Legislature(2015 - 2016)BARNES 124

02/15/2016 01:00 PM RESOURCES

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Audio Topic
01:10:29 PM Start
01:13:21 PM HB253
02:35:10 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
*+ HB 253 ELCTRNC TAX RETURN;MINING LIC. TAX & FEES TELECONFERENCED
Heard & Held
-- Testimony <Invitation Only> --
        HB 253-ELCTRNC TAX RETURN;MINING LIC. TAX & FEES                                                                    
                                                                                                                                
1:13:21 PM                                                                                                                    
                                                                                                                                
CO-CHAIR TALERICO  announced that  the only  order of  business is                                                              
HOUSE BILL NO. 253,  "An Act requiring the electronic  filing of a                                                              
tax   return  or   report   with   the  Department   of   Revenue;                                                              
establishing a  civil penalty for  failure to electronically  file                                                              
a  return  or  report; relating  to  exemptions  from  the  mining                                                              
license tax;  relating to  the mining  license tax rate;  relating                                                              
to mining  license application,  renewal, and fees;  and providing                                                              
for an effective date."                                                                                                         
                                                                                                                                
1:13:43 PM                                                                                                                    
                                                                                                                                
JERRY BURNETT,  Deputy Commissioner,  Office of the  Commissioner,                                                              
Department  of   Revenue  (DOR),   on  behalf  of   the  governor,                                                              
introduced HB  253 by way  of a PowerPoint presentation  entitled,                                                              
"Mining  License  Tax, HB  253."    Turning  to slide  2,  "Mining                                                              
License Tax  Increase, he  explained that  the bill would  require                                                              
the electronic filing of a tax return or report [with DOR].                                                                     
                                                                                                                                
1:15:37 PM                                                                                                                    
                                                                                                                                
The committee took a brief at-ease.                                                                                             
                                                                                                                                
1:16:25 PM                                                                                                                    
                                                                                                                                
MR. BURNETT  stated  that HB 253:   would  require the  electronic                                                              
filing of  a tax return or  report with the Department  of Revenue                                                              
(DOR);   would  establish   a  civil   penalty   for  failure   to                                                              
electronically  file a  return or  report;  relates to  exemptions                                                              
from the  mining license  tax; relates to  the mining  license tax                                                              
rate; relates  to mining license  application, renewal,  and fees;                                                              
and would provide for an effective date.                                                                                        
                                                                                                                                
MR. BURNETT turned  to slide 3, "Mining Tax History,"  and advised                                                              
that the state began  taxing mines in 1913, that  the tax has been                                                              
restructured several  times, and that the original  mining license                                                              
tax was 0.5  percent tax on mining  net income over $5,000.    The                                                              
tax is  collected on  both net income  from mining operations  and                                                              
mining-related  royalties.  So,  the lessor of  a mine,  the owner                                                              
of a mine, pays the mining license tax on the royalties.                                                                        
                                                                                                                                
1:17:23 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON  observed the bill's title  does not include                                                              
royalties, and asked whether the bill includes royalties.                                                                       
                                                                                                                                
MR.  BURNETT  replied   the  bill  does  nothing   to  change  the                                                              
royalties that the  state collects on mining operations.   Most of                                                              
the large  mines that would  be affected by  this bill are  not on                                                              
state land, rather  they are on federal lands,  Native corporation                                                              
lands, or  other lands.   He said  he is aware  of only  one large                                                              
operating mine on state lands.                                                                                                  
                                                                                                                                
REPRESENTATIVE SEATON  surmised the bill relates to  net income on                                                              
mining-related  royalties.   Therefore, he  surmised, if  a Native                                                              
corporation  is receiving  royalties from  mines it  will tax  the                                                              
royalties, but  not deal in any  manner with royalties  from state                                                              
land that would be paid to the state.                                                                                           
                                                                                                                                
MR. BURNETT responded  that Representative Seaton is  correct.  If                                                              
the  owner  of  property  that's  leased  to  a  mining  operation                                                              
collects royalties, those royalties are taxed under the law.                                                                    
                                                                                                                                
1:18:44 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  TALERICO  requested  Mr.  Burnett to  identify  the  six                                                              
large mines.                                                                                                                    
                                                                                                                                
MR. BURNETT said these mines will be reviewed in a coming slide.                                                                
                                                                                                                                
MR. BURNETT  continued his  discussion of slide  3.   He explained                                                              
that the  tax is primarily  businesses engaged  in coal  and hard-                                                              
rock  mining.    He  turned  to   slide  4,  "Mining  Tax  History                                                              
(Continued),"  and said  that  between 1915  and  1953 there  were                                                              
numerous  changes to  the tax rates  and the  tax-free net  income                                                              
base,  and in  1951  a  3.5 year  exemption  was adopted  for  new                                                              
mining operations,  and that  the current  tax structure  has been                                                              
in place since 1955.   He pointed to the chart  and noted that the                                                              
tax  under current  law is  as follows:    no tax  until at  least                                                              
$40,000  net  income;  3  percent over  $40,000;  5  percent  over                                                              
$50,000; and 7 percent over $100,000.                                                                                           
                                                                                                                                
CO-CHAIR  TALERICO pointed  out that the  history being  discussed                                                              
is prior to statehood.                                                                                                          
                                                                                                                                
MR. BURNETT  agreed,  and said the  tax was  several years  before                                                              
statehood and has continued in its same form since then.                                                                        
                                                                                                                                
1:20:20 PM                                                                                                                    
                                                                                                                                
ED  FOGELS,  Deputy  Commissioner,  Office  of  the  Commissioner,                                                              
Department  of Natural Resources  (DNR),  drew attention  to slide                                                              
5, "Large  mining projects  in Alaska," and  said the  map depicts                                                              
the  operating mines  in Alaska,  mines  currently in  permitting,                                                              
and the  significant projects in  pre-permitting status.   He then                                                              
reviewed the  six operating mines.   The Red  Dog Mine is  an open                                                              
pit lead and zinc  mine operated by Tech Alaska and  is located on                                                              
NANA  Regional  Corporation  land.    It is  one  of  the  world's                                                              
largest  zinc producing  mines,  employs 610  individuals, and  is                                                              
the  only taxpayer  in the  Northwest  Arctic Borough.   The  Fort                                                              
Knox  Mine is  an open  pit gold  mine located  near Fairbanks  on                                                              
Alaska Mental  Health Trust lands  and private lands,  is operated                                                              
by  Fairbanks Gold  Mining, employs  650 individuals,  and is  the                                                              
largest taxpayer  in the  Fairbanks Northstar  Borough.   The Pogo                                                              
Mine is  an underground gold mine  located near Delta  Junction on                                                              
state land, employs  320 individuals, and is the  only major hard-                                                              
rock mine located  on general state land.  The  Usibelli Coal Mine                                                              
is  a subbituminous  low  sulfur  coal strip  mine  is located  on                                                              
state land  and employs 150 individuals.   The Kensington  Mine is                                                              
located north of  Juneau on U.S. Forest Service  land, is operated                                                              
by Coeur  Alaska, is  an underground  gold mine,  and employs  320                                                              
individuals.   The  Greens Creek  Mine is  an underground  silver,                                                              
zinc, lead,  and gold mine, employs  415 people, is  located about                                                              
18 miles  southwest of Juneau on  U.S. Forest Service  and private                                                              
lands, and is operated by Hecla Greens Creek Mining Company.                                                                    
                                                                                                                                
