Legislature(2015 - 2016)BARNES 124

02/12/2016 01:00 PM RESOURCES

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Audio Topic
01:07:12 PM Start
01:08:04 PM HB247
03:00:02 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
*+ HB 246 AIDEA: FUNDS; LOANS; PROGRAMS; DIVIDEND TELECONFERENCED
<Bill Hearing Canceled>
-- Public & Invited Testimony --
+ HB 177 KING SALMON TAGS AND DESIGNS TELECONFERENCED
<Bill Hearing Canceled>
-- Public & Invited Testimony --
+= HB 247 TAX;CREDITS;INTEREST;REFUNDS;O & G TELECONFERENCED
Heard & Held
-- Public Testimony Postponed --
+ Bills Previously Heard/Scheduled TELECONFERENCED
           HB 247-TAX;CREDITS;INTEREST;REFUNDS;O & G                                                                        
                                                                                                                                
1:08:04 PM                                                                                                                    
                                                                                                                                
CO-CHAIR TALERICO  announced that the  only order of  business is                                                               
HOUSE BILL NO. 247, "An  Act relating to confidential information                                                               
status and public record status  of information in the possession                                                               
of the Department of Revenue;  relating to interest applicable to                                                               
delinquent tax; relating to disclosure  of oil and gas production                                                               
tax credit information;  relating to refunds for  the gas storage                                                               
facility tax  credit, the liquefied natural  gas storage facility                                                               
tax   credit,   and   the   qualified   in-state   oil   refinery                                                               
infrastructure expenditures  tax credit; relating to  the minimum                                                               
tax for certain  oil and gas production; relating  to the minimum                                                               
tax  calculation for  monthly installment  payments of  estimated                                                               
tax;  relating to  interest on  monthly  installment payments  of                                                               
estimated  tax; relating  to limitations  for the  application of                                                               
tax credits; relating  to oil and gas production  tax credits for                                                               
certain  losses and  expenditures;  relating  to limitations  for                                                               
nontransferable oil and  gas production tax credits  based on oil                                                               
production  and  the  alternative  tax credit  for  oil  and  gas                                                               
exploration;  relating to  purchase  of  tax credit  certificates                                                               
from the oil  and gas tax credit fund; relating  to a minimum for                                                               
gross  value  at  the  point of  production;  relating  to  lease                                                               
expenditures  and tax  credits for  municipal entities;  adding a                                                               
definition   for  "qualified   capital  expenditure";   adding  a                                                               
definition for  "outstanding liability  to the  state"; repealing                                                               
oil  and   gas  exploration  incentive  credits;   repealing  the                                                               
limitation on  the application of  credits against  tax liability                                                               
for  lease   expenditures  incurred   before  January   1,  2011;                                                               
repealing provisions related to  the monthly installment payments                                                               
for  estimated tax  for oil  and gas  produced before  January 1,                                                               
2014;  repealing  the  oil  and gas  production  tax  credit  for                                                               
qualified  capital expenditures  and  certain well  expenditures;                                                               
repealing   the  calculation   for  certain   lease  expenditures                                                               
applicable before January 1,  2011; making conforming amendments;                                                               
and providing for an effective date."                                                                                           
                                                                                                                                
1:08:29 PM                                                                                                                    
                                                                                                                                
KEN ALPER,  Director, Tax Division, Department  of Revenue (DOR),                                                               
provided  a  sectional  analysis  of  HB 247  on  behalf  of  the                                                               
governor.  He said Sections 1-5  all refer to a repealer.  Alaska                                                               
statute  includes some  exploration tax  credit programs  that go                                                               
back several  decades that are  dormant, have not been  used, and                                                               
in some cases  the appropriate regulatory structure  of the rules                                                               
have not  even been developed.   Many of the  alternative credits                                                               
for  exploration   in  AS  43.55.025   are  sunsetting   and  the                                                               
administration wanted  to make sure  that these  dormant programs                                                               
didn't get resurrected, brought to  life, while a separate set of                                                               
benefits  for exploration  remains  in place.    Section 40,  the                                                               
repealer section of the bill, is  a repeal of AS 43.05.180(i) and                                                               
different  sections of  AS 41.09;  in doing  so, there  are other                                                               
places  in  statute where  those  are  referenced  as part  of  a                                                               
general reference in another concept.   The specifics of Sections                                                               
1-5  talk about  the Department  of Natural  Resources (DNR)  and                                                               
DNR's ability  to audit  royalties; it  makes reference  to these                                                               
credits  so  those sections  are  being  amended to  reflect  the                                                               
repealing  of  those  sections  elsewhere in  the  statute.    It                                                               
doesn't change the underlying ability of DNR to audit royalties.                                                                
                                                                                                                                
1:10:50 PM                                                                                                                    
                                                                                                                                
MR.  ALPER explained  that Section  6 is  a conforming  change to                                                               
Section 8.  Section 8 is a  substantive piece that has to do with                                                               
the limited waiver  of confidentiality, the ability  of the state                                                               
to report on the credits that  it is spending, the companies that                                                               
are receiving it, and the projects.                                                                                             
                                                                                                                                
REPRESENTATIVE  HAWKER inquired  whether the  substantive portion                                                               
of the bill begins with Section 8.                                                                                              
                                                                                                                                
MR.  ALPER  replied  that the  substantive  portion  begins  with                                                               
Section 7.   But, because Section 6 is a  conforming section that                                                               
refers to Section  8, he skipped to Section 8  to better describe                                                               
Section 6.                                                                                                                      
                                                                                                                                
MR. ALPER returned to his  presentation, reiterating that Section                                                               
8 talks about  confidentiality waivers and Section  6 talks about                                                               
what is confidential.   It is part of the  core "we keep taxpayer                                                               
information confidential  statutes" that describe  that activity.                                                               
There  is limited  waiver language  that says  what is  and isn't                                                               
confidential.  That is being  modified to include the new section                                                               
that's added by Section  8 of the bill.  So,  Section 8 is purely                                                               
conforming in that sense, which he will discuss in a moment.                                                                    
                                                                                                                                
1:12:13 PM                                                                                                                    
                                                                                                                                
MR. ALPER  turned to Section  7, noting  that it is  the interest                                                               
rate change, which is in the  general tax statutes, AS 43.05, and                                                               
applies not  just to oil  and gas but  to all taxes  collected by                                                               
the state.   It is the interest rate that  the state collects for                                                               
anything coming from a delinquency,  an assessment, or a past due                                                               
tax that is determined to be owed.   It is one of the core issues                                                               
that the Department of Revenue (DOR)  deals with when it comes to                                                               
collecting money.   He  pointed out that  that number  also works                                                               
the same in reverse.  When  someone overpays their taxes, or they                                                               
pay their tax and then appeal  an assessment and win that appeal,                                                               
[the state]  pays them  back with interest  at the  same interest                                                               
rate that is charged for a  taxpayer's short payments.  Mr. Alper                                                               
reviewed  the legislative  history on  the interest  rate, noting                                                               
that for many  years the interest rate was 11  percent, which was                                                               
generally understood to be a very  high rate and led to some very                                                               
high compound interest calculations if  years took place.  Senate                                                               
Bill 21 made a  change to this section that created  an (A) and a                                                               
(B) with  applicability tied  to the time.   The  higher interest                                                               
rate of  11 percent is in  place for before January  1, 2014, and                                                               
the lower interest  rate of 3 percent above  the Federal Discount                                                               
Rate is in place for the time after January 1, 2014.                                                                            
                                                                                                                                
1:13:44 PM                                                                                                                    
                                                                                                                                
MR. ALPER  explained there are three  changes in Section 7.   One                                                               
is a flat  repeal of the language that refers  to the time before                                                               
2014 because it's obsolete and  no longer needed.  Several pieces                                                               
of  that are  seen in  the bill  because [the  administration] is                                                               
trying  to get  rid of  obsolete statute  and shrink  the statute                                                               
books by a  few pages.  If  any issue ever comes  up referring to                                                               
those time periods,  the statute books that were law  at the time                                                               
are used and  nothing is compromised or lost, it's  just a matter                                                               
of getting less words in the law books.                                                                                         
                                                                                                                                
MR. ALPER  said the second  change in Section 7  reinstitutes the                                                               
idea of compound  interest.  For most of history,  when there was                                                               
a delinquency  or a  tax owed  there is  the basic  amount that's                                                               
owed  and  then,  as  interest  is  accrued  every  quarter,  the                                                               
interest would be  added to the balance; then  new interest would                                                               
be  calculated on  the balance  plus  the interest.   That's  the                                                               
general idea of compounding, but it  was lost in a late amendment                                                               
to Senate  Bill 21  and there  are different  opinions as  to the                                                               
reason for  that.  He offered  his belief that most  people think                                                               
it  was  inadvertent  when  a  technical  amendment  occurred  in                                                               
committee that  was addressing a  different topic.  So,  the idea                                                               
of compound interest is reinstituted by HB 247.                                                                                 
                                                                                                                                
MR. ALPER noted that third and  most material in Section 7 is the                                                               
change to the  interest rate itself.  Instead of  being tied to 3                                                               
percent over the  discount rate, it would be 7  percent above the                                                               
discount rate.   The discount  rate today is  1 percent and  is a                                                               
quarterly adjusted  formula the way  the state treats it.   Today                                                               
the state is  collecting 4 percent interest and under  HB 247 the                                                               
state would  collect 8 percent.   The  number 8 is  splitting the                                                               
difference between  what was too  high and what is  now generally                                                               
considered as too low.  Continuing,  he pointed out that there is                                                               
some expectation during  this time of shortfall  that Alaska will                                                               
be, to  a certain extent, using  earnings on its savings  to help                                                               
fund ongoing government  operations.  If that  occurs, that means                                                               
that there is suddenly an opportunity  cost to use of the state's                                                               
savings.   If  an  extra  dollar has  to  be  pulled out  because                                                               
someone didn't  pay their taxes  for three years, then  when that                                                               
dollar  is repaid  to the  state's  savings [the  administration]                                                               
wants to ensure that [the state]  gets the amount that that money                                                               
would  have earned  had it  remained in  savings.   Thus, HB  247                                                               
would  tie  the  state's  interest   rate  approximately  to  the                                                               
expected rate  of return for  the permanent fund and  that number                                                               
is  in the  7  or so  percent range  according  to the  permanent                                                               
fund's consultants, Callan Associates.                                                                                          
                                                                                                                                
1:16:12 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER said Mr. Alper  made a lot of statements he                                                               
doesn't  necessarily agree  with,  particularly  that the  Callan                                                               
discount rate  is the  appropriate rate for  the state's  cost of                                                               
capital.    He  requested  clarification in  regard  to  when  an                                                               
assessment is made  and the state charges interest  as to whether                                                               
that interest commences on the date  the assessment is made or on                                                               
the date that the original tax was obligated.                                                                                   
                                                                                                                                
MR.  ALPER responded  that the  interest begins  accruing on  the                                                               
date the tax was due.                                                                                                           
                                                                                                                                
REPRESENTATIVE HAWKER inquired as to  how many years the state is                                                               
delinquent in its audit process.                                                                                                
                                                                                                                                
MR.  ALPER  answered  that  he  doesn't  want  to  use  the  word                                                               
delinquent.   He allowed  [the Tax Division]  does have  a delay,                                                               
that  it does  have a  multi-year process  to audit  oil and  gas                                                               
production tax  returns.  The  statutes provide six years  as the                                                               
statute  of  limitations.   In  prior  years [the  division]  has                                                               
pushed  fairly  close, weeks  and  even  days, to  that  six-year                                                               
deadline,  but [the  division] is  moving off  of that  deadline.                                                               
The short  answer is  that [the  Tax Division] can  be up  to six                                                               
years behind  and [the division] is  currently finishing calendar                                                               
year  2009.   Those  taxes  were due  and  payable and  finalized                                                               
through  the  true-up process  on  March  31, 2010,  so  sometime                                                               
between now  and March 31  [the division] will be  completing the                                                               
rest of 2009 and issuing the appropriate assessments.                                                                           
                                                                                                                                
1:17:51 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER  recalled it  was established  very clearly                                                               
at  the  last hearing  that  the  motivation  behind HB  247  was                                                               
strictly to raise  revenue; that that was the criteria  as to how                                                               
the decisions  that were  brought forward  to the  committee were                                                               
established.   He asked  whether any  consideration was  given to                                                               
what is  a fair assessment  rate and  process, or whether  it was                                                               
done blindly to  raise revenue.  Maintaining  that [the division]                                                               
is delinquent in its  audits and knows it can go  back, he said a                                                               
compounded interest  rate over  six years  is now  being proposed                                                               
when a  taxpayer doesn't even  know what  its obligation is.   He                                                               
recounted Mr.  Alper's statement  that many of  these obligations                                                               
are unresolved because  the department didn't have  the rules and                                                               
regulations out  there for the  taxpayers to even know  what they                                                               
could expect out of audits.   He offered his belief that that had                                                               
a lot  to do with  why the  compounding factor was  eliminated as                                                               
the last  bill went through  the legislature.  Rather  than being                                                               
attributed to  an error  as stated  by Mr.  Alper, Representative                                                               
Hawker  said he  thinks  it  was a  judgement  that  was made  to                                                               
provide a more fair tax structure.   He asked whether he is wrong                                                               
in thinking this.                                                                                                               
                                                                                                                                
