Legislature(2015 - 2016)BARNES 124

03/28/2016 01:00 PM RESOURCES

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Moved HB 373 Out of Committee
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
        HB 253-ELCTRNC TAX RETURN;MINING LIC. TAX & FEES                                                                    
2:01:05 PM                                                                                                                    
CO-CHAIR TALERICO  announced that the  final 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."                                                                                                         
CO-CHAIR NAGEAK  moved to adopt the proposed  committee substitute                                                              
for HB 253,  Version 29-GH2924\N, Nauman, 3/17/16,  as the working                                                              
REPRESENTATIVE HERRON objected for discussion.                                                                                  
2:01:50 PM                                                                                                                    
JULIE MORRIS, Staff,  Representative David Talerico,  Alaska State                                                              
Legislature,  reviewed  the changes  that  would  be made  to  the                                                              
original bill  by the proposed  committee substitute (CS).   Under                                                              
Version  N:    Section  1  is  deleted,  thereby  eliminating  the                                                              
penalty if  a taxpayer  fails to  electronically submit  a return;                                                              
Section 2  is deleted,  thereby eliminating  the requirement  that                                                              
taxpayer  returns  be  submitted   electronically;  Section  3  is                                                              
amended to  leave a three year  exemption rather than a  three and                                                              
one-half year  exemption; Section 4  is amended by changing  the 9                                                              
to 8  of the  excess net income  over $100,000;  Section 5  is not                                                              
changed;  Section  6  is  not  changed;   Section  7  repeals  the                                                              
deletion to  the exemption as related  to the bill for  the period                                                              
of exemption  in Section 3;  Section 8  is amended to  reflect the                                                              
exemption  being  retained;  Section  9  is  deleted  because  the                                                              
period of  exemption from  tax is retained;  and Sections  10, 11,                                                              
and 12  are not changed  and provide  for transition  language and                                                              
effective dates.                                                                                                                
2:03:20 PM                                                                                                                    
REPRESENTATIVE  SEATON pointed  out that  his sectional only  goes                                                              
through Section 8.                                                                                                              
MS. MORRIS offered to read the sectional that she has.                                                                          
REPRESENTATIVE TARR  noted that the actual bill of  Version N only                                                              
goes to Section 8.                                                                                                              
MS.  MORRIS  explained that  she  put  the  actual bill  into  the                                                              
sectional  analysis,  the  changes   are  meant  to  reflect  what                                                              
happened.  The sectional analysis is for Version N.                                                                             
REPRESENTATIVE CHENAULT asked what version the committee is on.                                                                 
MS.  MORRIS  responded that  the  committee  is on  the  sectional                                                              
analysis for Version N.                                                                                                         
REPRESENTATIVE  CHENAULT  observed that  Version  A [the  original                                                              
bill], goes to Section 12 and Version N only goes to Section 8.                                                                 
MS. MORRIS answered correct.                                                                                                    
REPRESENTATIVE TARR noted Sections 9, 10, and 11 were deleted.                                                                  
MS. MORRIS replied correct.                                                                                                     
CO-CHAIR TALERICO  pointed out that there are  only eight sections                                                              
in Version N.                                                                                                                   
2:05:37 PM                                                                                                                    
REPRESENTATIVE  SEATON referred  to Version N,  page 2,  lines 17-                                                              
18,  Applicability,  and  asked  whether  [AS  43.65.010(a)]  only                                                              
applies to those  that begin production on or after  that date and                                                              
therefore if  a mining operation  was in operation before  that it                                                              
would not ever have to get a mining license.                                                                                    
MS. MORRIS  responded that the uncodified  law in Section  5 would                                                              
add  an  applicability  to  that   section  that  relates  to  the                                                              
exemption  period  under  [AS  43.65.101(a)];   [AS  43.65.010(c)]                                                              
would be  applicable to the  net income  of the taxpayer  from the                                                              
property in  the state during the  taxable year that begins  on or                                                              
after the effective date in Section 2.                                                                                          
REPRESENTATIVE SEATON  referred to  subsection (b) [page  2, lines                                                              
19-21],  and agreed  that  it begins  on  or  after the  effective                                                              
date,  which  is  every  taxable  year.    He  asked  whether  the                                                              
applicability  of "section  (a)"  applies only  to  the three  and                                                              
one-half  years   or  does   it  apply   to  the  mining   license                                                              
requirement, which is "section (a)."                                                                                            
CO-CHAIR  TALERICO  requested  Mr.  Jerry Burnett  to  answer  the                                                              
JERRY BURNETT,  Deputy Commissioner,  Office of the  Commissioner,                                                              
Department of Revenue  (DOR), stated DOR is reading  this as being                                                              
clear that the  intent of Section 5  is to apply to  the three and                                                              
one-half year tax  holiday on new production, which  is changed to                                                              
a three year  holiday [in Version  N], and the license  applies to                                                              
each  year thereafter.    He advised  the  department will  review                                                              
this carefully given DOR just saw it this morning.                                                                              
2:09:13 PM                                                                                                                    
REPRESENTATIVE  TARR posited  it  is an  issue  because Version  N                                                              
removes the  three and one-half  year exemption from  the original                                                              
bill and so  it makes that section  just about having  to obtain a                                                              
mining  license.    In  Version  N  that  section  is  about  both                                                              
obtaining a license  and the three year exemption.   She suggested                                                              
that it  be split into  two sections to  make it clear  that every                                                              
mining operation  would have to  obtain a license versus  how long                                                              
of an exemption  period there would  be for taxes.   Otherwise, as                                                              