MR. FOGELS  pointed out that  the map also  shows Nixon  Fork Mine                                                              
which is  an underground gold  mine near McGrath.   It is  on U.S.                                                              
Bureau of Land Management  (BLM) land, and since 2013  has been in                                                              
temporary  cessation  due  to  low  commodity  prices  and  it  is                                                              
currently  being maintained  and monitored.   The  map also  shows                                                              
mines in permitting  that include: Donlin Gold  Mine; Chuitna Coal                                                              
Mine; and Wishbone  Hill Mine, although the Wishbone  Hill Mine is                                                              
essentially permitted  and is waiting for the  markets to improve.                                                              
Other  mines  shown  on  the  map  include:  Arctic  and  Bornite;                                                              
Livengood;  Graphite   1;  Pebble;  Palmer;  Niblack;   and  Bokan                                                              
Mountain.   The  state is  currently  working with  the owners  of                                                              
those  properties  regarding pre-permitting  activities  and  none                                                              
have submitted formal applications for the large mine permits.                                                                  
                                                                                                                                
1:24:43 PM                                                                                                                    
                                                                                                                                
CO-CHAIR TALERICO  surmised Red  Dog Mine and  Fort Knox  Mine are                                                              
major contributors  to their local municipalities as  far as their                                                              
tax base  goes.  He  asked whether the  other mines  contribute to                                                              
their local municipal governments as well.                                                                                      
                                                                                                                                
MR. FOGELS responded  that they all do.  He noted  that the Greens                                                              
Creek and  Kensington mines are  very significant  contributors to                                                              
the Juneau  economy, and the Usibelli  Mine is a  huge contributor                                                              
to the Denali Borough and the Healy community.                                                                                  
                                                                                                                                
MR. BURNETT added  that Kensington and Greens Creek  mines are the                                                              
top  two local  property taxpayers  in Juneau,  and that  Usibelli                                                              
Mine  is  a   major  taxpayer  for  the  Denali   Borough  in  the                                                              
approximate  amount of  $100,000 a  year in severance  taxes.   He                                                              
noted  that   the  employees   pay  taxes,  and   a  lot   of  the                                                              
infrastructure  has  been  built for  and  by  these mines.    For                                                              
example, the  Greens Creek Mine  buys excess electricity  from the                                                              
hydroelectric  plant in  Juneau,  which has  resulted in  lowering                                                              
the  utility bills  for  Juneau  residents.   He  referred to  the                                                              
discussion  of another hydro  plant that  is proposed  near Juneau                                                              
that  would offer  zone-area  heating in  downtown  Juneau.   This                                                              
proposed plant would  only be made possible if  Kensington Mine is                                                              
the  anchor  client   for  electricity.    Mines   are  incredibly                                                              
important local  infrastructure, local  tax base, local  jobs, and                                                              
economic engines to the communities where they are located.                                                                     
                                                                                                                                
1:27:04 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON  referred to  the calculation of  mining net                                                              
income,  and  asked  whether  it is  net  profit  after  corporate                                                              
income tax or just on expenses and revenue.                                                                                     
                                                                                                                                
MR. BURNETT  answered it is before  the corporate income  tax; the                                                              
corporate  income tax  has  been allocated  based  on factors  for                                                              
employment  and  so forth  in  Alaska  to the  company's  national                                                              
income.    In  other  words,  he   explained,  when  a  mine  pays                                                              
corporate  income tax,  it would  be  a deduction  from the  whole                                                              
company's  corporate income  tax, and  then allocated  back.   The                                                              
state  does  receive  a fairly  significant  amount  of  corporate                                                              
income  tax  from  mines.    He said  he  will  be  providing  the                                                              
committee with  a chart depicting  corporate income tax  by sector                                                              
for all  the sectors  in the  economy.   In many  years the  mines                                                              
could  easily be the  second largest  sector,  after oil and  gas,                                                              
for corporate  income tax  depending on  how commodity  prices are                                                              
going during that time period.                                                                                                  
                                                                                                                                
REPRESENTATIVE  SEATON  referred  to  the base  amounts  that  are                                                              
excluded from  taxation and their  different rates on  net income.                                                              
He  asked whether  there  is a  comparison  of how  long it  takes                                                              
mines to  reach net income to  where the mines are  taxable versus                                                              
non-taxable because  the tax  is based on  net income  rather than                                                              
gross income.                                                                                                                   
                                                                                                                                
MR.  BURNETT   replied  he  intends   to  provide  some   of  that                                                              
information to  the committee after this  hearing.  He  said it is                                                              
highly  variable because,  like the  oil and  gas industry,  these                                                              
companies  are somewhat  at the  mercy  of commodity  prices.   It                                                              
could  be  very profitable  or  not  so  profitable at  any  given                                                              
period of time; it as a relatively large gamble.                                                                                
                                                                                                                                
1:29:51 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOSEPHSON   understood  that   the  mining-related                                                              
royalties  are not  directly a  subject  of the  bill except  when                                                              
looking at net income  and the tax rate.  He  inquired whether the                                                              
administration considered adjusting the royalty rate itself.                                                                    
                                                                                                                                
MR.  BURNETT deferred  to  Mr. Fogels  because  the Department  of                                                              
Natural Resources  (DNR) handles royalties.   People are  aware of                                                              
it  and it  was discussed,  but  it is  not part  of the  proposal                                                              
here.                                                                                                                           
                                                                                                                                
MR. FOGELS responded  that DNR did not propose  any adjustments to                                                              
the royalty structure this year.                                                                                                
                                                                                                                                
REPRESENTATIVE  JOSEPHSON  noted that  traditionally  the tax  for                                                              
oil  is 12.5  percent, and  asked what  the amount  is on  royalty                                                              
and, if it is different, why the difference exists.                                                                             
                                                                                                                                
MR.  FOGELS answered  that  mining royalties  are  3 percent,  and                                                              
only on  general state  lands which,  currently, would  only apply                                                              
to the  Pogo Mine.   The royalty structure  for coal  is different                                                              
for the Usibelli  Mine, and basically the major  hard-rock mine is                                                              
paying royalties  currently, and there are royalties  from smaller                                                              
placer operators in  the state.  He said he does  not know why the                                                              
difference exists between oil and gas and the mining royalties.                                                                 
                                                                                                                                
1:32:24 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON  asked the  definition of the  royalty base,                                                              
and  further asked  whether  it  is on  net profits,  net  income,                                                              
gross  value of  the material,  or  net smelter  return (NSR),  in                                                              
other words after the first wholesale value.                                                                                    
                                                                                                                                
MR. FOGELS replied  it is definitely on the net,  but he is unsure                                                              
whether it is the  value or the profit.  He said  he will get back                                                              
to the committee in this regard.                                                                                                
                                                                                                                                
REPRESENTATIVE  SEATON said  he would  like to  receive an  answer                                                              
because  if there  is a mine  on state  land, the  royalty is  the                                                              
state's ownership  portion.   He said  his understanding  from the                                                              
past is that  the royalty was  based on net profit;  therefore, an                                                              
expensive  and inefficient  operation  could write  off  a lot  of                                                              
expenses against  revenues.  In  that regard, he  opined, Alaskans                                                              
receive very little or nothing from their royalty interests.                                                                    
                                                                                                                                
MR.  FOGELS  advised  that  he  found  the  answer  and  said  the                                                              
production  royalties  are  established   by  AS  38.05.212(b)(1),                                                              
which reads:                                                                                                                    
                                                                                                                                
     (b) The production royalty                                                                                                 
                                                                                                                                
        (1) is three percent of net income as determined                                                                        
     under AS 43.65; and                                                                                                        
                                                                                                                                
MR. FOGELS said it parallels the mining license tax.                                                                            
                                                                                                                                
REPRESENTATIVE  SEATON stressed  it is important  to look  closely                                                              
at the actual factors  because some mines are 17  years into their                                                              
20-year life  and have  not reached  that profitability  point for                                                              
the state to receive any royalty for its ownership share.                                                                       
                                                                                                                                
