Legislature(2015 - 2016)BARNES 124

03/31/2016 01:00 PM RESOURCES

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Delayed to 1:30 p.m. Today --
-- Will be Continued from 3/30/16 --
+= HB 253 ELCTRNC TAX RETURN;MINING LIC. TAX & FEES TELECONFERENCED
Moved CSHB 253(RES) Out of Committee
+= HB 286 FISH & GAME: OFFENSES;LICENSES;PENALTIES TELECONFERENCED
Moved CSHB 286(RES) Out of Committee
-- Public Testimony --
+ Bills Previously Heard/Scheduled TELECONFERENCED
        HB 253-ELCTRNC TAX RETURN;MINING LIC. TAX & FEES                                                                    
                                                                                                                                
1:35:32 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  TALERICO announced  that  the first  order of  business                                                               
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."  [Before the committee  was the proposed                                                               
committee  substitute  (CS)  for  HB  253,  Version  29-GH2924\N,                                                               
Nauman, 3/17/16, adopted as the working document on 3/28/16.]                                                                   
                                                                                                                                
CO-CHAIR TALERICO  advised that  the committee will  continue its                                                               
consideration of amendments to HB 253, Version N.                                                                               
                                                                                                                                
1:36:00 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOSEPHSON moved  to adopt  Amendment 10,  labeled                                                               
29-GH2924\N.4, Nauman, 3/29/16, which read:                                                                                     
                                                                                                                                
     Page 1, line 2, following "fees;":                                                                                       
          Insert "relating to the computation of depletion                                                                    
     for purposes of the mining license tax;"                                                                                 
                                                                                                                                
     Page 2, following line 4:                                                                                                  
     Insert a new bill section to read:                                                                                         
           "* Sec. 3. AS 43.65.010(e) is repealed and                                                                       
     reenacted to read:                                                                                                         
          (e)  The allowance for depletion shall be                                                                             
       computed and deducted on the cost depletion basis                                                                        
     under 26 U.S.C. 612 (Internal Revenue Code)."                                                                              
                                                                                                                                
     Renumber the following bill sections accordingly.                                                                          
                                                                                                                                
     Page 2, following line 21:                                                                                                 
     Insert a new subsection to read:                                                                                           
          "(c)  The change made by the repeal and                                                                               
      reenactment of AS 43.65.010(e) by sec. 3 of this Act                                                                      
        applies to a tax year beginning on or after the                                                                         
     effective date of sec. 3 of this Act."                                                                                     
                                                                                                                                
     Page 2, line 28:                                                                                                           
          Delete "Section 6"                                                                                                    
          Insert "Section 7"                                                                                                    
                                                                                                                                
     Page 2, line 29:                                                                                                           
          Delete "sec. 7"                                                                                                       
          Insert "sec. 8"                                                                                                       
                                                                                                                                
REPRESENTATIVE HERRON objected for discussion purposes.                                                                         
                                                                                                                                
1:36:15 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOSEPHSON explained that  one element of Amendment                                                               
10  would take  the depletion  allowance  and change  it to  only                                                               
include a cost, not percent  depletion.  He paraphrased a portion                                                               
of the committee's  hearing minutes of 2/17/16,  page 14, wherein                                                               
Mr.  Spanos indicated  that the  amount for  percentage depletion                                                               
can  actually  exceed  actual  costs  and  called  the  depletion                                                               
allowance its  own line item  expense.   Representative Josephson                                                               
then recalled that the committee's  substitute for HB 247 stopped                                                               
gross value  reduction (GVR)  and net  operating loss  from being                                                               
combined to  create a loss greater  than the actual loss.   Thus,                                                               
one element of the amendment  to only include cost depletion, not                                                               
percentage depletion.  He further  recalled the department saying                                                               
it is complicated when it has  returns where there is that switch                                                               
back and  forth.  Currently,  the percentage  depletion allowance                                                               
allows  the producer  to reduce  gross income  by 15  percent for                                                               
metal  mines and  a  calculation of  net  income.   Additionally,                                                               
mining  companies   may  reduce  gross  income   by  actual  cost                                                               
depletion.  While the amendment  would dispense with a percentage                                                               
depletion, he noted, there would  still be cost depletion.  Under                                                               
this regime  it is  not hard for  companies to  inflate expenses,                                                               
not deliberately  but there is  some concern because just  as the                                                               
state  is  trying  to  contain   costs  as  an  institution,  the                                                               
companies  are  containing and  reducing  costs.   Companies  can                                                               
inflate expenses  or export  revenue to  report less  net income,                                                               
using  the depletion  allowance the  cost of  these resources  is                                                               
being expensed at  far above the actual costs  in some instances.                                                               
Although the  concept of depletion  allowance is  consistent with                                                               
the mining industry and part of  the mining culture, it should be                                                               
changed  so that  there  would  only be  cost  depletion and  not                                                               
percentage depletion, and that is why he offers this amendment.                                                                 
                                                                                                                                
