                                                                                                         
                                                                                                                                
2:41:09 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SEATON  surmised that the  difference in  the categories                                                               
that DOR will require going forward  is that it will be for DOR's                                                               
information, but not for the legislature.                                                                                       
                                                                                                                                
MR. LARSEN  responded no,  and related  that the  categories that                                                               
DOR is  working on for  the future  would be for  aggregating the                                                               
data and reporting to the legislature and the public.                                                                           
                                                                                                                                
CO-CHAIR SEATON surmised  then that the data  would be aggregated                                                               
but wouldn't be  available by companies based on  the credits for                                                               
which they are applying.                                                                                                        
                                                                                                                                
MR. LARSEN replied yes.   In further response to Co-Chair Seaton,                                                               
Mr. Larsen  expressed concern that  even if HB 263  passes, there                                                               
is a  conflict with AS 43.55.890  in terms of releasing  the data                                                               
by individual  company.   He reiterated the  need to  involve the                                                               
Department of  Law prior to releasing  any data.  In  response to                                                               
Co-Chair Seaton, Mr. Larsen agreed  to contact the [department's]                                                               
attorney general regarding clarification on this matter.                                                                        
                                                                                                                                
2:43:55 PM                                                                                                                    
                                                                                                                                
CO-CHAIR FEIGE opined that under  the new categories although DOR                                                               
wouldn't  be  able  to disclose  the  individual  companies,  the                                                               
information could  be [aggregated]  with three or  more companies                                                               
that receive the credit to  provide a fairly detailed explanation                                                               
to the legislature  regarding how a particular  credit program is                                                               
being spent.                                                                                                                    
                                                                                                                                
MR. LARSEN answered that he believes that's correct.                                                                            
                                                                                                                                
CO-CHAIR FEIGE surmised  then that the legislature  would be able                                                               
to  evaluate what  the state's  credit program  is generating  in                                                               
terms of expenditures.                                                                                                          
                                                                                                                                
MR.  LARSEN,   characterizing  it  as  a   matter  of  semantics,                                                               
clarified that  the credit programs don't  generate expenditures,                                                               
rather they reimburse expenditures that  have been incurred for a                                                               
particular category of costs.                                                                                                   
                                                                                                                                
CO-CHAIR FEIGE  explained that the  legislature would  know where                                                               
the  state's expenditures,  in the  form  of reimbursements,  are                                                               
being  spent in  terms of  categories but  not necessarily  which                                                               
company.                                                                                                                        
                                                                                                                                
MR. LARSEN agreed that [DOR] would  have a good accounting of the                                                               
categories of cost on an  aggregated level, but not by individual                                                               
companies.                                                                                                                      
                                                                                                                                
2:45:45 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE P.  WILSON recalled asking that  question early on                                                               
to which she was  told it wouldn't be a problem.   She then asked                                                               
whether [DOR staff] is now saying it would be a problem.                                                                        
                                                                                                                                
MR.  LARSEN  replied  no,  and   specified  that  disclosing  the                                                               
information at  a company level  is the  problem for DOR  not the                                                               
disclosure  of  information.     The  lack  of   not  having  the                                                               
information aggregated is cause for concern.                                                                                    
                                                                                                                                
2:46:23 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  SEATON related  his understanding  then that  DOR would                                                               
inform the legislature  the amount of the credit by  wells on the                                                               
North  Slope, but  wouldn't inform  the legislature  as to  which                                                               
companies are actually  drilling the wells because  that would be                                                               
company specific data.                                                                                                          
                                                                                                                                
MR.  LARSEN  answered that's  correct.    As Mr.  Dees  indicated                                                               
earlier, the one way DOR has  tried to break that down for people                                                               
is based  on whether  a credit  has been  received for  those who                                                               
have a  tax obligation.   In  other words,  they deduct  a credit                                                               
directly  from their  tax payment  compared to  those who  do not                                                               
have a tax obligation, and  therefore receive a transferrable tax                                                               
credit certificate.   He  noted that the  original holder  of the                                                               
transferrable  tax credit  certificate  can redeem  it for  cash.                                                               
Therefore,   rather  than   detailing  the   information  on   an                                                               
individual  company basis,  DOR  has made  an  effort to  provide                                                               
another level of detail on  the gross cost reported themselves by                                                               
detailing it into those two categories.                                                                                         
                                                                                                                                