1:35:06 PM                                                                                                                    
                                                                                                                                
MR.  BURNETT  resumed  his presentation  and  displayed  slide  6,                                                              
"Mines  in Alaska."   He advised  there are  five large  hard-rock                                                              
mines, one coal  mine, and 200 small placer mines  that, combined,                                                              
have an economic impact similar to one large mine.                                                                              
                                                                                                                                
1:35:19 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HAWKER noted that  slide 6  totals 206  mines, yet                                                              
in 2015 there were 468 taxpayers.  He asked why the difference.                                                                 
                                                                                                                                
MR.  BURNETT  explained  that there  are  approximately  500  plus                                                              
taxpayers  filing returns,  and in  2014, 13  were in the  highest                                                              
tax bracket.   In 2014 the [highest  tax bracket] had  a total net                                                              
income  of  approximately $561  million  and  paid taxes  on  that                                                              
amount.  The  next group is much  smaller with a total  income net                                                              
on their  tax return  of approximately $1  million.   He explained                                                              
that there are  different brackets, with small  placer gold miners                                                              
for  example  that  pay low  tax  rates  in  the  $40,000-$100,000                                                              
range.  Some may  be below the $40,000 range but  still file a tax                                                              
return  because they  continue to  operate  and from  year-to-year                                                              
they may be profitable to the level....                                                                                         
                                                                                                                                
REPRESENTATIVE  HAWKER  surmised  that  while the  state  had  468                                                              
paying taxpayers  in 2015,  by taking  the top  paying 200  of the                                                              
468 there  is a combination  that aggregates to  approximately one                                                              
large mine.                                                                                                                     
                                                                                                                                
MR. BURNETT said that would be fairly close to being correct.                                                                   
                                                                                                                                
REPRESENTATIVE  HAWKER asked  whether that  is the  intent of  the                                                              
slide.                                                                                                                          
                                                                                                                                
MR. BURNETT  agreed.  The  intent is to  show there are  big mines                                                              
and many little  mines, and it takes  many small mines  to make up                                                              
the big  mine.   Plus, there  are many  little mines  that do  not                                                              
make any money at all.                                                                                                          
                                                                                                                                
REPRESENTATIVE  HAWKER said  there are  260 or  more mines  if the                                                              
chart is finished  at the bottom, and these are  fairly de minimis                                                              
in the whole equation.                                                                                                          
                                                                                                                                
MR.  BURNETT  replied  exactly,  and  advised  he  will  send  the                                                              
committee a  document showing  the taxes paid  and income  by size                                                              
within those brackets.                                                                                                          
                                                                                                                                
1:38:13 PM                                                                                                                    
                                                                                                                                
MR.  BURNETT  continued  his presentation,  turning  to  slide  7,                                                              
"Mining  Tax Proposal."    He advised  that  HB  253 proposes  to:                                                              
increase  the  tax rate  on  the  highest  bracket of  net  income                                                              
greater  than $100,000  from 7 percent  to 9  percent; remove  the                                                              
3.5 year  exemption for  startups; require  electronic filing  and                                                              
provide an exemption  process; and add an application  and renewal                                                              
fee for tax license  which is a substitute for  a business license                                                              
at the same  rate as a standard  business license.  He  noted that                                                              
currently mines are exempt from requiring a business license.                                                                   
                                                                                                                                
CO-CHAIR  TALERICO asked  the actual  increase  percentage of  the                                                              
taxes themselves.                                                                                                               
                                                                                                                                
MR.  BURNETT responded  that  dividing  2 by  7  equals 0.28,  and                                                              
advised that it is  accurate to state that it is  an increase of 2                                                              
percent, but it is a 28 percent higher tax rate.                                                                                
                                                                                                                                
1:39:48 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON queried about  the efficiency  of requiring                                                              
a  separate mining  license  that  costs the  same  amount as  the                                                              
business license and exempting mines from the business license.                                                                 
                                                                                                                                
MR.  BURNETT answered  that he  is  uncertain whether  there is  a                                                              
particular efficiency  other than  the fact that  these companies,                                                              
unlike other businesses,  are paying a mining license  tax anyway.                                                              
There  would be  the  same financial  effect  by simply  requiring                                                              
mining operations  to have  a business  license and charging  like                                                              
any  other  business,  and  currently  mines  are  exempt  from  a                                                              
business license requirement.                                                                                                   
                                                                                                                                
REPRESENTATIVE   SEATON  asked   for  information  regarding   the                                                              
efficiency  of having two  different licenses,  and further  asked                                                              
whether the  licenses are issued  by two different agencies  or by                                                              
the same agency.                                                                                                                
                                                                                                                                
MR. BURNETT replied  that the Department of Commerce,  Community &                                                              
Economic Development issues standard business licenses.                                                                         
                                                                                                                                
1:41:34 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER  inquired about  the role of  the Department                                                              
of Commerce, Community & Economic Development on HB 253.                                                                        
                                                                                                                                
FRED  PARADY, Deputy  Commissioner,  Office  of the  Commissioner,                                                              
Department   of  Commerce,   Community   &  Economic   Development                                                              
(DCCED), responded that DCCED's role is around the business tax.                                                                
                                                                                                                                
REPRESENTATIVE HAWKER noted that the business license costs $50.                                                                
                                                                                                                                
MR. PARADY  answered that  he is before  the committee  to support                                                              
this effort.                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HAWKER observed  that  Mr. Burnett's  presentation                                                              
does  not  go into  the  Exploration  Incentive  Credit  provision                                                              
under Title  27.  He asked how  that credit plays into  the mining                                                              
tax as it exists in the state today.                                                                                            
                                                                                                                                
MR. BURNETT deferred to Mr. Fogels.                                                                                             
                                                                                                                                
MR. FOGELS  replied that the  Exploration Incentive  Credit allows                                                              
a company  to deduct up  to $20 million  from its tax  burden once                                                              
production  begins, and the  company's deductions  would  be based                                                              
upon exploration expenses incurred to locate the deposit.                                                                       
                                                                                                                                
1:43:11 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   SEATON  requested  that,   at  some   point,  the                                                              
committee  be  advised  whether  those credits  are  removed  from                                                              
costs assessing  net income or whether  they are reused  and those                                                              
same costs are then lowering net income.                                                                                        
                                                                                                                                
MR.  BURNETT responded  that  he would  get  back specifically  in                                                              
this regard,  but noted that  these are expenditures  occurring in                                                              
years  prior  to  when the  tax  is  being  paid  so it  would  be                                                              
difficult to double them up.                                                                                                    
                                                                                                                                
REPRESENTATIVE   SEATON  requested  that   Mr.  Burnett   let  the                                                              
committee  know whether exploration  costs  can be rolled  forward                                                              
for  subtraction from  when development  takes  place, or  whether                                                              
this is a totally single annual expenditure and income.                                                                         
                                                                                                                                
MR. BURNETT agreed to do so.                                                                                                    
                                                                                                                                
1:44:29 PM                                                                                                                    
                                                                                                                                
MR.   PARADY   returned  to   previous   Representative   Hawker's                                                              
question, and  advised that his presence  is in support  of HB 253                                                              
on  behalf  of  the  administration.   He  said  his  presence  is                                                              
primarily  driven by  his background  of  30 years  in the  mining                                                              
industry.   Although DCCED is not  the bill's home  department, he                                                              
is present in support of the efforts in this regard.                                                                            
                                                                                                                                
REPRESENTATIVE HAWKER replied, "Acknowledging resident expert."                                                                 
                                                                                                                                