1:39:34 PM                                                                                                                    
                                                                                                                                
BRANDON  SPANOS, Deputy  Director,  Tax  Division, Department  of                                                               
Revenue, spoke  at Co-Chair  Talerico's request.   He  said there                                                               
are two methods  of depletion in statute.   Current statute reads                                                               
that  a  company  must  use   percentage  depletion  unless  cost                                                               
depletion exceeds percentage depletion  and then the company must                                                               
use  cost depletion.   So  basically the  statute is  saying that                                                               
percentage depletion is the standard  for the expense against the                                                               
Alaska Mining  License Tax,  but it allows  for the  generic cost                                                               
depletion method in  the case that that is a  greater expense for                                                               
the  company in  that year.   That  mimics the  federal depletion                                                               
which has  similar language, although  the reasons  are different                                                               
for federal purposes; it has to  do with selling an asset and the                                                               
capital  gain recapture  - making  that part  of ordinary  income                                                               
rather than capital income.   The federal statutes read that when                                                               
the  asset  is sold,  there  must  be  a calculation  for  either                                                               
allowed or allowable  depletion; does not really  apply in mining                                                               
license tax  but the  department did  adopt similar  language for                                                               
the depletion calculation.                                                                                                      
                                                                                                                                
MR.  SPANOS   confirmed  that  under  the   percentage  depletion                                                               
calculation  an asset  can  be depleted  beyond  its cost  basis.                                                               
When there is a depletion expense  the cost basis is reduced, and                                                               
under percentage  the cost  basis is reduced  by that  expense in                                                               
that year.   So,  over the  life of the  mine the  operator would                                                               
eventually deplete  the cost to  zero.  Under the  cost depletion                                                               
method once the basis reaches  zero, expenses against that can no                                                               
longer  be  taken because  the  asset  has been  fully  depleted.                                                               
Under  the   percentage  depletion  method,  the   depletion  can                                                               
continue  to be  taken beyond  that cost  basis or  adjusted cost                                                               
basis, and  the percentage  is simply a  percentage of  the gross                                                               
value so that  expense is given.  There have  been discussions as                                                               
to  why the  federal government  chose to  allow that  percentage                                                               
depletion  beyond the  basis,  and the  best  the department  can                                                               
determine  is   that  it  is  probably   to  encourage  continued                                                               
development and give  some sort of recognition  that those assets                                                               
are of value even though the cost had been fully depleted.                                                                      
                                                                                                                                
1:42:25 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON  posited  that switching  back  and  forth                                                               
between  years  gets  confusing.    The  state  allows  for  cost                                                               
depletion or depreciation of the full  value of the asset and not                                                               
beyond the  full value  of the asset  when looking  at industries                                                               
and personal property.  He held  that the legislature needs to go                                                               
back  and  advise that  people  can  get depreciation  for  their                                                               
entire  asset,  but  not  beyond   the  entire  asset  which  the                                                               
percentage depletion allows.   He said he  therefore supports the                                                               
amendment.                                                                                                                      
                                                                                                                                
CO-CHAIR TALERICO asked  what type of problem  this has presented                                                               
to the division in administering the tax to date.                                                                               
                                                                                                                                
MR. SPANOS replied that depletion  is a difficult calculation and                                                               
he  wouldn't  say  that  cost versus  percentage  makes  it  more                                                               
difficult.    The  percentage calculation  is  straight  forward,                                                               
depending on the  records of a company, although  if the division                                                               
is in an  audit situation it can become quite  difficult to track                                                               
the adjusted basis  of the asset.  For example,  should a company                                                               
state  that  this year  its  cost  expense  is greater  than  its                                                               
percentage expense  and it  wants to use  the cost,  the division                                                               
would then  have to calculate  the adjusted basis for  that year,                                                               
which does become  quite difficult if there are  no records going                                                               
back because  it may be the  first time the division  has audited                                                               
the company.  It can become  complicated, but if the division was                                                               
to go  to just a simple  cost depletion method it  would probably                                                               
need to update some schedules in  the tax return in order to have                                                               
companies  report  what that  adjusted  basis  is  so it  can  be                                                               
tracked.  He supposed the division  could do that now and have an                                                               
easier method, but most [companies]  do take percentage depletion                                                               
and the division  doesn't usually run into that issue.   So, yes,                                                               
there are  some complications with having  both options available                                                               
but it's not insurmountable.                                                                                                    
                                                                                                                                
1:45:25 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON surmised that  if the depletion allows cost                                                               
to be reduced  below the depreciable cost of the  item that means                                                               
the state is losing mining license  tax.  He inquired whether the                                                               
division knows  how much  money the state  is losing  by allowing                                                               
people to depreciate more than the full value of the assets.                                                                    
                                                                                                                                
MR.  SPANOS  answered  that  the division  has  not  performed  a                                                               
calculation on  that.  He  offered that  with the older  mines it                                                               
could be assumed that they  have already fully depleted the basis                                                               
of the  asset, and it could  be assumed that any  depletion would                                                               
be above  and beyond what  they would be  allowed under cost.   A                                                               
newer mine may be taking cost in lieu of percentage now.                                                                        
                                                                                                                                