questioned  by Representative  Seaton,  it  sounds  like a  mining                                                              
operation would  not have to  get a mining  license unless  it was                                                              
on  or  after the  effective  date  and  therefore there  are  two                                                              
separate things in that one section.                                                                                            
MR.  BURNETT   answered  that  AS   43.65.010(c)  is   the  second                                                              
applicability,  which  is the  new  license fee  every  year.   He                                                              
reiterated  that the department  will have  its attorneys  look at                                                              
this carefully  before the next  meeting, but in talking  with the                                                              
sponsor's staff this morning it is clear what the intent is.                                                                    
REPRESENTATIVE JOSEPHSON  stated he has concerns  about the timing                                                              
and  impact, but  surmised that  Section  8 would  make Section  5                                                              
applicable July 1,  2016.  The question is whether  it is existing                                                              
mines  or the  license requirement  is for  future licensees,  but                                                              
that the effective date appears to be July 1, 2016.                                                                             
MR. BURNETT replied yes, that is what it says.                                                                                  
2:11:24 PM                                                                                                                    
REPRESENTATIVE  TARR  inquired   about  any  fiscal  note  changes                                                              
between the  original bill and Version  N.  She recalled  that the                                                              
fiscal  note for  the original  bill was  about $6  million.   She                                                              
asked whether  there are any  estimates on  the change from  the 9                                                              
in the original bill to the 8 in Version N.                                                                                     
MR. BURNETT  responded that in fiscal  year (FY) 2018,  since this                                                              
would not  be collected  until a  year after  it starts,  it looks                                                              
like approximately  $3.6 million and  then $3.2 million, so  it is                                                              
about  one-half of  what it  was, because  it is  now a 1  percent                                                              
change instead  of a 2 percent change.   It varies based  on DOR's                                                              
current  commodity   price  estimates  and   production  estimates                                                              
between $2.8  million and $3.6 million  per year over the  life of                                                              
the fiscal  note.  The department  will provide a new  fiscal note                                                              
at the next  meeting as it was  difficult to prepare a  new fiscal                                                              
note given the CS was only received this morning.                                                                               
2:12:42 PM                                                                                                                    
REPRESENTATIVE  JOSEPHSON  understood that  when  the Donlin  Gold                                                              
Mine becomes operational  it will become the largest  gold mine in                                                              
the world.   He  said he is  still looking  for comfort  that when                                                              
the gold  is removed  and severed  from Alaska  that Alaskans  are                                                              
getting  their  fair share.    He asked  how  he should  go  about                                                              
figuring this out.                                                                                                              
MR.  BURNETT recounted  that DOR  earlier  provided the  committee                                                              
with  a  number  of documents  about  comparative  tax  rates  for                                                              
Canada  and states  in the  U.S.   He agreed  it is  a dilemma  to                                                              
figure  out because  each mine  is clearly  unique, and  obviously                                                              
the  governor  felt  that  the 9  percent  rate  was  appropriate.                                                              
Donlin  Gold Mine  is  the  largest gold  mine,  Red  Dog Mine  is                                                              
certainly  one of  the  largest zinc  mines  anywhere, and  Greens                                                              
Creek  Mine  is  the  largest  silver   producing  mine  in  North                                                              
America.  The discussion  here is not about small  mines but about                                                              
large amounts of minerals being taken from the state.                                                                           
2:14:21 PM                                                                                                                    
REPRESENTATIVE HERRON  removed his  objection to adopt  Version N.                                                              
There  being  no  further  objection, Version  N  was  before  the                                                              
committee as its working document.                                                                                              
2:15:14 PM                                                                                                                    
REPRESENTATIVE  TARR  observed that  Version  N would  remove  the                                                              
requirement  for electronic  submission.   She  posited that  this                                                              
requirement did  not seem  troublesome for large-sized  companies.                                                              
She recalled  that the  state previously spent  a large  amount of                                                              
money   upgrading  and   implementing   DOR's   database  to   get                                                              
everything  in one  place and  understand  it better.   She  asked                                                              
what  the  reasoning  was  for removing  this  requirement.    She                                                              
related she  does understand possibly  delaying a penalty  until a                                                              
new program has  been implemented and people  given an opportunity                                                              
to  participate,  but that  [removing  the  electronic  submission                                                              
requirement]  does not  seem to  be moving in  the direction  that                                                              
the department wanted to go.                                                                                                    
MS. MORRIS explained  this provision was taken out  of the bill at                                                              
the  recommendation of  Legislative Legal  and Research  Services,                                                              
because Sections 1  and 2 apply to any tax return  or report to be                                                              
submitted  under  AS  32,  not  just  returns  for  mining  taxes.                                                              
However,  the bill  only  amends  filing requirements  related  to                                                              
mining taxes and  there are several other sections  of the tax law                                                              
that should  be changed to  accommodate the new  electronic filing                                                              
requirements.   So, Legislative  Legal and  Research Services  has                                                              
advised  that a separate  bill is  needed to  address that  issue.                                                              
She offered to provide the legal memorandum to the committee.                                                                   
REPRESENTATIVE   OLSON   asked   whether   a  separate   bill   is                                                              
[Response to question unclear on audio.]                                                                                        
CO-CHAIR TALERICO  advised that  all members  will receive  a copy                                                              
of the legal memorandum.                                                                                                        
CO-CHAIR TALERICO held over HB 253.