1:45:00 PM                                                                                                                    
                                                                                                                                
CO-CHAIR TALERICO,  in regard  to the proposal  to remove  the 3.5                                                              
year  exemption, presumed  that  those are  typically  development                                                              
costs  and that  development  costs are  deducted  from the  gross                                                              
revenue.  He  further presumed that operations  and overhead costs                                                              
are  part of  what  is deducted  from  gross  revenue, along  with                                                              
development  costs  for new  locations  and new  pits.   He  asked                                                              
whether  development costs  of a  mine are what  is covered  under                                                              
the exemption.   He further asked  how it got to one-half  year on                                                              
the exemption.                                                                                                                  
                                                                                                                                
MR. BURNETT  replied that the one-half  year occurred in  1955 and                                                              
has not  been revisited.   The tax is paid  on an annual  basis so                                                              
3.5 years  is awkward  to handle.   He confirmed that  development                                                              
costs are  deductible as  part of the  net income calculation,  so                                                              
the expenses on  the mine site for the purposes of  that mine will                                                              
be deducted.   The  3.5 year  exemption allows  a mine  additional                                                              
return on  capital during the first  few years, but since  this is                                                              
a net  tax it  still would never  bring a  mine below  zero profit                                                              
regardless of the size of the net profit tax.                                                                                   
                                                                                                                                
1:47:14 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOSEPHSON  recalled that  when he asked  Mr. Fogels                                                              
about the  establishment of the  royalty rate, Mr. Fogels  said it                                                              
was designed to  mirror the tax rate.  Since the  current tax rate                                                              
goes up  to 7  percent, he  asked why  it would  not mirror  the 7                                                              
percent  where there  was  net money  income  over  $100,000.   He                                                              
mused  that the  answer  could  be that  it  was designed  in  the                                                              
culture of  the 1872 Mining Act  where there was an  acceptance of                                                              
very low tax rates or great incentives to mine.                                                                                 
                                                                                                                                
MR. FOGELS  answered no,  it is not  mirroring the mining  license                                                              
tax,  per se,  it  is  just that  the  manner  the net  income  is                                                              
determined is the  same determination as under  the mining license                                                              
tax and has no bearing on the 1872 law at all.                                                                                  
                                                                                                                                
REPRESENTATIVE  JOSEPHSON  said he  thought  that  Mr. Fogels  had                                                              
earlier said  it was  designed to  be analogous  to the  3 percent                                                              
rate for  the $40,000-$50,000  mining net  income.  He  reiterated                                                              
that he  had asked Mr.  Fogels where the  3 percent came  from, it                                                              
is one-quarter of a royalty rate for oil.                                                                                       
                                                                                                                                
MR.  FOGELS  responded that  the  3  percent  is in  statute,  and                                                              
statute says it  is a 3 percent of net income  as determined under                                                              
AS 43.65,  which is the mining  license tax.  Therefore,  the rate                                                              
is set  at 3 percent but  the way to  determine the net  income is                                                              
the same determination  as for the mining license tax  part of the                                                              
statute.                                                                                                                        
                                                                                                                                
MR. BURNETT  added that the  royalty rate  applies for all  of the                                                              
income and is  not bracketed at different incomes,  unlike the tax                                                              
which is a progressive profits tax.                                                                                             
                                                                                                                                
1:50:04 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER  asked whether anyone could  recall the name                                                              
of the  lawsuit filed over  royalties that was ultimately  settled                                                              
by  the establishment  of this  royalty structure,  and when  that                                                              
lawsuit was  settled.   He mentioned that  he could  only remember                                                              
that it was  when Jerry Gallagher  was head of mines,  and that he                                                              
would try to track down the information.                                                                                        
                                                                                                                                
MR.  BURNETT  answered  that  he  would also  try  to  locate  the                                                              
information.                                                                                                                    
                                                                                                                                
1:50:46 PM                                                                                                                    
                                                                                                                                
MR. BURNETT  returned to his presentation.   He moved to  slide 8,                                                              
"Relative Mining  Tax Rate,"  and advised  that relative  to other                                                              
taxes, the  mining taxes of most  other states are based  on value                                                              
or tonnage,  not  net income.   For example:   Wyoming  is tax  on                                                              
value that  varies by resource,  2 percent  on sand and  gravel, 7                                                              
percent on  surface coal;  South Dakota is  10 percent  on profits                                                              
or royalties,  $4 per ounce of gold  and not a percentage  at all;                                                              
Wisconsin  is 3  percent  to 15  percent  progressive  tax on  net                                                              
mining  proceeds; and  Colorado is  2.25 percent  of gross  income                                                              
exceeding  $19 million.   He said  he will  provide a  document to                                                              
members showing the severance taxes in all of the other states.                                                                 
                                                                                                                                
REPRESENTATIVE HAWKER  commented that it  would be helpful  to see                                                              
a multi-state  comparison of total  government take in that  it is                                                              
an important distinction here.                                                                                                  
                                                                                                                                
MR. BURNETT replied  that the Senate Resources  Standing Committee                                                              
requested it  be able  to look at  government take  so it  will be                                                              
part of what will be looked at.                                                                                                 
                                                                                                                                
CO-CHAIR TALERICO  said, "We have  kind of a percentage  breakdown                                                              
on the  actual minerals that  are mined."   Wyoming has  a massive                                                              
amount of coal compared to metals, which may tweak things.                                                                      
                                                                                                                                
MR.  BURNETT  responded that  it  is  fairly complex  because  the                                                              
government   take,  especially   in  Alaska,   is  largely   local                                                              
governments,  so it  is not  easy to  get all  of the  information                                                              
necessary  to perform  that calculation.   However,  it should  be                                                              
possible to calculate estimates that make sense.                                                                                
                                                                                                                                
CO-CHAIR TALERICO  asked for the  comparison of the  actual taxes,                                                              
in that  some [states] do  not necessarily do  the net tax  as the                                                              
committee  is discussing,  they  may just  have a  flat 5  percent                                                              
across the board on what they produce....                                                                                       
                                                                                                                                
MR. BURNETT  interjected that it  could be $0.05  a ton.   He said                                                              
the information will be provided to the committee quickly.                                                                      
                                                                                                                                
1:53:17 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON  requested that the structure  of royalty be                                                              
looked  at.   He allowed  it will  be  different in  the Lower  48                                                              
where  subsurface  rights  may not  hold  to  the state,  but  the                                                              
comparisons would be helpful.                                                                                                   
                                                                                                                                
MR.  BURNETT reiterated  that it  is fairly  complex because,  for                                                              
the most part, states do not hold mineral rights as in Alaska.                                                                  
                                                                                                                                
MR. PARADY added  that whether royalty belongs  in government take                                                              
is  a debatable  proposition  in the  context  that royalties  are                                                              
generally  speaking   of  payment  to  ownership   rather  than  a                                                              
taxation that goes  to the state itself.  Particularly,  he added,                                                              
in a  state that has  a land ownership  pattern either  with split                                                              
estate where  the subsurface estate  is separate from  the surface                                                              
estate.   For example, the Union  Pacific Railroad in  Wyoming has                                                              
mineral rights  to 4.4  million acres of  ground and  that royalty                                                              
rate is  8 percent,  where on  federal sections  it is  5 percent,                                                              
and the  difference theoretically  is the difference  in corporate                                                              
income tax  that is paid by that  royalty holder.  There  are huge                                                              
ranges  of influences,  such as  whether discussing  gross or  net                                                              
income, what  point of  valuation is  chosen, and the  combination                                                              
of  the rollup  of local  and state.    He said  the best  summary                                                              
possible  will be  provided, but  noted that  it is  still a  very                                                              
arcane subject matter.                                                                                                          
                                                                                                                                