COMMISSIONER  HOFFBECK  replied that  the  idea  behind going  to                                                               
compounding interest  at a 7 percent  rate was simply to  make it                                                               
revenue neutral to  the state, regardless of  whether [the state]                                                               
refunded money or  collected money on an audit.   Totally revenue                                                               
neutral such  that if  the state  had it in  advance, and  had it                                                               
invested, the  state would get about  that rate of return;  if it                                                               
was owed  to the state  then the  state should have  been allowed                                                               
that rate of return.  If the  state owed it back, the state would                                                               
not be paying  back any more than the state  would have earned by                                                               
having it.   The idea is not  to raise more money,  but simply to                                                               
make it  revenue neutral given  the state  is moving into  an era                                                               
where its investment returns are going  to be a source of funding                                                               
government services.   It wasn't wanted  to be more or  less, but                                                               
about the same.                                                                                                                 
                                                                                                                                
MR. ALPER clarified  that these [proposed] interest  rates are in                                                               
no way retroactive.  The interest  rate that is in statute at the                                                               
time covers the entirety of that  time period.  The only taxpayer                                                               
that might  be paying this new  interest rate for six  years is a                                                               
taxpayer  that owes  taxes this  year and  might get  audited six                                                               
years from now.  He said [DOR]  does not want that taxpayer to be                                                               
waiting  six years  and is  working diligently  to speed  up that                                                               
process and  hopes to be  within three or  four years at  most of                                                               
the due date.  For example,  when last year's taxes were assessed                                                               
in 2015, four and a half or five  years of interest was in at the                                                               
11 percent  rate and  the last  year or  so was  in at  the lower                                                               
Senate  Bill  21 interest  rate.    The  lower interest  rate  is                                                               
working its way  through the system and is becoming  a larger and                                                               
larger portion  of any  assessment until  finally it  becomes the                                                               
main one or  it is changed to  the rate proposed in HB  247.  The                                                               
money received from  a tax assessment goes  to the Constitutional                                                               
Budget Reserve (CBR); not much,  if any, is general fund revenue.                                                               
There is  no general fund  revenue impact in [DOR's]  fiscal note                                                               
related to this specific section of the bill.                                                                                   
                                                                                                                                
1:21:43 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   HAWKER   addressed   the  statement   that   the                                                               
opportunity  cost  for  this  money  is  not  having  it  in  the                                                               
Constitutional Budget Reserve (CBR) fund.   In regard to the idea                                                               
that  it be  revenue neutral  to  the state  without having  that                                                               
money in  the state's accounts,  he inquired  as to what  are the                                                               
current earnings on Constitutional Budget Reserve funds.                                                                        
                                                                                                                                
COMMISSIONER  HOFFBECK  responded  that   the  earnings  will  be                                                               
negative this  year, although  not as  negative as  the permanent                                                               
fund.  That  was done because of the situation  where [the state]                                                               
is  spending heavily  from the  Constitutional Budget  Reserve to                                                               
fund government.  If and when  [the state] has a fiscal plan that                                                               
starts using  the earnings  reserve of  the permanent  fund, then                                                               
that money in the Constitutional  Budget Reserve will be put back                                                               
into  the subaccount  and  will  be invested  in  a fashion  very                                                               
similar to the  permanent fund.  This all fits  into the totality                                                               
of the fiscal plan and makes it consistent.                                                                                     
                                                                                                                                
REPRESENTATIVE HAWKER  thanked the  commissioner for  the insight                                                               
he just provided.                                                                                                               
                                                                                                                                
1:22:56 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOSEPHSON  requested Mr.  Alper to repeat  what he                                                               
said about interest owed in the event of an overpayment.                                                                        
                                                                                                                                
MR. ALPER answered  that if there is an overpayment,  or if there                                                               
is an  assessment that  is paid  and then  appealed, and  it goes                                                               
through the process and the  taxpayer wins its appeal, or settles                                                               
at some in-between  point, and [DOR] owes the  taxpayer a refund,                                                               
[DOR] will pay the refund with  the same interest rate that [DOR]                                                               
receives on the  taxpayer's underpayments to [the  agency].  It's                                                               
a two-way interest rate that is throughout the statutes.                                                                        
                                                                                                                                
REPRESENTATIVE JOSEPHSON surmised  that if HB 247  were to become                                                               
law, the State  of Alaska is taking some  additional risk because                                                               
in the event  of an overpayment the state would  pay [an interest                                                               
rate of] 7 or 8 percent rather than 3 or 4 percent.                                                                             
                                                                                                                                
MR.  ALPER replied  yes.   He  noted that,  anecdotally from  his                                                               
staff's observation  in the last year  or so, in past  years when                                                               
there was  an assessment [DOR]  would be  more likely to  get the                                                               
payment and then  have it appealed because  companies didn't want                                                               
to be  on the hook  for that 11  percent for  the year or  two it                                                               
might take  to work  through the appeals  process.   The tendency                                                               
now, if a company is going to  appeal, is to not pay and withhold                                                               
the money until it works  through the appeals process because the                                                               
3 or 4  percent is much less onerous to  the company's cash flow,                                                               
the company  is better  off keeping  the money  in its  own books                                                               
until the issue is resolved.                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOSEPHSON inquired  whether  7  percent plus  the                                                               
discount rate represents a sweet  spot where the best auditors of                                                               
both parties  better be in  their "A  games" because there  is an                                                               
equal liability potential for both parties to get it wrong.                                                                     
                                                                                                                                
MR.  ALPER responded  that the  oil companies  are all  different                                                               
from each other.   Each has its own expectation  of return on its                                                               
own  investment;  legislative  committees   have  used  the  term                                                               
"hurdle rate" for  this expectation.  The  oil companies' numbers                                                               
tend  to be  higher than  that, the  state's numbers  tend to  be                                                               
lower because the  state's money is in  more conservative assets.                                                               
The intent  is to tie the  interest rate to the  opportunity cost                                                               
based on the state's investment  earnings; a metric was chosen in                                                               
HB 247  that roughly approximated  that.  That could  be obtained                                                               
in several different  ways, but the goal is try  to get something                                                               
like the money that the state  would otherwise be earning if that                                                               
money  weren't  being  spent  out  of  savings  and  was  in  the                                                               
permanent fund.                                                                                                                 
                                                                                                                                
1:25:44 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE OLSON asked if the most completed year is 2008.                                                                  
                                                                                                                                
MR. ALPER answered yes.                                                                                                         
                                                                                                                                
REPRESENTATIVE OLSON  inquired whether  it was  the state  or the                                                               
producers  that got  favored in  the  assessment when  a look  is                                                               
taken back 10 years ago.                                                                                                        
                                                                                                                                
MR. ALPER said he doesn't understand the question.                                                                              
                                                                                                                                
REPRESENTATIVE OLSON, in regard to  looking at assessments for 10                                                               
years ago,  asked whether the  state collected  additional monies                                                               
or whether the producers got money back.                                                                                        
                                                                                                                                
MR.  ALPER replied  that although  it is  by no  means universal,                                                               
when there  is a change  in oil and gas  tax return it  is almost                                                               
always  in the  state's  favor,  the state  is  looking for  more                                                               
money.                                                                                                                          
                                                                                                                                
REPRESENTATIVE OLSON,  in regard to  those 10 years,  inquired as                                                               
to how many of them went almost to the statute of limitations.                                                                  
                                                                                                                                
MR. ALPER answered that the  statute of limitations was increased                                                               
in 2007  with the passage  of Alaska's Clear and  Equitable Share                                                               
(ACES).   After the  passage of  the earlier  net profits  tax in                                                               
2006, the  production profits tax  (PPT), it was  recognized that                                                               
the  work load  of auditing  tax returns  suddenly got  much more                                                               
complicated because [the Tax Division]  was dealing with upstream                                                               
expenditures, a  type of industry  work that it had  never before                                                               
looked at  as far as the  line-item detail.  So,  the struggle to                                                               
get the  PPT audit on  time was seen  years in advance  and extra                                                               
time was given  for ACES.  That, and the  regulatory changes, and                                                               
various statutory changes, meant  that the division pushed fairly                                                               
close to the line for 2007 and  2008.  He offered his belief that                                                               
the division's prior  history was not like that, but  that in the                                                               
last two years the division was very close to statute.                                                                          
                                                                                                                                
1:27:36 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  OLSON offered  his  understanding  that [the  Tax                                                               
Division] cut its number of tax auditors from four to three.                                                                    
                                                                                                                                
MR. ALPER  noted that  Representative Olson  is referring  to the                                                               
audit masters.   He explained that audit master is  an exempt job                                                               
classification that was  added as part of the ACES  bill in 2007.                                                               
The audit masters are designed  to be industry experienced people                                                               
who come  in at  a higher rate  of pay so  that they  can provide                                                               
expertise, guidance, regulatory assistance,  and supervision to a                                                               
certain extent.   Under ACES, House Bill 2001,  audit masters are                                                               
expressly  prohibited  from  doing the  auditing  themselves,  so                                                               
audit masters are helping the  auditors but not doing the audits.                                                               
The actual  audit staff has not  been changed in the  last couple                                                               
years.                                                                                                                          
                                                                                                                                
REPRESENTATIVE OLSON inquired whether  it would be to everybody's                                                               
advantage to take the statute  of limitations back to three years                                                               
so the  State of Alaska  could recapture that money  more quickly                                                               
than having it sit out there for six years.                                                                                     
                                                                                                                                
MR.  ALPER replied  that if  that were  to happen  immediately it                                                               
might  cause [the  Tax  Division]  to do  inadequate  work to  go                                                               
through the  next couple of  years of taxes because  the division                                                               
would already be  past that statute for 2010 and  2011.  If there                                                               
is a goal to reduce that  number over the next several years, the                                                               
division intends to catch up to  it.  The division is starting to                                                               
do two years at  a time; by a year from now  the division will be                                                               
a year off the statute of  limitations, by two years from now the                                                               
division will be two years off  the statute of limitations,   but                                                               
these things  cannot happen instantaneously.   [The Tax Division]                                                               
would be happy  to provide some of the source  documents, but the                                                               
upstream information provided by the  major oil and gas companies                                                               
is  hundreds  of  thousands  of  line  items.    It's  a  massive                                                               
information undertaking  with a lot  of back and  forth, requests                                                               
for  follow-up information,  and examining  of records.   It's  a                                                               
very  technical  and  complex  process.   He  said  he  would  be                                                               
reluctant to say  the division could speed it up  faster than the                                                               
division is saying it is speeding it up.                                                                                        
                                                                                                                                
1:29:37 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE OLSON  asked whether extending the  effective date                                                               
two years would be an option  in order to give [the Tax Division]                                                               
two years to do it.                                                                                                             
                                                                                                                                
MR. ALPER  responded that two  years to  catch up three  years is                                                               
probably more than the division  could handle; the division likes                                                               
the idea  of having a little  bit of cushion.   What if something                                                               
happens?   What if  a key  employee is  lost?   What if  there is                                                               
another statutory change between now and  then?  He said he likes                                                               
having the six years  and that for as long as he  has this job it                                                               
is his  intent to not use  it.  He strongly  recommended that, if                                                               
it  is wanted  to go  in  that direction,  that the  conversation                                                               
about changing the statute of limitations  be had in a year or so                                                               
when it  can be seen how  well the division has  followed through                                                               
on its mission to catch up some.                                                                                                
                                                                                                                                
REPRESENTATIVE OLSON  commented that  everybody can  be replaced,                                                               
including in the  legislature.  He said he does  not believe [the                                                               
Tax Division] has  one key person who would slow  things down for                                                               
more than several months.                                                                                                       
                                                                                                                                
1:30:46 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE TARR  understood that  with the  PPT and  ACES the                                                               
changes became more complicated in  terms of figuring things out.                                                               
She  inquired whether  there would  be a  way of  separating just                                                               
that to get through the 2012  tax years, such as contracting with                                                               
a company  or hiring additional  staff to get through  those more                                                               
quickly.                                                                                                                        
                                                                                                                                
MR. ALPER answered he is not  certain that more staff would speed                                                               
it up  because generally  speaking there is  typically a  team of                                                               
three  people  working  on  each major  producer,  to  limit  the                                                               
conversation to  that because  that's where  the money  has been.                                                               
Each team  has a senior  auditor and  two junior auditors.   They                                                               
work closely under  the direction of the supervisor  of the group                                                               
who is a  classified staff member, and the  audit master provides                                                               
technical  assistance,   review  work,  and  amendments   to  the                                                               
narrative.   So, he said,  he doesn't  know if more  bodies would                                                               
speed that up.  While there's a  lot of work to go through, a lot                                                               
of the time is spent in simply  the back and forth and the trying                                                               
to convey to  the taxpayer the type of information  that [the Tax                                                               
Division] needs  and then waiting  for it  to be submitted.   The                                                               
division  is behind  not  because it  takes six  years  to do  an                                                               
audit, it  takes a year,  but because years  went by in  the past                                                               
where the  division wasn't finishing  audits because  of external                                                               
factors; for  example, the initial  writing of  regulations after                                                               
major tax  changes consumes a lot  of time.  A  major consumer of                                                               
time  was the  implementation  of the  software  system, the  tax                                                               
handling system.   He  reiterated that  he strongly  believes the                                                               
division is  past all  of those hurdles  and delay  elements, and                                                               
staff are now simply doing their  jobs.  He offered his hope that                                                               
as  the division  gets  more years  behind it  of  a complex  net                                                               
profits  system, that  the issues  where  the division  disagrees                                                               
with industry start  working themselves out and  the returns come                                                               
closer to getting it right the first time.                                                                                      
                                                                                                                                