2:47:53 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SEATON  related his appreciation  for DOR trying  to get                                                               
around the restrictions  that have been placed  on the department                                                               
regarding  not  disclosing  information on  a  company-by-company                                                               
basis.  He surmised that DOR  is trying to identify a grouping of                                                               
companies in order to provide  some understanding because statute                                                               
requires  a grouping  of  three  or more  companies  in order  to                                                               
disclose the data.                                                                                                              
                                                                                                                                
MR.  LARSEN   agreed  with  Co-Chair  Seaton's   assessment,  but                                                               
clarified  that DOR  isn't  trying to  get  around any  statutory                                                               
regulations, rather  it's trying  to operate within  the confines                                                               
of  existing  statute while  providing  the  legislature and  the                                                               
public with as much information as possible.                                                                                    
                                                                                                                                
2:49:13 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SEATON  recalled that public  testimony had  been closed                                                               
for HB  263, but announced  that he will  re-open it at  the next                                                               
hearing of the legislation.                                                                                                     
                                                                                                                                
2:50:01 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  GARDNER  stated that  she  [and  the other  joint                                                               
prime sponsors] will work on the  issue with AS 43.55.890 to make                                                               
the  legislation explicit.   She  also stated  that she  [and the                                                               
other joint  prime sponsors]  will speak  with DOR  regarding its                                                               
categories and  how well they  comport with what  the legislation                                                               
seeks in terms  of understanding what is being done  and paid for                                                               
without revealing any competitive secrets.                                                                                      
                                                                                                                                
2:50:44 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SEATON requested that [at  the next hearing] DOR explain                                                               
whether  [all   the  companies]   applied  for  credits   on  the                                                               
expenditures  and whether  the credits  are  going to  be in  two                                                               
different  segments, that  is will  the AS  43.55.025 exploratory                                                               
tax credits be  in the same category as the  AS 43.55.023 regular                                                               
capital expenditure credits and did  [all companies] apply in the                                                               
fiscal  year in  which  the expenditures  or  loss carry  forward                                                               
occurred that  didn't get  into credits.   He requested  that DOR                                                               
inform the  committee in regard to  how the credits are  going to                                                               
definitely  apply to  the amount  of expenditures.   Many  in the                                                               
legislature want to know by category what proportion of the                                                                     
total spent is being taken by the state.                                                                                        
                                                                                                                                
[HB 263 was held over.]                                                                                                         

Document Name Date/Time Subjects
HCR 23.pdf HRES 2/20/2012 1:00:00 PM
HCR 23
HCR 23 Sponsor Statement.pdf HRES 2/20/2012 1:00:00 PM
HCR 23
HCR 23 Fiscal Note.pdf HRES 2/20/2012 1:00:00 PM
HCR 23
HCR 23 Arctic Calendar.pdf HRES 2/20/2012 1:00:00 PM
HCR 23
HB 263.pdf HRES 2/20/2012 1:00:00 PM
HB 263
HB 263 Sponsor Statement.pdf HRES 2/20/2012 1:00:00 PM
HB 263
NWTF_Full_Report_Color.pdf HRES 2/20/2012 1:00:00 PM
HCR 23
CS For HB 263 Ver E.pdf HRES 2/20/2012 1:00:00 PM
HB 263
HB 263 changes between Version E and original.pdf HRES 2/20/2012 1:00:00 PM
HCR 23
HCR 23 Canada Arctic Policy.docx HRES 2/20/2012 1:00:00 PM
HCR 23
HCR 23 National Security Presidential Directive - 66.docx HRES 2/20/2012 1:00:00 PM
HCR 23
HB 263 Backup.pdf HRES 2/20/2012 1:00:00 PM
HB 263
HB 263 Legal Opinion on Confidentiality.pdf HRES 2/20/2012 1:00:00 PM
HB 263
HB 263 Sectional Analysis.pdf HRES 2/20/2012 1:00:00 PM
HB 263