REPRESENTATIVE  HAWKER advised that  he and Representative  Seaton                                                              
have  a long  history  with  this subject.    He agreed  with  Mr.                                                              
Parady  that   royalty  is   usually  what  represents   ownership                                                              
interest in the severed  resource.  It is unusual for  it to be on                                                              
a net  income basis rather  than at some  calculus that  "when you                                                              
take the  resource from  me, you  leave me  something."   He asked                                                              
whether the  administration has a  position on the propriety  of a                                                              
cross-recovery net profits royalty structure.                                                                                   
                                                                                                                                
MR.  PARADY  replied  no, not  to  his  knowledge,  but it  is  an                                                              
interesting element of the debate.                                                                                              
                                                                                                                                
REPRESENTATIVE HAWKER asked what "no" represented.                                                                              
                                                                                                                                
MR. PARADY responded that "no was a no position."                                                                               
                                                                                                                                
1:56:08 PM                                                                                                                    
                                                                                                                                
MR. BURNETT  turned  to slide 9,  "Impacts of  Tax Proposal,"  and                                                              
resumed his  presentation.   He said that  the effect of  this tax                                                              
proposal  on  large  and  profitable mines,  most  of  which  have                                                              
incomes  above $100,000,  would  be a  rise in  the effective  tax                                                              
rate  from  7 percent  to  approximately  9  percent.   For  small                                                              
mining operations,  there would  be little to  no effect  from the                                                              
tax rate  change; however, removing  the 3.5 year  exemption might                                                              
have some effect  on a startup mine.   He allowed he  is uncertain                                                              
as to  that effect  and suggested  that if  there is an  exemption                                                              
that it be made  in whole years because it is  difficult to cut an                                                              
entity's annual tax in half.                                                                                                    
                                                                                                                                
CO-CHAIR TALERICO  asked whether properties that  are currently in                                                              
the process  of permitting  would be  grandfathered in  should the                                                              
3.5 year exemption be removed.                                                                                                  
                                                                                                                                
MR.  BURNETT answered  that HB  253 has  no grandfather  proposal,                                                              
but  he  understands   why  someone  could  believe   that  was  a                                                              
reasonable issue  to review.  He  pointed out that no  large mines                                                              
are  expected to  come  online in  the next  four  to five  years,                                                              
although,  a number  of mines are  in the  permitting process  and                                                              
have made large investments at this point.                                                                                      
                                                                                                                                
REPRESENTATIVE  HAWKER pointed  out  that the  state  has quite  a                                                              
history of retroactive  implementation and assessment  of taxes on                                                              
one of its  industries, and obviously  it is not being  done here.                                                              
He  asked whether  the  committee  should consider  a  retroactive                                                              
implementation since the interest is really raising revenues.                                                                   
                                                                                                                                
MR. BURNETT replied  that there has been absolutely  no discussion                                                              
of retroactive tax  implications here, nor does  he believe anyone                                                              
has suggested that it would be a good policy in this case.                                                                      
                                                                                                                                
1:58:40 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  TARR referred  to  the suspension  of activity  at                                                              
Nixon Fork  Mine due to low  commodity prices.  She  asked whether                                                              
low  commodity prices  were looked  at when  potential impacts  of                                                              
the bill  were being  assessed.   She surmised  that some  of [the                                                              
proposals] would become less of an issue if prices increased.                                                                   
                                                                                                                                
MR. BURNETT  responded that this is  a net profits tax;  a company                                                              
must actually earn  a profit in order for a tax to  be paid.  High                                                              
commodity prices  cause higher taxes with higher  income, so where                                                              
this tax has an  effect is on the margin in  between profitability                                                              
and lack  of economic return.   There will  always be  a financial                                                              
return on a profit  and loss statement before paying  this tax and                                                              
there  may not  be an  economic  return at  low commodity  prices.                                                              
The  calculus, he  explained, would  be the  difference between  a                                                              
financial and  an economic return  on a specific project.   Mining                                                              
in  2010  had  a  negative  corporate   income  tax,  in  2011  it                                                              
contributed  over $80  million  in corporate  income  tax, and  in                                                              
2014 it was  $15 million.  It  is based on a  company's nationwide                                                              
profitability, so there is a tremendous variability.                                                                            
                                                                                                                                
REPRESENTATIVE SEATON asked if there is a slide of those years.                                                                 
                                                                                                                                
MR.  BURNETT  answered  that  a   sector-by-sector  comparison  of                                                              
corporate income tax returns will be provided.                                                                                  
                                                                                                                                
2:01:30 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOHNSON inquired  as  the amount  of revenue  that                                                              
would be generated should the 3.5 year exemption be removed.                                                                    
                                                                                                                                
MR. BURNETT  replied that, during  the period of the  fiscal note,                                                              
no revenue can be  predicted.  However, when the  next larger, tax                                                              
paying mine  comes onboard,  the state would  receive tax  for 3.5                                                              
years that it would not have otherwise received.                                                                                
                                                                                                                                
REPRESENTATIVE JOHNSON  asked whether it is conceivable  that that                                                              
could be the push point of not starting a mine.                                                                                 
                                                                                                                                
MR. BURNETT answered  that it is economically conceivable,  but he                                                              
does not know whether it would be likely.                                                                                       
                                                                                                                                
REPRESENTATIVE  JOHNSON said  his  question is  whether the  state                                                              
would be putting  up a roadblock  that it may not need  to because                                                              
it is not generating  any revenue for the foreseeable  future.  He                                                              
asked  why remove  the  exemption now  and  run that  risk if  the                                                              
state could remove the exemption later.                                                                                         
                                                                                                                                
MR. BURNETT  allowed that  that is  a reasonable discussion  point                                                              
as the bill  moves in this committee.   He said it is  certainly a                                                              
concern that the mining industry has brought forth.                                                                             
                                                                                                                                
REPRESENTATIVE  JOHNSON  pointed  to  the Nixon  Fork  Mine  being                                                              
suspended due  to low commodity  prices and stated  that obviously                                                              
there is a  balance to not produce  that is fairly fragile  and it                                                              
is a big  decision - it takes a  while to start up.   He expressed                                                              
his  concern  that  this  proposed change  might  have  that  same                                                              
effect.  He opined  that the 3.5 years does not  generate a lot of                                                              
revenue and could  cause more doubts and discussion.   If it would                                                              
generate  millions of  dollars, that  would be  one thing,  but it                                                              
seems this is a gamble for not much [return].                                                                                   
                                                                                                                                
MR. BURNETT  replied  that in  the case  of a large  mine that  is                                                              
profitable  at  inception, this  would  bring  in a  fairly  large                                                              
amount of money.   A large mine is not seen on  the horizon during                                                              
the period  of the fiscal note,  so an estimate cannot  be made on                                                              
what that would be.                                                                                                             
                                                                                                                                
2:04:12 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON  inquired whether  waiting until a  new mine                                                              
is  on   the  horizon  and   then  considering  [removal   of  the                                                              
exemption] would give  more pause to a company  than would knowing                                                              
what  the tax rates  are at  the time  that the  company is  going                                                              
into exploration and development.                                                                                               
                                                                                                                                
MR. BURNETT responded,  "I think it would, I  think you're correct                                                              
there."                                                                                                                         
                                                                                                                                
REPRESENTATIVE  SEATON asked  whether  the 3.5  year exemption  is                                                              
only on the mining license tax or is also on the royalty.                                                                       
                                                                                                                                
MR. BURNETT  answered that,  to his knowledge,  it is only  on the                                                              
mining license tax.  He deferred to Mr. Fogels for confirmation.                                                                
                                                                                                                                
MR. FOGELS  offered his  belief that the  3.5 year exemption  does                                                              
not apply to the royalty.                                                                                                       
                                                                                                                                
REPRESENTATIVE   SEATON  said  it   sounds  like  there   is  some                                                              
question.                                                                                                                       
                                                                                                                                
MR. BURNETT replied, "No, there's no question."                                                                                 
                                                                                                                                