1:33:15 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE TARR asked whether the  proposed changes in HB 247                                                               
would simplify  the process, once  past ACES, and make  it easier                                                               
to do the assessments and do them in a shorter timeline.                                                                        
                                                                                                                                
MR. ALPER replied  yes, adding that he thinks  division staff are                                                               
getting better  at their jobs.   He explained that  a commingling                                                               
of the  two halves of the  production audit group is  being seen.                                                               
One discreet  group of staff  primarily deals with audit  and tax                                                               
returns, and  the other group  primarily deals with  auditing and                                                               
reviewing requests  for refundable credits, which  have different                                                               
timelines  and  tend to  be  smaller  dollar  items.   The  staff                                                               
dealing with the  credit data set have become  the division's in-                                                               
house experts on upstream expenditures  because people are coming                                                               
in with Operating  Loss Credits or Capital Credits  and staff are                                                               
now working with  the production tax people to  help those people                                                               
develop the expertise  because they need to develop  that for the                                                               
tax  returns going  forward.   So,  there is  a little  bit of  a                                                               
streamlining, but he doesn't know  what that's going to look like                                                               
in two years -  like all operations it's a work  in progress.  He                                                               
related that  the other day  he told [DOR's]  budget subcommittee                                                               
that there are 15 fewer employees  in the Tax Division than there                                                               
were 14  months ago when  the administration  came in.   Thus far                                                               
the production  audit group has  not lost any positions  and [the                                                               
division] is  trying to  keep that together  because they  have a                                                               
very important  job to do; [the  division] is close to  six years                                                               
behind and it must be ensured that no deadlines are missed.                                                                     
                                                                                                                                
1:35:26 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER recalled the old  adage that if it's in the                                                               
yellow  pages then  why have  the state  do it.   He  said he  is                                                               
therefore  sincerely  asking  why  keep  and  build  an  in-house                                                               
auditing capacity when  the work could be outsourced  to a highly                                                               
competent industry.                                                                                                             
                                                                                                                                
MR. ALPER  responded that that  is outside  the scope of  HB 247.                                                               
He  said he  personally hasn't  addressed  that issue  in the  14                                                               
months  he's  been  doing  this   job,  but  cost  estimates  and                                                               
theorizing can be  undertaken if it is requested and  he will get                                                               
back to the appropriate committee at the appropriate time.                                                                      
                                                                                                                                
1:36:46 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE OLSON inquired as to  how much of the $235 million                                                               
in 2008 was compound interest.                                                                                                  
                                                                                                                                
MR. ALPER answered  that the total assessments in  2008 were $265                                                               
million, of which about $115 million  was interest.  Only a small                                                               
fraction of  that was compounded, but  a lot of it  was interest,                                                               
and $150  million was the taxes  themselves.  About half  of that                                                               
has been paid and the books are  closed and about half of that is                                                               
currently in the appeals process.                                                                                               
                                                                                                                                
1:37:30 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON said  it seems what is  really being looked                                                               
at  is that  the  state  is asking  the  oil  companies that  are                                                               
submitting tax forms  whether they would like to get  a 4 percent                                                               
non-compounded loan  by maximizing all potential  deductions that                                                               
they could possibly achieve, and over  a long period of time this                                                               
is  a great  interest  rate that  anyone would  like.   He  asked                                                               
whether the concern  is that the state is giving  an incentive to                                                               
people   to    absolutely   maximize   their    deductions,   not                                                               
fraudulently,  but deductions  that  they  could possibly  obtain                                                               
knowing that if  it comes back they will owe  money and they will                                                               
have  had  a  much  lower  interest rate  loan  than  they  could                                                               
possibly have gotten  any other way.  So, he  surmised, the State                                                               
of Alaska  ends up subsidizing  to that maximum  amount, although                                                               
he realizes this is a policy question.                                                                                          
                                                                                                                                
COMMISSIONER  HOFFBECK  replied  that   that  could  possibly  be                                                               
occurring, but  he doesn't place  on industry that that  would be                                                               
the motivating factor  for what they do as far  as maximizing the                                                               
deductions.   Companies claim what  they think they  are eligible                                                               
to claim, and  then there are disputes as [DOR]  goes through the                                                               
audits on  whether some  of those were  actually deductible.   He                                                               
isn't looking at this so much  as an issue of an opportunity cost                                                               
for claiming more than may  be appropriate, he simply thinks that                                                               
the rate the state is charging  is not commensurate with the loss                                                               
of  revenue that  the state  has experienced  by taxes  not being                                                               
paid.  It is  not to make a profit or a loss,  but rather to make                                                               
it revenue neutral.                                                                                                             
                                                                                                                                
1:40:03 PM                                                                                                                    
                                                                                                                                
MR.  ALPER  resumed  his   sectional  analysis,  explaining  that                                                               
Section 8 is  the confidentiality waiver specific  to the state's                                                               
paying of credits.   The language in HB 247  states, "The name of                                                               
each  person  claiming a  credit  ...,  the aggregate  amount  of                                                               
credits ..., and a description  of the taxpayer's activities that                                                               
generated  the credits  claimed are  public information."   There                                                               
are some  limitations on that, he  said, but the key  point is if                                                               
state dollars,  public money, is  being spent for the  purpose of                                                               
subsidizing  or  providing  a  benefit  to  a  company,  that  is                                                               
information  that   should  be  able   to  be  shared   with  the                                                               
legislature and with the general  public so people can understand                                                               
where their money is going.   [The state] has a general sunshine-                                                               
law-type  requirement to  put its  expenditures on  the internet,                                                               
the state's checkbook is available.   The public can find out how                                                               
much  the State  of  Alaska paid  for  chairs, airplane  tickets,                                                               
office  supplies, or  consulting  services.   [The Department  of                                                               
Revenue] cannot tell the public how  much it paid to any of these                                                               
companies in  oil and gas  tax credits.  He  said he wants  to be                                                               
very clear that [DOR] does know,  but will not and cannot report,                                                               
how much  money companies make,  how much  they pay in  taxes, or                                                               
how  profitable  they are  because  that  is absolutely  taxpayer                                                               
confidential  information.   No  linkage or  loopholes are  being                                                               
sought to be  able to report that information.   In fact, that is                                                               
Internal   Revenue  Service   (IRS)  protected   information  and                                                               
attempting to do so would put  the State of Alaska in big trouble                                                               
with  the  federal  government;  the  ability  to  share  certain                                                               
information with the  IRS would suddenly cease, the  IRS would no                                                               
longer trust  the State of  Alaska.  [The  administration] merely                                                               
wants to be  able to report where public money  is being expended                                                               
for  the purposes  of  providing subsidies  and  benefits to  oil                                                               
companies.                                                                                                                      
                                                                                                                                
1:41:58 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER recalled that  in previous testimony it was                                                               
stated that HB  247 was designed to raise revenue.   He asked how                                                               
this provision would raise revenue.                                                                                             
                                                                                                                                
COMMISSIONER HOFFBECK  responded that this particular  piece will                                                               
not raise  revenue, is  not revenue generating  itself.   But, it                                                               
will allow [DOR]  to have a more open discussion  on these issues                                                               
around the revenue associated with this particular component.                                                                   
                                                                                                                                
REPRESENTATIVE  HAWKER inquired  whether  any  analysis has  been                                                               
done  or any  consideration given  as to  whether this  provision                                                               
could result  in a taxpayer's competitiveness  being compromised.                                                               
A  taxpayer is  very different  than the  State of  Alaska buying                                                               
chairs for this committee room,  he admonished, and added that he                                                               
is offended  by the analogy.   He said [the State  of Alaska] has                                                               
an obligation under the federal  Internal Revenue Code to protect                                                               
taxpayer  information   which  is  deemed  as   confidential  and                                                               
private.   "We've probably found a  point here where we  can push                                                               
that  limit,  we can  push  beyond  it, and  disclose  particular                                                               
taxpayer information," he said.   He further asked whether he can                                                               
be given an assurance that  the provision will not compromise the                                                               
individual competitiveness of the state's taxpayers.                                                                            
                                                                                                                                
MR. ALPER replied:                                                                                                              
                                                                                                                                
     We have spoken to our  own counsel at the Department of                                                                    
     Law  about the  degree  to which  this provision  might                                                                    
     expose us to being forced  to, or able to, disclose the                                                                    
     other information  I described earlier ...  the earning                                                                    
     specific,  the tax  paying specific,  and were  assured                                                                    
     that  there  was  no  potential  linkage  there.    The                                                                    
     activities  described  in Section  8  of  the bill  are                                                                    
     somewhat aggregated in nature.   ... Company X received                                                                    
     $10  million last  year for  drilling a  well in  the X                                                                    
     unit.   ... I'm  not providing information  about their                                                                    
     vendors,  about  their  cost of  capital,  about  their                                                                    
     labor  practices.   It's very  high level  information,                                                                    
     summary  level  information that  I  have  a hard  time                                                                    
     envisioning  ...  rising  to  the  level  of  being  an                                                                    
     imposition  on  someone's  competitiveness  with  their                                                                    
     fellow players in the oil field.                                                                                           
                                                                                                                                
1:45:03 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER inquired whether Mr.  Alper is an expert in                                                               
what he is  envisioning.  He posed a scenario  in which Company X                                                               
owns  leases all  across  the North  Slope  and has  specifically                                                               
invested  in a  particular project  in a  particular part  of the                                                               
basin.   He asserted that  providing the information  [allowed by                                                               
Section  8] could  disclose the  prospectivity and  stratigraphic                                                               
information  belonging to  Company X,  and would  literally point                                                               
everybody else in  the world to where Company X  is making a play                                                               
and result in  another company bidding higher on a  lease sale to                                                               
take away land that Company  X may have developed information on.                                                               
The competitive  advantage that a  company gets by  investing its                                                               
money,  and  for which  the  legislature  provided an  incentive,                                                               
would be compromised.  He said  he wants to respect the taxpayers                                                               
and  wants to  give them  the advantage  that when  they make  an                                                               
investment  in  Alaska  they are  given  the  greatest  advantage                                                               
possible for having made that investment.                                                                                       
                                                                                                                                
MR. ALPER  answered that Representative  Hawker is right.   There                                                               
is a philosophical  issue and people can disagree, so  he said he                                                               
doesn't want  to continue  debating the  specifics of  this idea.                                                               
He  pointed  out that  it  is  known  where people  are  drilling                                                               
because  people  get  drilling permits  and  that  is  available.                                                               
Plans of development  are on the internet.  Many  of the existing                                                               
credits that  DNR authorizes, the exploration  credits, come with                                                               
the requirement  for seismic, stratigraphic,  downhole data.   It                                                               
is not  unusual for a  certain amount  of that information  to be                                                               
made public.   The only thing being looked here  is to talk about                                                               
dollars.   Compared to some  of this other information,  the mere                                                               
fact that  someone is drilling a  well in this part  of the state                                                               
is  already  known.    All  that  this  additional  increment  of                                                               
information  is going  to let  people know  is approximately  how                                                               
much a  company spent  "if you could  reverse engineer  that from                                                               
how much of a state credit benefit they got."                                                                                   
                                                                                                                                
1:47:23 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HERRON  asked why  the administration has  at this                                                               
time  decided to  insert  this into  a bill.    He further  asked                                                               
whether previous  administrations have attempted this  before the                                                               
legislature.                                                                                                                    
                                                                                                                                
COMMISSIONER HOFFBECK responded:                                                                                                
                                                                                                                                
     The issue  of more transparency  came up when  we tried                                                                    
     to  actually have  any kind  of discussions  on credits                                                                    
     and  found   that  we   simply  couldn't   provide  the                                                                    
     information that  people were  asking, a lot  of people                                                                    
     from  this  particular  body that  when  we  wanted  to                                                                    
     discuss this  issue of credits  and whether  we thought                                                                    
     there needed to  be some adjustments made.   And people                                                                    
     were greatly frustrated  by the fact that  we could not                                                                    
     give them granular enough information  for them to even                                                                    
     remotely  make a  decision.   And so  part of  that was                                                                    
     driven  just by  the fact  that in  order to  have open                                                                    
     transparent decisions  some of this  information, which                                                                    
     we feel  quite frankly  is not confidential,  should be                                                                    
     available for that.  The second part of the question,                                                                      
       I don't know whether it's been attempted before or                                                                       
     not.                                                                                                                       
                                                                                                                                
MR. ALPER  offered his  belief that this  has not  been attempted                                                               
before.  Tax credits as an  idea, as a concept, have increasingly                                                               
become a  high profile issue  with the general  public, including                                                               
in  op-ed pieces  and blog  comments.   He said  he thinks  those                                                               
conversations  would  be  better  informed  if  people  had  more                                                               
complete  information and  more  understanding of  what is  being                                                               
talked  about regarding  what sorts  of activities  the State  of                                                               
Alaska is benefitting, is subsidizing with these programs.                                                                      
                                                                                                                                
1:49:27 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOSEPHSON   said  he  takes  Mr.   Alper's  point                                                               
regarding  the information  that  is  publically available  about                                                               
drilling, permits, and  plans of development.   For example, last                                                               
fall during  a resources development conference  that he attended                                                               
there was  a major  lease sale happening  further down  the hall.                                                               
Most companies are eager to  report their successes, he said, and                                                               
his assumption is  that they do that for a  show of confidence in                                                               
the shareholder or the Alaska people.                                                                                           
                                                                                                                                
MR.  ALPER responded  that Representative  Hawker  is right  that                                                               
companies  don't like  to  share  their results.    If a  company                                                               
drills a  well, [DOR]  is going to  be able to  say how  much the                                                               
company spent  on that well.   [The  department] is not  going to                                                               
tell  anyone that  the company  found oil,  and that's  where the                                                               
competitive advantage as  to who's going to try to  lease the lot                                                               
next to them is going to come from.                                                                                             
                                                                                                                                
1:50:38 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON noted  that  in Cook  Inlet  there were  a                                                               
number of  players, some  of whom  went bankrupt.   The  State of                                                               
Alaska   was  expending   a  tremendous   amount  of   money  but                                                               
[legislators] couldn't  find out how  much.  A company  might say                                                               
in the  newspaper that it was  using tax credits and  that it had                                                               
received  $50 million  in financing,  yet [legislators]  couldn't                                                               
find  out how  much  [the State  of Alaska]  was  investing in  a                                                               
particular company  because it was confidential  information when                                                               
coming from [the  state's] own sources.  He said  he thinks it is                                                               
imperative  that [legislators]  be  able  to tell  [constituents]                                                               
what [the state] is investing in  and if [the state] is investing                                                               
an amount  of money in certain  companies and certain areas.   He                                                               
inquired  whether  there  is  anything in  Section  8  that  does                                                               
anything other than giving the state  the ability to say how much                                                               
tax credits were given to a particular company.                                                                                 
                                                                                                                                
MR. ALPER answered that Section  8 is somewhat broad, although it                                                               
primarily will enable the state  to report refundable tax credits                                                               
which  are truly  an  expenditure  of the  state,  and, he  would                                                               
posit, is  not the  same as saying  a change to  tax.   There are                                                               
circumstances  where credits  used  against  tax liability  would                                                               
fall  under  this  definition.   The  specific  exclusion  of  AS                                                               
43.55.024(j) on page 4, line 27,  of the bill is reference to the                                                               
Per-Taxable-Barrel  Credit, the  sliding scale  per-barrel credit                                                               
on the North Slope.   The thought there is that  if the amount of                                                               
per-barrel credits a  company got is reported, and  it is already                                                               
known how  much production  a company  has because  that's public                                                               
information, someone  could reverse engineer the  company's sales                                                               
price.  So  that is something [DOR] wants to  be able to protect.                                                               
But, other credits against liability  would be similarly reported                                                               
the way the  section is written now, for  example the $5-a-barrel                                                               
credit from new oil or the Small Producer Credit.                                                                               
                                                                                                                                
1:53:13 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE TARR recalled  that in 2013 Senator  Gardner had a                                                               
bill  about disclosing  this information;  she received  interest                                                               
from her  neighbors that  they were interested  in being  able to                                                               
receive  this information.   Representative  Tarr noted  that one                                                               
thing that has  been talked about is trying  to understand better                                                               
whether   the  credits   are  having   the  intended   effect  on                                                               
exploration  and development  activities and  therefore she  sees                                                               
this provision  as perhaps  helping [legislators]  getting closer                                                               
to answering  those questions  too.  She  requested Mr.  Alper to                                                               
comment  on how  this provision  might help  [legislators] better                                                               
understand whether  they are doing  the right thing,  whether the                                                               
tool that  was used is getting  the result that was  wanted.  For                                                               
example,  one of  the criticisms  of  ACES was  that the  credits                                                               
weren't  linked to  production.   It  seems  that this  provision                                                               
might be one way to get a little more of that information.                                                                      
                                                                                                                                
MR. ALPER replied that in  response to previous testimony, he and                                                               
the commissioner have been talking to  staff at DOR and will come                                                               
back to the  committee with a much more  detailed explanation and                                                               
granular modeling as  to some of the bill's impacts  and how they                                                               
might impact a  theoretical or particular project.   If [DOR] was                                                               
able to  talk with  more precision about  actual things  that had                                                               
occurred, or  were going  to occur,  it would  be much  easier to                                                               
tell this story;  but that is a  story that [DOR] is  not able to                                                               
tell under the law the way it is currently written.                                                                             
                                                                                                                                
1:55:09 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER said he appreciates  the word about reverse                                                               
engineering  because that's  what  analysis  of this  information                                                               
would do, and would potentially  compromise the proprietary trade                                                               
information of  any given  company.  With  disclosure of  a cost-                                                               
based credit, someone  can reverse and extrapolate  the amount of                                                               
expenditure   that  was   required  to   generate  that   credit.                                                               
Expenditure  levels, investment  levels,  are pretty  proprietary                                                               
information  when  they are  looked  at  in terms  of  individual                                                               
prospects  that would  arguably be  disclosed here.   That's  the                                                               
thing to  keep in  mind when demanding  this information.   While                                                               
sitting here  and making laws it  would be nice to  have all that                                                               
individual  taxpayer  information,   but  [legislators]  have  to                                                               
accept that  some things  just can't  be had  out of  respect for                                                               
both federal law and that  competitive advantage.  The ability to                                                               
reverse engineer cost credits would  expose companies to having a                                                               
great  deal of  their proprietary  information, cost  efficiency,                                                               
and capital allocations divulged.   In that these are all credits                                                               
under AS 43.55, he asked whether  that would also include the Net                                                               
Operating Loss Credit carry forward.                                                                                            
                                                                                                                                
MR. ALPER responded yes, Section  8 as written would require that                                                               
[DOR] divulge the size of an Operating Loss Credit.                                                                             
                                                                                                                                
1:57:12 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER maintained that  this divulges a taxpayer's                                                               
most critical information, their  taxable level, which is exactly                                                               
what the federal government doesn't want  [the state] to do to an                                                               
individual  taxpayer.   He said  he disagrees  with the  attorney                                                               
generals at the Department of Law if they say that this is okay.                                                                
                                                                                                                                
MR.  ALPER answered  that, in  the  broader concept,  there is  a                                                               
dissonance in  priority between  what is seen  to be  the state's                                                               
benefit  to divulge  certain information  and industry's  need to                                                               
keep  something secretive.   [The  administration] would  like to                                                               
find language that  is acceptable to all parties as  HB 247 moves                                                               
forward.   An excellent point  is made by  Representative Hawker.                                                               
In  some ways,  limiting this  type  of disclosure  to just  cash                                                               
credits where  companies are receiving an  appropriation of state                                                               
funds might be something a little  narrower and a little bit less                                                               
challengeable  as   proprietary  accounting  information.     The                                                               
Operating Loss  Credit is an  interesting point to  raise because                                                               
it relates back  to a company's profits and losses.   Noting that                                                               
[committee members]  understand [the administration's]  intent in                                                               
proposing this section, he said  the administration looks forward                                                               
to working with  members on this very complex area  of law to try                                                               
to find language acceptable to everybody.                                                                                       
                                                                                                                                
1:58:43 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE TARR  surmised that  in looking at  operating loss                                                               
it might depend  on the size of the company  because, in terms of                                                               
the big three, some don't  do separate accounting so their Alaska                                                               
operations  aren't  separated  from their  worldwide  operations.                                                               
Thus,  she concluded,  the State  of  Alaska would  just get  the                                                               
aggregate information relative to the  whole company and it would                                                               
be just the portion of credits that were Alaska development.                                                                    
                                                                                                                                
MR.  ALPER replied  that that's  not quite  right.   The type  of                                                               
accounting  by  aggregation  and  apportionment  is  relative  to                                                               
Alaska's  corporate  income  tax  structure.   The  oil  and  gas                                                               
production tax is quite discreet  in its Alaska-specific revenues                                                               
and  expenditures.    Existing  law  has  a  lot  of  restrictive                                                               
language  regarding what  is an  allowable deduction  - they  are                                                               
spending the  money but  they don't  get to  count it,  a classic                                                               
example being  lobbying expenditures.   When  switching to  a net                                                               
profits  tax,  the  legislature  chose  to  specifically  exclude                                                               
lobbying  expenses,  so those  dollars  are  not deductible  from                                                               
production tax.                                                                                                                 
                                                                                                                                
2:00:08 PM                                                                                                                    
                                                                                                                                
MR.  ALPER  resumed  to  his   sectional  analysis,  noting  that                                                               
Sections 9,  10, and  11 are conforming  language.   He explained                                                               
that these  are three  of the  credits that  were built  into the                                                               
corporate income  tax statutes added  by different pieces  of law                                                               
in three  different time periods.   Section 9 refers to  the Cook                                                               
Inlet Natural  Gas Storage  Alaska (CINGSA)  facility.   The 2010                                                               
Cook  Inlet Recovery  Act  provided  a credit  to  build the  gas                                                               
storage  facility located  in Kenai.   Section  10 refers  to the                                                               
Liquefied  Natural  Gas  (LNG) Storage  Facility  Credit  written                                                               
primarily around the  Interior gas utility in  Fairbanks but also                                                               
available  to other  bulk storage  tanks  for LNG  that might  be                                                               
built  elsewhere  in the  state.    Section  11 is  the  In-State                                                               
Refinery Tax  Credit, the  most recent credit  that was  added in                                                               
2014.   These three  credits are  not being  changed in  any way.                                                               
However, these  credits contain language  that says if  a company                                                               
owes  any  kind  of  tax  to  the  state  -  whether  production,                                                               
property,  cigarette, or  another kind  of  tax -  that could  be                                                               
withheld before  they get paid  their credits.  The  change being                                                               
made  in  these  sections  would broaden  that  by  deleting  the                                                               
sentence that  says for  unpaid delinquent  taxes and  to instead                                                               
say outstanding  liability.  So,  with this change, if  a company                                                               
owes  something that  is not  part  of the  tax code,  such as  a                                                               
royalty  or  a  lease  payment   to  the  Department  of  Natural                                                               
Resources, that  also could  be offset  against a  credit payment                                                               
before  the  state pays  the  credit.    Thus, the  structure  in                                                               
Sections  9, 10,  and 11  remains  identical, it  is just  simply                                                               
broadening that  ability to withhold funds  for other obligations                                                               
to the state.                                                                                                                   
                                                                                                                                
2:01:56 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOSEPHSON  recounted that  the Alaska Oil  and Gas                                                               
Association (AOGA)  expressed some  concern that this  section is                                                               
sort of an overreach, that there  could be some de minimis fee or                                                               
tax that's  owed and it would  hold up the process  of receipt of                                                               
the credit.   He inquired whether  Mr. Alper thinks there  is any                                                               
merit to that and is more alarmist than Mr. Alper would view it.                                                                
                                                                                                                                
MR. ALPER  responded he  doesn't want to  use the  word alarmist.                                                               
If the issue itself is de  minimis, then the [amount of] withhold                                                               
would be  de minimis.   If someone is  fighting over a  $500 fine                                                               
somewhere, then  only $500  would be held  back from  the credit.                                                               
It is not that the entire  credit gets stopped in its tracks over                                                               
the  dispute,  it's  that  the  amount of  the  dispute  is  held                                                               
essentially in escrow.   This specific issue  has happened within                                                               
the last  year - someone who  was seeking a credit  owed money to                                                               
other state agencies.                                                                                                           
                                                                                                                                
2:03:03 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HAWKER said  he understands  and appreciates  the                                                               
intent being made  here, which is to protect the  State of Alaska                                                               
against  someone  who is  going  to  take  advantage of  the  tax                                                               
structure to  get funds  back from  the state  when in  fact they                                                               
really ought  to be paying the  state.  However, he  argued, this                                                               
is horribly  unartful language.   Speaking as a  former certified                                                               
public accountant  (CPA) who also  did tax returns, he  said that                                                               
if a claimant  has any liability to the state  "you can basically                                                               
withhold anything."   He  pointed out that  a taxpayer  accrues a                                                               
liability  to the  state  every  single day  of  operation.   For                                                               
example, these companies  have millions of dollars  of payroll in                                                               
the state and  every time they write a payroll  check they have a                                                               
liability  to  the  state  to  transmit  those  funds  that  were                                                               
withheld from  payroll checks.   The whole point of  the language                                                               
that  HB 247  would  delete  is that  it  is  wanted to  withhold                                                               
payments to companies that have  unpaid delinquent tax.  That was                                                               
there  so the  state  didn't  cross that  line  of the  universal                                                               
definition  of liability.    Funds  that a  company  owes from  a                                                               
payroll  check,  he  said,  could  very  well  be  used  here  to                                                               
completely  eliminate,  shut  down  entirely,  a  refundable  tax                                                               
credit program.   Saying he  respects the desire to  tighten this                                                               
up,  he  requested  that  [the administration]  go  back  to  the                                                               
drawing board to find a way to not cast such a broad net.                                                                       
                                                                                                                                
MR. ALPER  offered his  appreciation for  Representative Hawker's                                                               
suggestion.   He noted  that he previously  spoke to  the intent,                                                               
which is that only the  amount of any liability would potentially                                                               
be withheld from  a credit.  He pointed out  that a definition of                                                               
outstanding liability to  the state is included in  Section 39 of                                                               
the bill because a new concept is  being created.  It used to say                                                               
an  outstanding  liability to  the  state  for delinquent  taxes.                                                               
Section  39  states that  "outstanding  liability  to the  state"                                                               
means  "an  amount  of  tax,   interest,  penalty,  fee,  rental,                                                               
royalty, or other charge for which  the state has issued a demand                                                               
for payment  that has not been  paid when due and,  if contested,                                                               
has not been finally resolved against  the state."  He offered to                                                               
work  with the  committee to  further  refine that,  but said  he                                                               
believes  this  resolves  a  lot of  the  potential  issues  that                                                               
Representative Hawker raised.                                                                                                   
                                                                                                                                