REPRESENTATIVE  SEATON asked  whether  deferring  taxes for  three                                                              
years while a mine  is starting up and then the  mine paying those                                                              
taxes  after starting  up and recovering  its  costs would  aid in                                                              
the decision making  of the companies while still  providing money                                                              
to the state.                                                                                                                   
                                                                                                                                
MR. BURNETT  responded that the  administration will have  to look                                                              
at  that issue.   He  said that  is similar  to how  the 3.5  year                                                              
exemption  works as  a practical  matter now.   He suggested  that                                                              
perhaps the  rate could be set  lower and not have  the exemption,                                                              
or perhaps  the  rate could  be set higher  and exempt  it in  the                                                              
beginning  so quicker  cash  flow  would be  achieved.    It is  a                                                              
calculus between all of those things.                                                                                           
                                                                                                                                
REPRESENTATIVE  SEATON said  he  thinks the  rate  is a  different                                                              
calculation than  a deferral, so that the state  actually receives                                                              
the  money but  that the  economics  of the  development would  be                                                              
stimulated.   He requested  Mr. Burnett  to review his  suggestion                                                              
and get back to the committee.                                                                                                  
                                                                                                                                
MR. BURNETT agreed to do so.                                                                                                    
                                                                                                                                
2:07:12 PM                                                                                                                    
                                                                                                                                
MR.  BURNETT continued  his presentation.   Turning  to slide  10,                                                              
"Revenue Impact,"  he said  DOR estimates this  would bring  in an                                                              
additional  $6 million  per  year beginning  in  fiscal year  (FY)                                                              
2018  and would  be highly  variable  over time  due to  commodity                                                              
prices.   It would also  bring in an  additional $25,000  per year                                                              
from the  license fee and  renewal.  He  noted that this  does not                                                              
account for any  changes in mining activity that  may occur either                                                              
as a result of the bill or other unrelated factors.                                                                             
                                                                                                                                
REPRESENTATIVE HAWKER  asked whether the $25,000  increment on the                                                              
renewal fee would cover the cost of administering this program.                                                                 
                                                                                                                                
MR. BURNETT  believed that DOR  is estimating no  additional costs                                                              
for administering this program on an annual basis.                                                                              
                                                                                                                                
REPRESENTATIVE  HAWKER surmised  that would  be incremental  costs                                                              
of  administering this  program.    He asked  what  the costs  are                                                              
today for administrating the tax program.                                                                                       
                                                                                                                                
MR. BURNETT  replied  that he  does not  know off  the top of  his                                                              
head, but  noted that  the cost of  administrating the  program is                                                              
in DOR's  annual report of  tax operations  and it shows  the cost                                                              
per dollar  of administering  each of the  tax types that  DOR has                                                              
and  how many  full-time  equivalents  (FTEs).   He  said he  will                                                              
provide the information to the committee.                                                                                       
                                                                                                                                
REPRESENTATIVE JOHNSON  recalled that when Governor  Walker rolled                                                              
out his  plan he  said the  mining tax  or the  license tax  would                                                              
generate  $11-$12  million.   He  observed  that  [page 2  of  the                                                              
fiscal  note] states  $5.9 million  in FY 2018  and asked  whether                                                              
something has changed.                                                                                                          
                                                                                                                                
MR. BURNETT  responded he  believes that what  has changed  is the                                                              
expected values  of mining, it is  a commodity price issue.   Like                                                              
other commodity  industries, commodity  prices have  declined over                                                              
time, although  gold has  gone back  up in value  a bit  in recent                                                              
days.   This tax will  be volatile based  on commodity  prices and                                                              
activity, he explained.                                                                                                         
                                                                                                                                
2:09:53 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HAWKER noted  that  currently the  state does  not                                                              
have a business  license charge [for mines].   He inquired whether                                                              
the  $50  fee,  if implemented,  would  be  administrated  by  the                                                              
Department  of  Revenue  or  moved   over  to  the  Department  of                                                              
Commerce,  Community  &  Economic   Development  where  all  other                                                              
business licenses are administrated.                                                                                            
                                                                                                                                
MR.  BURNETT  understood it  would  be  done  along with  the  tax                                                              
filings, so would be under the Department of Revenue.                                                                           
                                                                                                                                
REPRESENTATIVE HAWKER  surmised that  with the additional  fee the                                                              
state would  not be incrementing  the cost of providing  services,                                                              
but would simply be adding a line on a tax returns.                                                                             
                                                                                                                                
MR.  BURNETT  answered,  "Pretty  much,  yeah, I  think  that's  a                                                              
relatively simple way to look at it, yes."                                                                                      
                                                                                                                                
2:11:03 PM                                                                                                                    
                                                                                                                                
MR. BURNETT  returned to his  presentation.  Addressing  slide 11,                                                              
"Implementation  Cost," he  said  there will  be  a one-time  cost                                                              
[$100,000]   to  reprogram   the   system,   with  no   additional                                                              
incremental costs to administer the tax program.                                                                                
                                                                                                                                
MR.  BURNETT turned  to slides  12-13, "Closing  the Budget  Gap,"                                                              
and  stated that  the  [FY 2017  baseline  revenue after  proposed                                                              
legislation] would  be $4.285 billion based on  the assumptions of                                                              
Governor  Walker's  program  of the  [proposed]  Alaska  Permanent                                                              
Fund Protection  Act, revenue  from existing  taxes and  fees, and                                                              
earnings on savings.   Spending reductions in FY  2017 would total                                                              
$500  million.   New  revenues  from  the  proposals would  be  as                                                              
follows:   mining [starting  in  2018] at $6  million; fishing  at                                                              
$18 million;  tourism at $15 million;  motor fuel at  $49 million;                                                              
alcohol  at $40  million; tobacco  at $29  million; oil  & gas  at                                                              
$200 million;  and income tax  [half in  FY 2017; first  full year                                                              
is FY 2018]  at $200 million.   The total with reductions  and new                                                              
revenues would be $5.242 billion.                                                                                               
                                                                                                                                
REPRESENTATIVE HAWKER  observed from slide 12 that  reformation of                                                              
the  oil and  gas credits  is being  characterized  as a  spending                                                              
reduction due  to being refundable  tax credits.  He  posited that                                                              
those are  really a tax increase  upon those companies  that would                                                              
not be receiving the benefit of those credits.                                                                                  
                                                                                                                                
MR.  BURNETT replied  that the  refundable tax  credits have  been                                                              
shown  as  a  budget  item  in  the  operating  budget  since  the                                                              
inception  of  the  refundable   credits  in  approximately  2006.                                                              
Therefore,  even though  it  is shown  differently  to the  extent                                                              
that  those  are a  budgetary  item  on  an  annual basis,  it  is                                                              
correct to characterize them both directions.                                                                                   
                                                                                                                                
REPRESENTATIVE  HAWKER  quipped  that  Mr.  Burnett  offered  that                                                              
explanation with almost a straight face.                                                                                        
                                                                                                                                
2:13:47 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  TARR   referred  to  slide  10  and   offered  her                                                              
understanding that  there currently is  no mining license  fee, so                                                              
the  proposal is  to  go  with [$50]  because  that  is the  other                                                              
established license  fee, and that  the [annual] renewal  would be                                                              
$50.   This  fee is  small,  she posited,  particularly  in a  net                                                              
profits based  tax system where  the only revenue the  state might                                                              
receive would  be through this license.   She asked  whether there                                                              
had been any consideration of something similar to 2016 pricing.                                                                
                                                                                                                                
MR.  BURNETT answered  not at  this time.   He  believed that  the                                                              
discussion was to  match this with any other  business activity in                                                              
the state,  because the  state is  going to  tax their  profits so                                                              
the state would license a mine just like any other business.                                                                    
                                                                                                                                