2:06:09 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER  reiterated that  the way this  language is                                                               
written,  a taxpayer  assessed a  fee and  pursuing a  legitimate                                                               
remedy to  challenge the  state's assessment  could be  shut down                                                               
completely  with receiving  any funds  from the  state while  the                                                               
taxpayer is,  in good faith,  contesting an assessment,  and that                                                               
assessment could be a payroll tax assessment or anything else.                                                                  
                                                                                                                                
REPRESENTATIVE HERRON,  regarding Representative  Hawker's point,                                                               
asked whether this is for non-tax liabilities as well.                                                                          
                                                                                                                                
MR.  ALPER  answered yes,  [the  state]  has current  ability  to                                                               
withhold  [credits] for  any tax  liability.   The  intent is  to                                                               
broaden that  for other liabilities  to the state, with  the most                                                               
prominent ones being royalties,  lease payments, AOGCC fines, and                                                               
those  kind of  things  that  are relevant  to  the  oil and  gas                                                               
industry.  Per Section 39, there  has to have been an assessment,                                                               
a demand for  payment, and then a non-payment on  that demand for                                                               
it to trigger the condition.                                                                                                    
                                                                                                                                
2:07:42 PM                                                                                                                    
                                                                                                                                
MR. ALPER continued to his  sectional analysis, pointing out that                                                               
Section 12  is very much a  material section.  He  explained that                                                               
AS 43.55.011(f) is the so-called  floor provision of current law,                                                               
the  minimum  tax  for  production  from the  North  Slope.    As                                                               
currently  written it  is a  step-down tax.   Colloquially,  most                                                               
people think of it as a 4  percent floor, but in fact that's only                                                               
true if the  price of oil for the last  year has averaged greater                                                               
than  $25 and  thankfully for  modern history  that has  been the                                                               
reality.  But,  should the price of oil drop  between $20 and $25                                                               
the floor goes  to 3 percent; between a price  of $17.50 and $20,                                                               
if he has that right, the floor  goes to 2 percent and steps down                                                               
from there.   All of  that would be  repealed and reenacted.   He                                                               
commented he is  always uncomfortable with a  repeal and reenact,                                                               
but because  of all that  stepdown language it was,  for drafting                                                               
simplicity, easier.  The bill would  replace all of that with a 5                                                               
percent minimum tax, and that is  5 percent of the gross value at                                                               
the point  of production.   The underlying  tax is a  net profits                                                               
tax,  or a  tax on  a  calculation called  production tax  value,                                                               
which is  an analog for net  profits.  When that  number adjusted                                                               
for certain credits  is less than a number that  equals 4 percent                                                               
of gross revenue,  then the larger gross revenue  figure is paid,                                                               
an  alternative minimum  tax.   Section 12  increases that  by 25                                                               
percent, from 4 percent to 5 percent.                                                                                           
                                                                                                                                
2:09:12 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER  recalled DOR's earlier statement  that the                                                               
committee will  be provided  with some  granular analysis  of the                                                               
consequence of the provisions in HB  247.  He said this provision                                                               
is significant and effectively increases  taxes on companies that                                                               
are today losing money in the state  of Alaska.  He would like to                                                               
know truly what  the consequence is going to be  on industry in a                                                               
financial perspective as well as  the macroeconomics on what this                                                               
is really going to do  to the state's competitiveness and ability                                                               
to continue  to attract investment capital.   This is not  just a                                                               
simple credit  change, it's not  a simple repeal and  reenact; it                                                               
is a very material provision, so  he is looking for very explicit                                                               
analysis of  what the consequences  of this provision will  be on                                                               
Alaska's international competitiveness.                                                                                         
                                                                                                                                
MR. ALPER  replied that  [the administration]  absolutely intends                                                               
to go  to that level  of detail with a  quantitative presentation                                                               
that  is being  prepared for  the next  time the  committee hears                                                               
[the administration] on the bill, whenever that might be.                                                                       
                                                                                                                                
2:10:42 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOSEPHSON asked  whether  this  is the  provision                                                               
that  might generate  $50 million  in additional  revenue to  the                                                               
State of Alaska.                                                                                                                
                                                                                                                                
MR. ALPER  responded yes, provided that  the price of oil  in the                                                               
given  fiscal year  in the  fiscal note  is below  the amount  to                                                               
where  it is  out  of the  minimum tax  and  into the  underlying                                                               
production tax.   For the foreseeable future,  per the Department                                                               
of  Revenue's forecast,  the price  of  oil is  expected to  stay                                                               
below approximately  $85 a barrel  price, which is  the threshold                                                               
for the minimum tax.  So, about  $50 million a year of revenue is                                                               
tied to the change in Section 12.                                                                                               
                                                                                                                                
REPRESENTATIVE  JOSEPHSON,  relative to  Representative  Hawker's                                                               
question, the  importance of which he  respects, inquired whether                                                               
at some fundamental level the question  might be what the loss of                                                               
$50 million in profit at a  certain barrel price does to Alaska's                                                               
competitiveness vis-a-vis  other worldwide  markets.   He further                                                               
inquired  whether it  is  that  simple at  some  basic level  and                                                               
whether such a thing could possibly be analyzed.                                                                                
                                                                                                                                
COMMISSIONER HOFFBECK answered that in  its [2015] report the Oil                                                               
and Gas  Competitiveness Review Board  looked at some of  the tax                                                               
rates in the regimes the board  thought would be competitive.  It                                                               
didn't go to Saudi Arabia,  but rather to Kansas, Wyoming, Texas,                                                               
and Canada, places that would  directly compete in the market for                                                               
that.  He said that information will be brought forward.                                                                        
                                                                                                                                
2:12:41 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOHNSON  asked  when   the  Alaska  Oil  and  Gas                                                               
Competitiveness Review Board last met.                                                                                          
                                                                                                                                
COMMISSIONER HOFFBECK replied  it has been more  than six months.                                                               
Because  of the  downturn in  the  market several  of the  people                                                               
resigned from  the board  because they needed  to focus  on their                                                               
own business, and the board hasn't been put back together.                                                                      
                                                                                                                                
REPRESENTATIVE  JOHNSON inquired  whether  the  governor has  re-                                                               
appointed people to that board.                                                                                                 
                                                                                                                                
COMMISSIONER  HOFFBECK responded  that the  last conversation  he                                                               
had with  the governor's office  was that some people  were being                                                               
considering and  more names were  being looked for.   Getting the                                                               
board back up  and running has been a struggle.   The next report                                                               
from the  Alaska Oil and  Gas Competitiveness Review  Board isn't                                                               
due until January  2017, but the board took on  a more aggressive                                                               
agenda  than what  was  dictated in  the statutes.    One of  the                                                               
reports  the  board  was  trying  to  achieve  this  year  was  a                                                               
competitiveness review but one of  the primary people involved in                                                               
that was one of the people who resigned.                                                                                        
                                                                                                                                
REPRESENTATIVE JOHNSON said  he thinks now would be  the time for                                                               
efforts  to be  redoubled in  getting those  people appointed  so                                                               
that those  kind of  reviews could  be done.   Or,  he continued,                                                               
have the department take it on  as a project because part of what                                                               
is being  talked about  here is  how competitive  is Alaska  on a                                                               
worldwide and  nationwide basis.   He said  he would like  to see                                                               
these  appointees   at  the  next   round  of   confirmations  if                                                               
confirmations are required for this board.                                                                                      
                                                                                                                                
COMMISSIONER  HOFFBECK  answered  he   doesn't  think  those  are                                                               
confirmed  positions  and  stated that  [the  administration]  is                                                               
working diligently trying to get the board positions filled.                                                                    
                                                                                                                                
2:14:28 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HERRON asked  how  much of  an  increase this  is                                                               
percentage-wise and  why from  a policy  perspective it  would be                                                               
wanted to tax companies that are now in a negative cash flow.                                                                   
                                                                                                                                
MR. ALPER replied that increasing the  tax rate from 4 percent to                                                               
5  percent  is a  25  percent  increase.   Regarding  the  second                                                               
question about  why, he  said the reason  the state's  tax system                                                               
includes an alternative minimum tax  is to protect the state from                                                               
the potential  consequences of the  switch to a net  profits tax.                                                               
During the era  of the Economic Limit Factor (ELF)  the state did                                                               
receive a minimum that was measured  in cents per barrel, but the                                                               
idea  during  that  time  was   that  the  state  was  getting  a                                                               
percentage  of  gross regardless  of  what  a company's  expenses                                                               
were,  regardless of  whether a  company was  making money.   The                                                               
state  wasn't  calculating  profitability  so  it  wasn't  taxing                                                               
profitability.   In  an era  where  [the state]  is allowing  the                                                               
offset for  operating and capital  expenditures, it can get  to a                                                               
circumstance where  the company might  be losing money,  but that                                                               
means that [the  state's] taxes could go below zero,  a risk [the                                                               
state] didn't  have during the ELF  era.  So this  minimum tax is                                                               
there to  protect the state  in case  of that eventuality.   Once                                                               
that is accepted as a premise,  then it's just a matter of what's                                                               
the appropriate  level and [the administration]  is positing that                                                               
the appropriate level  is slightly higher than  what is currently                                                               
in statute.                                                                                                                     
                                                                                                                                
COMMISSIONER HOFFBECK  added that part  of the reason  there's an                                                               
increase  in all  these various  industries across  the state  is                                                               
that the governor simply said  he wanted everybody to participate                                                               
in the  fiscal situation  that the  state is  facing.   There was                                                               
nothing about the 5 percent except  that it is a component of the                                                               
oil and gas industry contributing as well.                                                                                      
                                                                                                                                
REPRESENTATIVE  HERRON commented  it is  important to  have these                                                               
explanations on the record.                                                                                                     
                                                                                                                                
2:16:58 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HAWKER  said  he  thinks  there  was  a  previous                                                               
question about  what is  the effective  tax rate  as a  result of                                                               
this change.   He reiterated  that it was previously  stated that                                                               
HB  247  was  to  raise  revenue  without  consideration  of  the                                                               
consequences  on  the  state's  competitive  ability  to  attract                                                               
capital, to  keep reinvestment going,  and continue to  develop a                                                               
field  in its  later  stages, particularly  Prudhoe  Bay and  the                                                               
North Slope, in a very developed  aging field in which it is more                                                               
difficult and  expensive to  extract.  The  rate would  be raised                                                               
without any real  understanding of what the  consequences are, he                                                               
said.   It  was seen  what happened  under ACES  when taxes  were                                                               
raised  too  far.    It  is important  to  know  what  the  total                                                               
government take  would become under  this additional  scenario so                                                               
legislators   have  some   basis  for   evaluating  the   state's                                                               
continuing  competitiveness.   While  it might  be  great to  get                                                               
money from the  industry now, where will the State  of Alaska get                                                               
money in five  years when production collapses again?   These are                                                               
the kind of questions that members need to see answered.                                                                        
                                                                                                                                
2:18:17 PM                                                                                                                    
                                                                                                                                
MR. ALPER resumed his sectional  analysis, noting that Section 13                                                               
is very long  because of the standards  of statutory construction                                                               
in  which the  entirety of  a subsection  is redrafted,  which in                                                               
this  case is  AS 43.55.020(a),  regardless of  the smallness  or                                                               
tightness of  the actual  amendment.  Thus,  Section 13  is eight                                                               
pages  of the  bill,  but  the section  only  actually makes  two                                                               
changes.    He  explained  that  AS  43.55.020(a)  describes  the                                                               
laborious process  by which producers make  a monthly installment                                                               
payment  on their  production taxes  to the  state.   It is  long                                                               
because  there are  separate provisions  and rules  for different                                                               
time  periods and  also  different segments,  such  as the  North                                                               
Slope,  oil  from  Cook  Inlet,  gas from  Cook  Inlet,  and  oil                                                               
produced after 2022 when the gross tax  on gas kicks in.  Each of                                                               
these  different  scenarios and  alternatives  has  its own  very                                                               
complex language in AS 43.55.020.   The bill would not change the                                                               
idea of  a monthly  installment payment,  but that  language does                                                               
reference  in a  couple of  places the  minimum tax  and it  says                                                               
"given X,  Y, Z set  of circumstances they  pay 4 percent  of the                                                               
gross" and HB  247 changes that to say "now  they're going to pay                                                               
5 percent  of the gross."   So, there are two  specific reference                                                               
points  where another  number is  being changed  to 5  [percent].                                                               
Section 13  is conforming to the  change made to the  minimum tax                                                               
rate in Section 12.                                                                                                             
                                                                                                                                
2:19:59 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HAWKER understood  that the  point being  made is                                                               
long section, small  change.  Drawing attention  to the prefacing                                                               
point of Section 13 on page 6, line  9, of the bill, he said this                                                               
whole  section  is  basically  the statute  that's  part  of  the                                                               
statement of taxes, it's the  instructions for making the payment                                                               
of a  tax liability to  the state.  He  noted that line  9 states                                                               
"For a  calendar year," which  defines that  the tax period  is a                                                               
calendar year.   This  is a way  to try to  make a  provision for                                                               
periodic deposits of  tax throughout the year and  then a true-up                                                               
at the  end of the year.   He recalled that  [DOR] testified that                                                               
it  had serious  problems with  a true-up  at the  end of  a year                                                               
because  this section  did  not  capture on  a  ratable basis  as                                                               
prescribed here  all the taxes  that were due  by the end  of the                                                               
year  in full  compliance with  the  statute.   While this  small                                                               
change is  being made in  Section 13  for the proposed  change in                                                               
the  minimum tax  floor, he  asked  whether this  a section  that                                                               
might be looked  at to find a  way to do a better  job of ratably                                                               
collecting the taxes  that are owed, given [DOR]  has stated that                                                               
this is a problem.                                                                                                              
                                                                                                                                
MR.  ALPER responded  he is  sure  that the  committee will  have                                                               
specific  questions on  the change  that  is in  Section 17  that                                                               
Representative Hawker referred to, having  to do with the true-up                                                               
and how  certain credits  are treated.   That  is an  issue [DOR]                                                               
found  to a  specific circumstance  related to  the treatment  of                                                               
Per-Taxable-Barrel  Credits,   which  he  will  discuss   at  the                                                               
appropriate time.   He  said he  personally would  like to  see a                                                               
simplification  of  this  section  because  he  finds  it  almost                                                               
unreadable, yet he is responsible  for implementing it.  He knows                                                               
what it does,  he knows what it  purports to do, and  he has seen                                                               
it  evolve over  the  years  as various  pieces  of  oil and  gas                                                               
legislation have worked  through the body.  He  has seen, because                                                               
of the  nature of  it, that  it refers  to a  lot of  things that                                                               
aren't  being amended  but it  puts them  in black  in white,  it                                                               
draws attention to issues that people  were unaware of.  It would                                                               
be great if it could be simplified.   The fact that the state has                                                               
different tax  regimes and different tax  treatments for multiple                                                               
areas throughout  the state  is what makes  it necessary  to have                                                               
such  a  complicated  structure to  make  monthly  estimated  tax                                                               
payments.  At some point, he  said, it might behoove the state to                                                               
come  to a  statewide  more  uniform structure  for  oil and  gas                                                               
taxation and then this section could be simplified.                                                                             
                                                                                                                                
2:22:49 PM                                                                                                                    
                                                                                                                                
MR. ALPER  continued his  sectional analysis,  addressing Section                                                               
14.  He first  pointed out that within Section 13  there is a lot                                                               
of applicability  language inside the  oil and gas  statutes that                                                               
say this  subsection refers  to production  before 2014,  or this                                                               
refers to  production before 2016,  or before  2011.  He  said AS                                                               
43.55.020(a)(1)  and (2)  refer  exclusively  to production  that                                                               
takes place prior  to January 1, 2014; they  are remnant sections                                                               
from before the  effective date of Senate Bill 21.   Later in the                                                               
bill,  .020(a)(1) and  (2) are  repealed, which  will reduce  the                                                               
footprint  of  that  section  and   make  future  amendments,  if                                                               
necessary, take less pages in the  bill.  In making those repeals                                                               
certain  conforming language  is  needed elsewhere  in  law.   He                                                               
reiterated  he doesn't  like repealed  and  reenacted because  it                                                               
tends to  make people think  that something is being  hidden, but                                                               
he  assured  committee members  that  all  Section [14]  does  is                                                               
repoint  existing  law  that  talks about  a  technical  part  of                                                               
monthly installment payments and  eliminates the reference (a)(1)                                                               
and  (a)(2) because  those are  being repealed  elsewhere in  the                                                               
bill.   He pointed  out that on  page 13, line  22, of  the bill,                                                               
"(a)(3), (5),  or (7)"  are references in  current law  that also                                                               
talk about (a)(1) and (2).                                                                                                      
                                                                                                                                
REPRESENTATIVE HAWKER  asked whether it  is needed to  keep these                                                               
sections  in statute  while the  audits for  this period  are yet                                                               
unresolved.                                                                                                                     
                                                                                                                                
MR.  ALPER answered  "no we  do not,  absolutely."   It is  quite                                                               
clear in  the history, the case  law, that if there  is a dispute                                                               
on a  tax that took  place in year X,  the statutes that  were in                                                               
place at the time are what govern that dispute.                                                                                 
                                                                                                                                
2:25:12 PM                                                                                                                    
                                                                                                                                
MR. ALPER reviewed  Sections 15 and 16, saying they  are the same                                                               
as  Section 14,  only they're  amended rather  than repealed  and                                                               
reenacted.  They remove references  to (a)(1) and (a)(2) in other                                                               
technical  sections  relating  to monthly  installment  payments.                                                               
For example, this can be seen on  page 14, lines 3 and 23, of the                                                               
bill where  references to  (a)(1) and  (2) are  being eliminated.                                                               
He reiterated  that (a)(1) and  (2) are repealed in  the repealer                                                               
section  of the  bill, which  currently is  Section 40,  and they                                                               
refer only  to production and monthly  installment payments prior                                                               
to January 1, 2014.                                                                                                             
                                                                                                                                
2:26:04 PM                                                                                                                    
                                                                                                                                
MR.  ALPER  pointed out  that  Section  17  is  one of  the  most                                                               
material sections  of the bill.   He explained that  AS 43.55.022                                                               
is a new  section of law, as currently there  is no AS 43.55.022,                                                               
and it is  titled "Limitations on tax credits."   It's a limit in                                                               
the applicability of  certain tax credits to  either reduce taxes                                                               
or be  claimed.  He said  AS 43.55.022(a) lays the  framework and                                                               
(b) and  (c) make actual  changes, with  (b) providing that  if a                                                               
company  has these  credits  it  cannot use  them  to reduce  its                                                               
monthly installment payment  below the minimum tax  level.  There                                                               
are complicated  reference points, AS  43.55.020(a)(5)(B)(ii) and                                                               
(a)(7)(A)(ii), which are references  to statute that specifically                                                               
identify  the  5 percent  minimum  tax,  or  in current  law  the                                                               
flexible  4 through  0  percent  minimum tax.    It  says that  a                                                               
company in possession of a  certain credit cannot use that credit                                                               
to reduce  its monthly installment  below the minimum  tax level,                                                               
so it is  going to require a higher  monthly installment payment.                                                               
He explained  that (c) says  that the  use of those  credits over                                                               
the course of a  year may not exceed the sum  total of the amount                                                               
used in  the 12  months of the  year.  While  it is  written more                                                               
broadly,  it almost  entirely  refers  to the  Per-Taxable-Barrel                                                               
Credit.  In  a year where there is very  high volatility, such as                                                               
the  calendar  year 2014  where  this  arose, there  were  months                                                               
earlier in the year  where the price of oil was  quite high.  The                                                               
per-taxable barrel  was $5  or $6,  a number less  than $8.   The                                                               
companies were able  to claim it, reduce their taxes,  and pay at                                                               
some higher level.  In the later  months of the year as the price                                                               
started to drop, the bottom  of the Per-Taxable-Barrel Credit was                                                               
reached,  the $8  maximum figure.    Then as  prices dropped  yet                                                               
further,  the limitation  on the  use  of the  Per-Taxable-Barrel                                                               
Credit was seen because under current  law they cannot be used to                                                               
go below the minimum tax payment,  the floor stands in the way of                                                               
the  use  of  the  Per-Taxable-Barrel  Credit.   At  the  end  of                                                               
calendar year 2014,  DOR had 12 monthly  installment payments and                                                               
thought it had its revenue for the  year.  As it turned out, when                                                               
the 12  months were  commingled and the  true-ups done,  DOR owed                                                               
refunds of  between $100 million  and $150 million to  this suite                                                               
of producers because  of the ability to, in  effect, migrate some                                                               
of those  per-barrel credits from  month to month.   Because this                                                               
complicated  technical  concept  is  very hard  to  explain  with                                                               
words,  he  said  he  will  be  bringing  slides,  examples,  and                                                               
formulas  to show  how that  has worked  in practice  and how  it                                                               
would be corrected with the change in Section 17(c).                                                                            
                                                                                                                                
2:29:13 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER  argued that  this is  not as  difficult as                                                               
Mr. Alper  is proposing it  to be, but  really quite simple.   He                                                               
observed that page 2 of  the sectional analysis regarding Section                                                               
17(c)  states,  "This  effectively turns  the  per-taxable-barrel                                                               
credit  into  a  monthly  rather  than  an  annual  calculation."                                                               
Representative  Hawker  argued   that  this  would  significantly                                                               
change  the  entire premise  upon  which  the state's  whole  tax                                                               
structure  is  designed,  which  is  that  it  is  an  annualized                                                               
calculation  rather than  a  monthly calculation.    It would  no                                                               
longer  be an  annual calculation,  it would  be purely  monthly,                                                               
which  is a  huge and  absolute complete  and total  change.   He                                                               
suggested that  it is  not unlike telling  an individual  who has                                                               
personal  income that  fluctuates  throughout the  year that  the                                                               
person must pay  taxes on the one  month that he got  income at a                                                               
very high personal tax rate rather  than on the rate that applies                                                               
on  an average  throughout the  year under  the Internal  Revenue                                                               
Code.   He said he  is looking  forward to the  consequences that                                                               
[DOR] shows  for this, adding  that the  concept of what  is fair                                                               
and  reasonable  must  be  introduced into  this  dialogue.    He                                                               
maintained that this is purely a money grab.                                                                                    
                                                                                                                                
MR. ALPER replied there is zero  impact in DOR's fiscal note from                                                               
this  provision because  DOR doesn't  project volatility  and the                                                               
issue is only relevant when  there is volatility, change in price                                                               
from month to  month.  The material impact on  the state happened                                                               
in the  past.  This was  a $100-$150 million impact  on the state                                                               
in the  true-up of the  calendar year  2014 taxes.   He clarified                                                               
that the  Per-Taxable-Barrel Credit in  current law is  already a                                                               
monthly calculation.   It is  based on the  price of oil  in that                                                               
month whether the  per-barrel credit is $8, $7, all  the way down                                                               
to $0.   So, it is already reflecting fluctuations  from month to                                                               
month in the  gross value of the oil.   What would be constrained                                                               
is the  ability to take  that $1, $7, or  $8 and move  its value,                                                               
its implication, from  month to month within a tax  year.  "It is                                                               
an issue of policy, it's an  issue where individuals are going to                                                               
disagree,"  he said,  "and it's  something that  we see  to be  a                                                               
priority  to  protect  the  state's interests  in  the  event  of                                                               
volatility."                                                                                                                    
                                                                                                                                
                                                                                                                                
2:32:29 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HAWKER recalled  Mr. Alper's  statement that  the                                                               
state  cannot  predict volatility,  and  said  a taxpayer  cannot                                                               
predict it  either.  The  taxpayer would have no  assurance other                                                               
than just knowing  that under statute the state is  going to take                                                               
away all the  upside of any individual  month's price fluctuation                                                               
so  that all  a taxpayer  is  left with  are the  bottoms of  the                                                               
fluctuations.  He  agreed it is a policy call,  but said it's one                                                               
that he is personally particularly troubled by.                                                                                 
                                                                                                                                
MR. ALPER responded:                                                                                                            
                                                                                                                                
     By no means are we taking  all of the upside, we may be                                                                    
     taking a  little bit  more of  it and  I would  even go                                                                    
     further and  say during  the ACES  era when  the entire                                                                    
     tax  rate  with  progressivity  varied  from  month  to                                                                    
     month, we  took a  substantially larger portion  of the                                                                    
     upside from industry  than we do currently.   This bill                                                                    
     ...  takes a  tiny fraction  of that  back and  only in                                                                    
     circumstances  where   there's  quite  low   prices  in                                                                    
     certain months of the year.                                                                                                
                                                                                                                                
2:33:36 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HAWKER  recalled  Mr.   Alper  saying  that  this                                                               
element is not  in the fiscal note.  He  asked whether that means                                                               
there  is a  much  more granular  analysis than  what  is in  the                                                               
fiscal note.  The fiscal note  basically has one lump number that                                                               
would be put aside into a tax  credit fund for the future with no                                                               
analysis.   He again asked  whether there  is an analysis  on the                                                               
components, the financial consequences,  as DOR estimates them on                                                               
the various components of the bill.                                                                                             
                                                                                                                                
MR. ALPER answered  that there is an analysis of  how it works in                                                               
practice in a theoretical year with  high volatility.  He said he                                                               
would love  to be able  to bring  the specifics of  calendar year                                                               
2014  before the  committee.   Because there  are at  least three                                                               
taxpayers and aggregated  data, he needs to check  with his staff                                                               
and  counsel  to  see  whether  it  can  be  shown.    It  is  an                                                               
interesting  calculation and  it  led to  an internal  discussion                                                               
among staff  as to whether staff  wanted to go forward  with this                                                               
provision and  the consensus was  that it  would be a  good idea,                                                               
that it would be  in the interest of the state,  and he does want                                                               
to bring it  before the committee at a level  of granular detail.                                                               
The reason  it's not  in the  fiscal note  is because  the fiscal                                                               
note is tied  to DOR's revenue forecast, the  revenue forecast is                                                               
by its  nature lumpy,  it has  an average price  of oil  for each                                                               
fiscal  year  but  it  doesn't  contemplate  the  possibility  of                                                               
volatility within an individual fiscal year.                                                                                    
                                                                                                                                