2:14:51 PM                                                                                                                    
                                                                                                                                
MR.  BURNETT  resumed  his presentation  to  provide  a  sectional                                                              
analysis  of  HB  253 as  outlined  on  slides  14-16,  "Sectional                                                              
Analysis."   He  explained the  sections  as follows.   Section  1                                                              
would  add the  tax  penalty for  failure  to file  electronically                                                              
unless  an  exemption  is  received.    Section  2  would  require                                                              
electronic  submission of  tax returns,  license application,  and                                                              
other  documents submitted.   This  would change  the general  tax                                                              
statutes so it  would be applicable to all the  taxes administered                                                              
by the  Department of  Revenue This section  would also  provide a                                                              
process to request  an exemption.  Section 3 would  remove the 3.5                                                              
year  exemption from  the  mining tax  for  new mining  operations                                                              
until  after production  begins, and  any persons  engaged in  the                                                              
business  of mining  would be  required  to obtain  a license  and                                                              
file  an annual  mining license  tax return.   He  said he  thinks                                                              
there is something wrong in this paragraph and he will fix it.                                                                  
                                                                                                                                
REPRESENTATIVE  JOSEPHSON   noted  that  the  first   sentence  of                                                              
Section 3  implies that there would  be a 3.5 year  exemption once                                                              
production begins.   However, the  administration is  proposing to                                                              
eliminate that exemption.                                                                                                       
                                                                                                                                
MR. BURNETT  apologized that the  sentences are written  awkwardly                                                              
and said  the sentences  need to  be rewritten  to properly  match                                                              
what he is trying to say.                                                                                                       
                                                                                                                                
2:16:16 PM                                                                                                                    
                                                                                                                                
MR.  BURNETT turned  to slide  15 to  continue his  review of  the                                                              
Sectional  Analysis.    He  said  Section  4  would  increase  the                                                              
highest tax rate  from 7 percent to 9 percent  for taxable income,                                                              
which is a 2 percent increase or 28 percent increase.                                                                           
                                                                                                                                
2:16:28 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON  understood that the mining  and license tax                                                              
would be done at  the same time the company files  its tax return.                                                              
He inquired whether  that means the company would be  mining for a                                                              
year  without a  license  or whether  there  would  be an  initial                                                              
license  that must  be applied  for  and then  the state  performs                                                              
renewals with the tax return.                                                                                                   
                                                                                                                                
MR. BURNETT offered  his understanding that DOR  would assess this                                                              
on the  first tax  return after  the effective  date of  the bill,                                                              
not prior to going into business.                                                                                               
                                                                                                                                
REPRESENTATIVE SEATON  asked whether that is  totally antithetical                                                              
to the  state's business  licenses, which is  that a  company must                                                              
have a business  license before conducting business  in the state.                                                              
He said  it appears to  be a mismatch even  though the idea  is to                                                              
treat them the same.                                                                                                            
                                                                                                                                
MR. BURNETT  replied it would  do two things:  it would  delay the                                                              
implementation  of the business  license until  that time;  and it                                                              
would  make  it  possible  for  DOR  to  administer  this  program                                                              
without  additional  costs  to   the  program.    He  agreed  with                                                              
Representative  Seaton that  it would  push out  the time,  but it                                                              
would  make it  a more  efficient  process  to do  the mining  tax                                                              
license fee.                                                                                                                    
                                                                                                                                
2:18:14 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HAWKER inquired  as to how  thoroughly DOR  audits                                                              
the mining license tax returns.                                                                                                 
                                                                                                                                
MR.  BURNETT responded  that he  will  get back  to the  committee                                                              
with an  answer.   He said other  than the  large taxpayers  it is                                                              
not something  that  would be a  high priority  relative to,  say,                                                              
oil and gas,  or corporate income  tax.  Audits are  performed and                                                              
in the  past taxpayers were identified  as a result  of activities                                                              
by DOR  and the  taxpayers were  brought into  compliance.   It is                                                              
not like oil and gas where every return is audited.                                                                             
                                                                                                                                
REPRESENTATIVE  HAWKER  asked  whether  there is  a  provision  in                                                              
statute that  says the  state is  required to  assess the  cost of                                                              
whatever  audit DOR  performs  against the  taxpayer  that DOR  is                                                              
auditing.                                                                                                                       
                                                                                                                                
MR.  BURNETT answered  that  he cannot  answer  because he  cannot                                                              
recall how that section reads.                                                                                                  
                                                                                                                                
2:19:31 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOHNSON  stated, "If we  could carry the  logic out                                                              
of what Representative  Seaton said, if we just did  that with all                                                              
business licenses we could get rid of the licensing division."                                                                  
                                                                                                                                
MR. BURNETT  replied  that it  would be  a very simple  task  if a                                                              
business  tax was  to be  established  on all  businesses so  that                                                              
sometime  within the  annual cycle  they all  have to  file a  tax                                                              
return.  Currently they do not have to file a tax return.                                                                       
                                                                                                                                
REPRESENTATIVE JOHNSON said it might be something to look at.                                                                   
                                                                                                                                
REPRESENTATIVE OLSON suggested putting it on a calendar year.                                                                   
                                                                                                                                
2:20:16 PM                                                                                                                    
                                                                                                                                
MR.  BURNETT  continued   his  presentation  and   review  of  the                                                              
sectional analysis.   He  returned to slide  15 and  explained the                                                              
following:    Section 5  would  conform  language related  to  the                                                              
requirement to submit  tax returns or reports electronically.   It                                                              
would delete the  current requirement that taxpayers  their submit                                                              
returns to  the department in Juneau.   Section 6  would establish                                                              
the mining license  fee at $50 per year, a license  renewal fee at                                                              
$50, and  would change the due  date for application  and renewals                                                              
from May 1 to January 1.                                                                                                        
                                                                                                                                
2:20:42 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER  surmised the  intention is that  this would                                                              
be  assessed on  the  tax return  regardless  of  whether the  tax                                                              
return  showed no  taxes were  owed due  to any  of the  available                                                              
credits or exemptions in current statute.                                                                                       
                                                                                                                                
MR. BURNETT responded that that is his understanding of it.                                                                     
                                                                                                                                
REPRESENTATIVE  HAWKER asked  whether  under  current law  someone                                                              
with  no  liability is  not  required  to  file  a tax  return  or                                                              
whether anyone  with activity must  file and demonstrate  whatever                                                              
degree of taxable offset that the taxpayer might have.                                                                          
                                                                                                                                
MR. BURNETT understood  that people engaged in  a mining operation                                                              
are  supposed to  file a  tax return.   He  noted that  DOR has  a                                                              
number of zero and below zero returns.                                                                                          
                                                                                                                                
2:21:46 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE OLSON  asked what the cost is to DOR  of handling a                                                              
$50 transaction every year.                                                                                                     
                                                                                                                                
MR. BURNETT  answered he does  not believe it  will cost much   at                                                              
all  if it  is handled  electronically through  the filing  system                                                              
and assessed  with all  the other applications,  so it  should not                                                              
be anything that shows an incremental cost.                                                                                     
                                                                                                                                
2:22:17 PM                                                                                                                    
                                                                                                                                
MR.  BURNETT  resumed his  review  of  the sectional  analysis  on                                                              
slides 15-16.   He explained the  sections as follows.   Section 7                                                              
would conform language  related to the repeal of the  3.5 year tax                                                              
exemption.   Section 8  is the applicability  language  that would                                                              
clarify  that the  change  in Section  3 would  apply  to all  new                                                              
mining operations.   Section 9 is transition language  so that the                                                              
language that would  be repealed in Section 7 would  be read as it                                                              
was before  the effective  date while  administering a  tax credit                                                              
to a  person who  began a  mining operation  before the  effective                                                              
date.   Section 10 is transitional  language that would  allow for                                                              
regulations prior to  the effective date of the bill.   Section 11                                                              
would provide  that Section 10  would take effect  immediately for                                                              
the  transitional   language.     Section  12  would   provide  an                                                              
effective date  [of 7/1/16]  for the rest  of the bill,  including                                                              
the tax rate change.                                                                                                            
                                                                                                                                