2:35:00 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HERRON  recalled Mr.  Alper stating that  page 15,                                                               
line 19, is  a brand new section  and there isn't one  like it in                                                               
the statutes.   He  related that his  staff "googled"  the title,                                                               
"Limitations on tax  credits," and it came up as  a tax increase.                                                               
He asked why  it isn't just called a tax  increase given it looks                                                               
like a tax and walks like a tax.                                                                                                
                                                                                                                                
MR. ALPER  replied it is a  tax increase and there  is no attempt                                                               
to disguise  that.  This bill  does two things.   The majority of                                                               
the changes  made by  HB 247  reduce the use  of credits  and the                                                               
state's outlay  in spending money  on credits, or defer,  or make                                                               
various  changes  related to  credits.    A  few of  the  changes                                                               
increase the  state's revenue in certain  specific circumstances,                                                               
primarily dealing with the minimum tax,  and Section 17 is one of                                                               
those  categories.   If  a condition  is met  and  Section 17  is                                                               
triggered, it would  increase the amount of money  that the state                                                               
gets from a given oil and gas  producer.  That is a tax increase.                                                               
Without  question, it  shows  up  on the  revenue  side, not  the                                                               
expenditure side, of the ledger.                                                                                                
                                                                                                                                
2:36:25 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON said it seems  that there is a problem with                                                               
the volatility even though it  is a monthly per-barrel credit and                                                               
that's because the per-barrel credit  can be different from month                                                               
to  month.   He inquired  whether going  to a  $5 per-barrel  tax                                                               
credit throughout, without any sliding  scale, would take care of                                                               
this volatility problem.                                                                                                        
                                                                                                                                
MR.  ALPER responded  he is  not certain  and offered  his belief                                                               
that  it would  to  a  large extent  but  not  completely.   With                                                               
volatility - for  example, a $5 flat per-barrel credit  as in the                                                               
version, say,  of Senate Bill  21 that  was passed by  the Senate                                                               
before it  came to this committee  in 2013 - if  there are months                                                               
with  very low  prices where  the $5  was limited  by the  floor,                                                               
there might  be the ability to  shift some of that  around.  [The                                                               
department]  hasn't specifically  modeled it,  but DOR  will find                                                               
that out as part of its analysis when back before the committee.                                                                
                                                                                                                                
2:37:29 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  TALERICO  suggested that  the  language  here could  be                                                               
expanded and cleaned up.  While  he is not saying the language is                                                               
so clever that  he thinks people are being  tricked, it certainly                                                               
tricks him  a little bit.   He said he  has a question  about the                                                               
structuring  of the  calendar year  versus  the monthly  estimate                                                               
versus what can  be done in the  end in the credits  and it looks                                                               
to him like  anything can be done forward.   Noting that although                                                               
[the state]  may have promised  a credit, a particular  credit in                                                               
one month, he  asked whether Mr. Alper can assure  him that these                                                               
credits  move forward  at  all and  compile for  the  end of  the                                                               
calendar year when  these folks figure this out,  or whether this                                                               
strictly limits it just to the monthly configuration.                                                                           
                                                                                                                                
MR. ALPER  answered that  the tax  is an  annual tax,  full stop.                                                               
The credits are annual credits.   Section 13 describes mechanisms                                                               
for monthly  estimates that are supposed  to add up to  an annual                                                               
tax.   What  is being  attempted through  these sections  in this                                                               
portion  of the  bill  is  to harden  up  some  of those  monthly                                                               
calculations  so   that  the   sum  total   of  the   12  monthly                                                               
calculations more closely  adds up to the annual  total.  Section                                                               
17 is trying to fix where  if it's limited because of the minimum                                                               
tax  in  a  month,  then that  month's  limitation  should  carry                                                               
through  for  the rest  of  the  year.    "What we're  trying  to                                                               
prevent," he said, "is if there's  a limitation in one month that                                                               
the company  can't scoop  up that limited  credit by  applying it                                                               
against another  month's taxes."   This is one of  those concepts                                                               
that's very hard to explain without numbers.                                                                                    
                                                                                                                                
CO-CHAIR TALERICO remarked that it  is hard to understand without                                                               
the numbers as well.                                                                                                            
                                                                                                                                
2:39:36 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE OLSON  said he would  like to correct  a statement                                                               
made by Mr. Alper  that HB 247 doesn't grab as  much as ACES did.                                                               
He said  that, to  his knowledge, the  legislature didn't  have a                                                               
model that went  above $105 a barrel during  the consideration of                                                               
ACES.  What  ACES captured on the top end  when the price reached                                                               
$135 or  $140 a barrel  was certainly an  unintended consequence.                                                               
He offered his  belief that ACES would not have  moved out of the                                                               
legislature had there been models that  went up to $150 a barrel.                                                               
"The difference  is you  guys know what  you're doing,"  he said.                                                               
"At  that   point  in   time  that   was  a   totally  unintended                                                               
consequence,  at  least  to,  I   believe,  most  of  us  in  the                                                               
legislature."                                                                                                                   
                                                                                                                                
MR. ALPER  agreed that the  legislature did not  contemplate what                                                               
would happen  at $140  oil, especially at  the cost  profile that                                                               
was had  at that era, which  was only $22-$25 per  barrel.  There                                                               
was  a lot  of  taxable value  for  a few  months,  and with  the                                                               
monthly  tax calculation  there  were production  tax rates  with                                                               
progressivity in excess of 50 percent.   He said the point he was                                                               
trying to make a few minutes  ago was that when describing all of                                                               
the upside,  or some of the  upside, or most of  the upside, what                                                               
is really  being talked about is  the marginal tax rates  at that                                                               
point.  If  a company makes the incremental dollar,  is the state                                                               
taking  80 cents  of  that, 20  cents of  that,  or somewhere  in                                                               
between?  The change envisioned by  Section 17 does take a little                                                               
bit more  of the  incremental money  that comes  in if  there are                                                               
some  high  months  versus  some  low months,  but  it  does  not                                                               
approach the level  of marginal tax of high  percentages taken in                                                               
the high price spikes that ACES did.                                                                                            
                                                                                                                                
2:41:29 PM                                                                                                                    
                                                                                                                                
MR.  ALPER  resumed his  sectional  analysis,  noting Section  18                                                               
relates to the  carried-forward annual loss credit  as it applies                                                               
to the Gross Value Reduction  (GVR).  He explained that currently                                                               
the GVR  is a subtraction  from taxable  value before the  tax is                                                               
calculated.  A  North Slope-only provision for  "legacy" oil, oil                                                               
that is not eligible  for the GVR, is that a  company gets to its                                                               
net profits, gets  to its production tax value, and  then that is                                                               
multiplied by  the tax rate,  which is  35 percent for  the North                                                               
Slope.  Another  North Slope-only provision is that  if a company                                                               
has "new"  oil it gets  to its production  tax value and  then it                                                               
gets  to further  adjust that  production tax  value through  the                                                               
subtraction  of, for  the  most  part, 20  percent  of the  gross                                                               
value.  That 20 percent of  the gross is subtracted from the net,                                                               
thus the  term Gross Value Reduction,  to come up with  a reduced                                                               
modified net  profits that is  then multiplied by the  35 percent                                                               
tax  rate.   Effectively  it's  a tax  reduction,  and there  are                                                               
technical  reasons why  the calculation  was  structured in  that                                                               
way, having to do with the  commingling of expenses from field to                                                               
field.   The  concept  was to  reduce the  tax.   However,  [DOR]                                                               
learned what happens if a company  has a loss instead of having a                                                               
profit  that might  be reduced  by this  calculation so  that the                                                               
company would  pay a  lower tax rate.   If a  company has  a loss                                                               
under normal circumstances  for legacy oil, it  would be eligible                                                               
for a  Net Operating Loss  Credit of  a percentage of  that loss.                                                               
Last year  that was  45 percent.   A $10 million  loss with  a 45                                                               
percent  Net Operating  Loss Credit  would  be a  credit of  $4.5                                                               
million that the state would pay out in cash to the company.                                                                    
                                                                                                                                
2:43:40 PM                                                                                                                    
                                                                                                                                
MR. ALPER  continued, explaining  what happens under  current law                                                               
when  the oil  in the  aforementioned  scenario is  new oil,  oil                                                               
that's eligible for the GVR.   In that case, the $10 million loss                                                               
could be  modified by  a calculation based  on the  gross revenue                                                               
and  turned into  a  $30 million  loss.   So,  while the  company                                                               
actually lost  $10 million, the  calculation of the GVR  makes it                                                               
look like a $30  million loss for purposes of tax.   A 45 percent                                                               
credit on a $30 million loss  is $13.5 million in credit, so [the                                                               
state]  is in  a position  of writing  a credit  check for  $13.5                                                               
million  to offset  a  $10  million loss,  giving  the company  a                                                               
credit of  greater than 100  percent of  the amount of  the loss.                                                               
It was surprising to find  this circumstance allowable under law,                                                               
but according to the attorneys  it was allowable under the strict                                                               
interpretation of  Senate Bill 21's  provisions as written.   So,                                                               
[the  state]  has  paid  credits  based  upon  that  calculation.                                                               
Section  18 would  not change  the Gross  Value Reduction  in the                                                               
circumstance  where the  company is  paying taxes,  but it  would                                                               
change the Gross Value Reduction if  there is a loss.  Section 18                                                               
says a company cannot use it  to reduce the size of the operating                                                               
loss for  the purposes  of calculating a  credit and  it prevents                                                               
that circumstance  where [the state] could  potentially be paying                                                               
credits of greater than 100 percent of the amount of the loss.                                                                  
                                                                                                                                
REPRESENTATIVE  SEATON  offered  his  hope that  when  Mr.  Alper                                                               
brings  in the  graphic presentation  there will  be some  way to                                                               
explain the aforementioned a little bit easier.                                                                                 
                                                                                                                                
2:45:17 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HERRON said  he thought  he heard  Mr. Alper  say                                                               
this is  a tax reduction, but  asked whether it isn't  actually a                                                               
tax increase.                                                                                                                   
                                                                                                                                
MR. ALPER replied  that this provision would only  be relevant in                                                               
a circumstance where the taxpayer in  question was in a loss.  So                                                               
it would be a reduction in  the state's credit spend, a reduction                                                               
in the credit offered to the company.                                                                                           
                                                                                                                                
REPRESENTATIVE  HERRON reiterated  that he  thought he  heard Mr.                                                               
Alper  say that  this  a tax  reduction, but  now  Mr. Alper  has                                                               
explained it is a tax increase.                                                                                                 
                                                                                                                                
MR.  ALPER  responded he  doesn't  recall  saying  it was  a  tax                                                               
reduction, and either he was misheard  or he misspoke, but it was                                                               
not his intent to say that this was a tax reduction.                                                                            
                                                                                                                                
2:46:30 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON  understood  Section  18  is  particularly                                                               
applicable to new oil.                                                                                                          
                                                                                                                                
MR. ALPER answered it is  specifically and uniquely applicable to                                                               
new oil on the North Slope.                                                                                                     
                                                                                                                                
REPRESENTATIVE SEATON further understood  that the problem trying                                                               
to be avoided is where [the  state] would pay more than the total                                                               
expense of a  project because it's all a net  loss if there isn't                                                               
production.   So, he surmised,  with the  vagaries of the  law as                                                               
written,  [the state]  could actually  be  providing the  company                                                               
more than 100 percent of its total costs which generate a loss.                                                                 
                                                                                                                                
MR. ALPER  replied that  is not precisely  correct because  it is                                                               
not 100 percent  of the company's costs.  This  provision is only                                                               
relevant  if  the company  in  question  has production,  if  the                                                               
company has  some sort of sale,  some sort of gross  revenue that                                                               
the company  is producing  oil, but  in doing  so the  company is                                                               
operating at a  loss.  That circumstance would occur  in very low                                                               
prices or would sometimes occur with  a new field where a company                                                               
is  producing from  the early  wells but  still building  out the                                                               
field and drilling subsequent wells  and the company continues to                                                               
operate at  a loss for some  years before the field  is complete.                                                               
If there is  a loss, the company has revenue  minus expenses that                                                               
leads  to a  negative number.   The  way the  Net Operating  Loss                                                               
Credit works  in that circumstance is  the credit is tied  to the                                                               
net loss, the revenue minus expenses.   What is trying to be done                                                               
in Section 18  is to prevent the credit itself  from being larger                                                               
than the amount of the entirety of the loss.                                                                                    
                                                                                                                                
2:48:14 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE TARR inquired whether,  to date, that circumstance                                                               
has occurred.                                                                                                                   
                                                                                                                                
MR. ALPER  responded he doesn't  want to go into  details because                                                               
of  confidentiality,  but  said  there  have  been  a  couple  of                                                               
specific credit applications since he  became director of the Tax                                                               
Division where he actually questioned  the calculation and kicked                                                               
it back to the auditor saying that  it couldn't be right.  But in                                                               
checking with the  audit masters and legal counsel,  it was found                                                               
that it  was the appropriate treatment  under the way the  law is                                                               
written - the  auditor had it right and [the  state] did owe that                                                               
credit.                                                                                                                         
                                                                                                                                
2:48:59 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER  said he is  still struggling  with getting                                                               
his  arms  around  this.   Regarding  the  effective  change,  he                                                               
understood it  would just eliminate  before January 1, 2014.   He                                                               
offered  his understanding  that the  operative language  is that                                                               
any reduction under  AS 43.55.160(f) or (g) is added  back to the                                                               
calculation of  production tax values  for the calendar  year and                                                               
that that is the Gross Value Reduction as applicable to new oil.                                                                
                                                                                                                                
MR. ALPER  clarified that  this particular  section is  inside AS                                                               
43.55.023(b),  which  is  the statutory  section  describing  the                                                               
carried  forward  Annual Loss  Credit.    So,  it's only  in  the                                                               
calculation  of  an  Annual  Loss  Credit and  when  there  is  a                                                               
circumstance that might trigger the  Annual Loss Credit, in other                                                               
words an annual loss, then  these Gross Value Reductions would be                                                               
re-added before the credit itself is calculated.                                                                                
                                                                                                                                
REPRESENTATIVE HAWKER commented  he is still confused  on this if                                                               
under .160(f) [the  state] already had a provision  in there that                                                               
says the GVR could  not be used to reduce the  gross value at the                                                               
point of  production below zero.   The whole mechanism  there was                                                               
adjusting  the  tax  rate,  [the state]  wasn't  going  to  allow                                                               
potentially  a tax  rate adjustment.   He  said he  is trying  to                                                               
understand how both of those  limitations apply and he is looking                                                               
forward to a far more clear explanation.                                                                                        
                                                                                                                                
MR. ALPER  answered that these  are technical provisions  of law.                                                               
He explained:                                                                                                                   
                                                                                                                                
     There are  places that say  production tax  value can't                                                                    
     be  less than  zero ...  so we're  not paying  taxes in                                                                    
     reverse,"  he  explained.   But  a  net operating  loss                                                                    
     still exists  even if production  tax value  is limited                                                                    
     to  zero.    So  the  limits  in  .160(f)  prevent  the                                                                    
     subtraction to get ... a  production tax value below so                                                                    
     we're  not  paying  a  negative tax  ...  but  the  net                                                                    
     operating  loss is  not impacted  by that.   ...  We're                                                                    
     extending that limitation also to  a net operating loss                                                                    
     to say  we can't use  these reductions to  increase the                                                                    
     size of  an operating loss.   An operating  loss itself                                                                    
     is  a  cash  flow  calculation,  it's  tied  to  actual                                                                    
     revenue and actual allowable  expenditures.  That's the                                                                    
     basis for the Operating Loss Credit right now.                                                                             
                                                                                                                                
2:52:02 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER said the philosophy on this is all he can                                                                 
talk at this juncture on these details.  He continued:                                                                          
                                                                                                                                
     But the point  there exactly was that ...  the big push                                                                    
     from folks was to incent  the development of new areas,                                                                    
     again, new oil,  oil that wasn't otherwise  going to be                                                                    
     able to be brought forward.   That's how we established                                                                    
     the GVR and, in this  case, because we really wanted to                                                                    
     incent these new developments,  these new producers ...                                                                    
     a very strict  reading out of [Senate  Bill] 21 allows,                                                                    
     effectively  when you're  doing it,  carry forward  net                                                                    
     operating  loss  for  an  industry,  a  player,  a  new                                                                    
     entrant  ... someone  who's developing  new oil  to, if                                                                    
     they are  operating at  a loss  position, to  truly get                                                                    
     full value for those losses  into the future.  And here                                                                    
     we're truncating that incentive  that we were providing                                                                    
     for the development of new oil.   I think that's why it                                                                    
     was really  different than  further development  in old                                                                    
     oil.  ...  What is going to be our  consequence?  It is                                                                    
     going to have  a chilling effect on the  pursuit of new                                                                    
     oil,  which  was  a  very  high  priority  for  us,  by                                                                    
     essentially   taking   away  that   opportunity,   that                                                                    
     advantage,  in a  situation where  somebody is  getting                                                                    
     started,   they're  getting   their  field   developed,                                                                    
     they're  getting their  initial  production going,  and                                                                    
     they have  a loss and  we're saying  "oh ya, oh  by the                                                                    
     way, that  incentive ...  we're trying  to give  you to                                                                    
     get this done,  you don't get it when we  look at a ...                                                                    
     longer  term field  life  issue as  opposed  to a  very                                                                    
     small short moment in time here  ... a point in time in                                                                    
     an early part of a field development."                                                                                     
                                                                                                                                
MR. ALPER replied:                                                                                                              
                                                                                                                                
     The  actual  negative  cash  flow  that  generates  the                                                                    
     operating loss is unchanged and,  for the most part, we                                                                    
     are not,  in this section  anyway, changing how  it can                                                                    
     be  used.   There's  other sections  of  the bill  that                                                                    
     we'll get  into that  might modify how  companies could                                                                    
     use   their  Operating   Loss   Credits.     The   way,                                                                    
     philosophically, I would look at  it is the Gross Value                                                                    
     Reduction  exists to  reduce the  tax burden  on a  new                                                                    
     producer  that's   producing  oil   at  a   profit  and                                                                    
     therefore would owe taxes and  now they're going to owe                                                                    
     less  taxes.   If  that  company  is losing  money  for                                                                    
     whatever reason, we have the  Net Operating Loss Credit                                                                    
     as a  benefit to pay them  back for a portion  of their                                                                    
     losses.    What  we've  found  is  circumstances  where                                                                    
     they're able to use both  and magnify the size of their                                                                    
     Operating  Loss  Credit  through  using  this  new  oil                                                                    
     benefit  ... and  it  led  to unexpected  calculations.                                                                    
     Philosophically we  can talk a  long time, but  I think                                                                    
     we'll all  benefit from having real  numbers before the                                                                    
     committee to show you examples.                                                                                            
                                                                                                                                
2:54:55 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOSEPHSON noted that in  Middle Earth the state is                                                               
investing  80  cents  versus  the  taxpayer's  20  cents  on  any                                                               
investment.  On  the North Slope a company with  new oil benefits                                                               
from a  Net Operating  Loss Credit and  a second  credit bringing                                                               
the  totality of  the state's  investment to  120 percent  of the                                                               
total expense.   He posited that the state is  paying the company                                                               
to generate nothing  even though it produced  something; it isn't                                                               
like a  New Explorer  Credit where that  isn't a  phenomenon that                                                               
happens.  He asked whether the  state is actually covering all of                                                               
a  company's expenses  even in  circumstances  where the  company                                                               
produces.                                                                                                                       
                                                                                                                                
MR. ALPER  responded that, in  part, his answer to  this question                                                               
is the  same as the one  he gave to Representative  Seaton.  It's                                                               
not necessarily  all of the  company's expenses, but it's  all of                                                               
the company's loss.  The state  is compensating for more than 100                                                               
percent  of the  company's cash  flow loss  and that's  what this                                                               
provision in the bill would fix.                                                                                                
                                                                                                                                
2:56:24 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE TARR surmised  that for ACES the  modeling did not                                                               
go high enough on oil prices  and for Senate Bill 21 the modeling                                                               
did not  go low enough.   She said she doesn't  recall [committee                                                               
members]  contemplating  situations  where  the  large  companies                                                               
would  have  net  operating  loss  because  this  is  an  unusual                                                               
circumstance of  very low prices.   She inquired whether  this is                                                               
an  accurate statement  and  could Mr.  Alper  elaborate in  this                                                               
regard.   She further  requested that when  DOR does  provide the                                                               
committee with  numbers that  it include  the range  of realities                                                               
that might actually  be experienced on both ends,  given that not                                                               
having  done this  previously has  gotten [the  state] into  some                                                               
trouble when unexpected things happened.                                                                                        
                                                                                                                                
MR. ALPER  answered there is  a psychological bias to  assume the                                                               
present is  going to continue on  into the future; it  extends to                                                               
regular  people, academic  economists, and  everyone in  between.                                                               
There is always the broad discussion  of what could happen.  But,                                                               
as  he said  earlier  and  not everyone  agreed,  his sense  from                                                               
having sat  as a staffer  during the  hearings for both  of those                                                               
bills was that the modeling  and day-to-day specifics of the ACES                                                               
bill tended  to look  at a  range of prices  between $40  and $80                                                               
and,  as   Representative  Olson  said  earlier,   didn't  really                                                               
contemplate what  happened if  there was a  price spike.   Senate                                                               
Bill 21  tended to focus  its conversation  on a range  of prices                                                               
between  $80 and  $120 and  did not  fully contemplate  and model                                                               
what might have  occurred at severely lower prices.   That is not                                                               
to say  that people  were ignorant  of it, but  that it  wasn't a                                                               
prominent part of the conversation.                                                                                             
                                                                                                                                
REPRESENTATIVE TARR asked  whether this can we  avoided as things                                                               
move  forward on  HB  247.   She  said she  is  making an  honest                                                               
request to look at a broad range  of prices and how some of these                                                               
changes in the bill would impact things.                                                                                        
                                                                                                                                
MR.  ALPER replied  it is  his  sincere hope  to go  as broad  as                                                               
possible.   He explained  that [DOR] used  to model  general fund                                                               
estimates for the  year based upon a certain  set of assumptions.                                                               
Last year  [DOR] published  one that went  between $40  and $140.                                                               
The report was updated for this  year and now the price goes down                                                               
to $20.                                                                                                                         
                                                                                                                                
2:59:29 PM                                                                                                                    
                                                                                                                                
CO-CHAIR TALERICO  informed members that both  Director Alper and                                                               
Commissioner Hoffbeck will be compiling  more information for the                                                               
committee with  quite a few more  details.  He said  he will work                                                               
directly  with the  director and  the commissioner  to give  them                                                               
enough  time  to compile  those  things  that were  talked  about                                                               
earlier today.                                                                                                                  
                                                                                                                                
[HB 247 was held over.]                                                                                                         

Document Name Date/Time Subjects
HB247 ver A.pdf HRES 2/3/2016 1:00:00 PM
HRES 2/5/2016 1:00:00 PM
HRES 2/10/2016 1:00:00 PM
HRES 2/12/2016 1:00:00 PM
HRES 2/22/2016 1:00:00 PM
HRES 3/7/2016 1:00:00 PM
HRES 3/7/2016 6:00:00 PM
HRES 3/8/2016 1:00:00 PM
HB 247
HB247 Sponsor Statement.pdf HRES 2/3/2016 1:00:00 PM
HRES 2/5/2016 1:00:00 PM
HRES 2/10/2016 1:00:00 PM
HRES 2/12/2016 1:00:00 PM
HB 247
HB247 Sectional Analysis.pdf HRES 2/3/2016 1:00:00 PM
HRES 2/5/2016 1:00:00 PM
HRES 2/10/2016 1:00:00 PM
HRES 2/12/2016 1:00:00 PM
HRES 2/22/2016 1:00:00 PM
HRES 3/7/2016 1:00:00 PM
HRES 3/7/2016 6:00:00 PM
HRES 3/8/2016 1:00:00 PM
HB 247
HB247 Fiscal Note - FUNDCAP-OIL & GAS TAX CREDIT FUND-2-1-16.pdf HRES 2/3/2016 1:00:00 PM
HRES 2/5/2016 1:00:00 PM
HRES 2/10/2016 1:00:00 PM
HRES 2/12/2016 1:00:00 PM
HRES 2/22/2016 1:00:00 PM
HRES 3/7/2016 1:00:00 PM
HRES 3/7/2016 6:00:00 PM
HRES 3/8/2016 1:00:00 PM
HB 247
HB247 Fiscal Note - DOR-TAX-2-1-16.pdf HRES 2/3/2016 1:00:00 PM
HRES 2/5/2016 1:00:00 PM
HRES 2/10/2016 1:00:00 PM
HRES 2/12/2016 1:00:00 PM
HRES 2/22/2016 1:00:00 PM
HRES 3/7/2016 1:00:00 PM
HRES 3/7/2016 6:00:00 PM
HRES 3/8/2016 1:00:00 PM
HB 247
HB 247 Oil Credit Bill - Key Features 2-2-16.pdf HRES 2/3/2016 1:00:00 PM
HRES 2/5/2016 1:00:00 PM
HRES 2/10/2016 1:00:00 PM
HRES 2/12/2016 1:00:00 PM
HRES 2/22/2016 1:00:00 PM
HRES 3/7/2016 1:00:00 PM
HRES 3/7/2016 6:00:00 PM
HRES 3/8/2016 1:00:00 PM
HB 247
HB 247 Production Tax Credits FY07-FY25 Excel Table_Figure 8-4_Fall 15 RSB.pdf HRES 2/3/2016 1:00:00 PM
HRES 2/5/2016 1:00:00 PM
HRES 2/10/2016 1:00:00 PM
HRES 2/12/2016 1:00:00 PM
HRES 2/22/2016 1:00:00 PM
HRES 3/7/2016 1:00:00 PM
HRES 3/7/2016 6:00:00 PM
HRES 3/8/2016 1:00:00 PM
HB 247
HSE RES ISER contract for Impacts of Potential Alaska Fiscal Options.pdf HRES 2/12/2016 1:00:00 PM
HSE RES 2.9.16 - Impacts of Alaska fiscal options-Summary of preliminary conclusions-Gunnar Knapp.pdf HRES 2/12/2016 1:00:00 PM
HSE RES 2.12.16 ISER economic impacts study-preliminary conclusions.pdf HRES 2/12/2016 1:00:00 PM
HSE RES 2.12.16 AOGA Sectional Analysis of Governor's Tax Credit Reform Bill HB 247 FINAL.pdf HRES 2/12/2016 1:00:00 PM
HB 247
HSE RES 2.12.16 Professor Gunnar Knapp's ISER Rpt Comments on HB 247.pdf HRES 2/12/2016 1:00:00 PM
HRES 2/22/2016 1:00:00 PM
HB 247