MR.  BURNETT  concluded  by  stating  that  he  will  provide  the                                                              
committee with the documents and information requested.                                                                         
                                                                                                                                
2:23:27 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON  asked whether there are any  other purposes                                                              
or  implications,  other  than  the fee,  for  having  a  business                                                              
license  versus  not having  a  business  license.   For  example,                                                              
whether a  company is required  to have personnel  withholdings or                                                              
workers' compensation.                                                                                                          
                                                                                                                                
MR. PARADY  replied he  will need  to get a  deeper answer  to the                                                              
question  relative  to  workers' compensation  because  DCCED  has                                                              
roughly   67,000   business   licenses    in   the   Division   of                                                              
Corporations, Business and Professional Licensing (CBPL) group.                                                                 
                                                                                                                                
REPRESENTATIVE SEATON  commented that  he is trying  to understand                                                              
the  mining  license and  how  that  corresponds with  a  business                                                              
license, and  the implications  of having  a business  license and                                                              
not having a business license.                                                                                                  
                                                                                                                                
2:24:41 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  TARR referred  to  the issue  of commodity  prices                                                              
and   requested  that   the   committee  receive   more   detailed                                                              
information regarding  anticipated revenue as to the  changes of a                                                              
25  percent  to 30  percent  increase  in commodity  prices,  gold                                                              
probably being the most relevant.                                                                                               
MR.  BURNETT agreed  to  do  some of  that,  but pointed  out  the                                                              
highest value mineral  in Alaska might be zinc or  some other non-                                                              
gold mineral.  Even  though gold is thought of  being valuable, it                                                              
does not have the volume that the others do.                                                                                    
                                                                                                                                
REPRESENTATIVE TARR  suggested that the mineral resource  with the                                                              
most activity in Alaska be used.                                                                                                
                                                                                                                                
2:25:38 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOSEPHSON  referred  to  Bob  Loeffler's  previous                                                              
presentation  regarding   the  impact  of  mining,   tourism,  and                                                              
fisheries  on Alaska's  revenue.   He stated  he is still  curious                                                              
about the  derivation of the 28  percent increase or  2 percentage                                                              
points.  He  related that from his  tour of the Fort  Knox Mine it                                                              
was obviously a  massive capital expenditure investment  and in an                                                              
amateur's  eye it  appeared to  be more  costly than  oil and  gas                                                              
although he  is unsure of that.   Purely anecdotally,  he surmised                                                              
that the  environmental residual  risk in  mining is greater  than                                                              
that  of oil  and gas,  although  he could  be wrong  since it  is                                                              
known from Alaska's  legacy wells that there's  environmental risk                                                              
that continues.   He asked  how the 2  percent figure  was arrived                                                              
at rather than some other number.                                                                                               
                                                                                                                                
MR.  BURNETT responded  that he  cannot comment  directly on  that                                                              
specific number  at this point,  but will provide  the information                                                              
that was used to make those decisions.                                                                                          
                                                                                                                                
2:27:16 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   SEATON  observed  the   statement  on   slide  16                                                              
regarding Section  9 and understood  that the 3.5  year transition                                                              
language would apply  "while administering a certain  tax credit."                                                              
He asked  whether this  is the  mining exploration  credit  of $20                                                              
million carried  forward.   He further asked  how long  that would                                                              
be carried into a project.                                                                                                      
                                                                                                                                
MR. BURNETT  answered he  will get  back to  the committee  on the                                                              
specifics,  but   the  intention  is  to  not   change  the  rules                                                              
retroactively  in this  particular  case so  that it  is read  the                                                              
same as it was before.                                                                                                          
                                                                                                                                
REPRESENTATIVE  SEATON asked how  far into  the future  this could                                                              
apply and  whether it means  that this  would apply to  any mining                                                              
claim even if production  is not started within the  next three to                                                              
five years.   He stated he  does not understand the  parameters of                                                              
Section 9.                                                                                                                      
                                                                                                                                
CO-CHAIR  TALERICO   requested  a   clear  definition   of  mining                                                              
production.                                                                                                                     
                                                                                                                                
REPRESENTATIVE   TARR  requested  that   the  committee   also  be                                                              
provided  with the  relative volumes  of extraction  on an  annual                                                              
basis so members can think about how the price relates to that.                                                                 
                                                                                                                                
2:29:25 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HAWKER  put  forward   that  increased  taxes  are                                                              
something  to  seriously  consider   when  reviewing  the  state's                                                              
current fiscal situation.   He said what he sees  here is that the                                                              
administration is  looking at increasing  taxes across  the board,                                                              
basically,  on the production  of minerals.   He inquired  whether                                                              
the  administration has  considered reducing  or compromising  the                                                              
major tax credits  that are taken and available  against this; for                                                              
example, the education tax credit.                                                                                              
                                                                                                                                
MR. BURNETT  replied that  serious consideration  to removing  the                                                              
education tax credit  has not been done, although it  is worthy of                                                              
discussions  because  the education  tax  credit  is available  on                                                              
just about all  the forms of business taxation  and therefore does                                                              
have an effect at times.                                                                                                        
                                                                                                                                
REPRESENTATIVE  HAWKER  recounted  that the  education  credit  on                                                              
mining  expired in  2013 and was  reauthorized  through 2021.   He                                                              
described  it as  something the  legislature has  done when  times                                                              
are particularly  good.  He requested  that this be  considered in                                                              
regard to achieving parity amongst taxpayers in Alaska.                                                                         
                                                                                                                                
REPRESENTATIVE  SEATON  recalled,  with regard  to  Representative                                                              
Hawker's statement,  that members  were specifically looking  at a                                                              
mining program  that wanted to have  the tax credits go  up to $10                                                              
million because  there was  an initiative to  do a certain  mining                                                              
school product.   He agreed  that times  were good, the  state had                                                              
money  and wanted  to stimulate  things, but  within this  current                                                              
fiscal  situation the  question  is whether  the  state can  still                                                              
afford to  have those  credits on  the books and  being used.   He                                                              
explained that  education tax credits  are a redirection  of taxes                                                              
that  the  taxpayers would  be  paying  to  the state  to  another                                                              
institution.   He said  that he  looks forward  to the  department                                                              
coming back to the committee with ideas.                                                                                        
                                                                                                                                
REPRESENTATIVE HAWKER  clarified that the 2010 increase  moved the                                                              
education  tax credit  up  from $150,000  annually  to $5  million                                                              
annually, not $10 million.                                                                                                      
                                                                                                                                
REPRESENTATIVE SEATON  recalled that the $10 million  was actually                                                              
put forward  on the table at the  time of the discussions,  and it                                                              
was $5 million that was settled on.                                                                                             
                                                                                                                                
[HB 253 was held over.]                                                                                                         

Document Name Date/Time Subjects
HB253 ver A.pdf HRES 2/15/2016 1:00:00 PM
HB 253
HB253 Sponsor Statement - Governor's Transmittal Letter.pdf HRES 2/15/2016 1:00:00 PM
HB 253
HB253 Sectional Analysis.pdf HRES 2/15/2016 1:00:00 PM
HB 253
HB253 Fiscal Note-0924-DOR-TAX-01-13-16.pdf HRES 2/15/2016 1:00:00 PM
HB 253
HB 253 Tax presentation MINING 1-29-16 ka.pdf HRES 2/15/2016 1:00:00 PM
HB 253