CO-CHAIR TALERICO presumed there is  not currently an analysis of                                                               
where the state is actually sitting today.                                                                                      
                                                                                                                                
MR.  SPANOS confirmed  the division  does not  presently have  an                                                               
analysis,  although based  on the  age of  the mine  the division                                                               
could try to analyze it and give a rough estimate.                                                                              
                                                                                                                                
1:47:07 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOSEPHSON  posited  that  in  some  instances  it                                                               
appears the  companies prefer cost  depletion and if  they prefer                                                               
it then it must  be to their financial benefit.   But at the same                                                               
time the companies should not be  allowed to take beyond the cost                                                               
basis when  they are  getting depletion  and also  enjoying other                                                               
deductions for  purposes of calculating  a net profit  tax, which                                                               
is why he has offered Amendment 10.                                                                                             
                                                                                                                                
1:47:44 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HERRON maintained his objection.                                                                                 
                                                                                                                                
A roll call  vote was taken.   Representatives Seaton, Josephson,                                                               
and  Tarr  voted  in  favor of  Amendment  10.    Representatives                                                               
Herron,  Chenault, Johnson,  Talerico, and  Nageak voted  against                                                               
it.   Therefore, Amendment 10 failed  to be adopted by  a vote of                                                               
3-5.                                                                                                                            
                                                                                                                                
1:48:45 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOSEPHSON  withdrew  Amendment  11,  labeled  29-                                                               
GH2924\N.9, Nauman, 3/29/16.                                                                                                    
                                                                                                                                
1:48:56 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOSEPHSON moved  to adopt  Amendment 12,  labeled                                                               
29-GH2924\N.10, Nauman, 3/29/16, which read:                                                                                    
                                                                                                                                
     Page 1, line 1, following "Act":                                                                                         
          Insert "relating to the limitation on the                                                                           
     exploration incentive credit;"                                                                                           
                                                                                                                                
     Page 1, following line 4:                                                                                                  
     Insert a new bill section to read:                                                                                         
        "* Section 1. AS 27.30.050 is amended to read:                                                                      
          Sec. 27.30.050. Limit on application of credit.                                                                     
     An exploration incentive credit for a mining operation                                                                     
     may not exceed $20,000,000 and must be applied within                                                                      
     seven [15]  tax years or royalty  payment periods after                                                                
     the   taking   of   the  credit   is   approved   under                                                                    
     AS 27.30.020(2), but  the tax years or  royalty payment                                                                    
     periods in which the credit is applied need not be                                                                         
               (1)  the tax year or royalty payment period                                                                      
     in which the person  first incurs liability for payment                                                                    
     of tax or  royalty based on the  person's activity that                                                                    
     is the basis of the  claim of the exploration incentive                                                                    
     credit; or                                                                                                                 
               (2)  consecutive periods."                                                                                       
                                                                                                                                
     Page 1, line 5:                                                                                                            
          Delete "Section 1"                                                                                                  
          Insert "Sec. 2"                                                                                                     
                                                                                                                                
     Renumber the following bill sections accordingly.                                                                          
                                                                                                                                
     Page 2, line 17:                                                                                                           
          Delete "sec. 1"                                                                                                       
          Insert "sec. 2"                                                                                                       
                                                                                                                                
     Page 2, line 18:                                                                                                           
          Delete "sec. 1"                                                                                                       
          Insert "sec. 2"                                                                                                       
                                                                                                                                
     Page 2, line 19:                                                                                                           
          Delete "sec. 2"                                                                                                       
          Insert "sec. 3"                                                                                                       
                                                                                                                                
     Page 2, line 21:                                                                                                           
          Delete "sec. 2"                                                                                                       
          Insert "sec. 3"                                                                                                       
                                                                                                                                
     Page 2, following line 21:                                                                                                 
          Insert a new subsection to read:                                                                                      
          "(c) AS 27.30.050, as amended by sec. 1 of this                                                                       
     Act,  applies  to a  credit  accrued  on or  after  the                                                                    
     effective date of sec. 1 of this Act."                                                                                     
                                                                                                                                
     Page 2, line 28:                                                                                                           
          Delete "Section 6"                                                                                                    
          Insert "Section 7"                                                                                                    
                                                                                                                                
     Page 2, line 29:                                                                                                           
          Delete "sec. 7"                                                                                                       
          Insert "sec. 8"                                                                                                       
                                                                                                                                
REPRESENTATIVE HERRON objected for discussion purposes.                                                                         
                                                                                                                                
1:49:23 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOSEPHSON  explained Amendment 12.   He noted that                                                               
the law reads  that the mining exploration  incentive credit can,                                                               
essentially, cover 3.5 calendar  years.  The committee substitute                                                               
(CS) reduces that  to 3 years.  The administration  would like to                                                               
dispense with the credit altogether,  and he made arguments about                                                               
the need to  do that during periods of production.   Amendment 12                                                               
would shorten  the period  in which  it could  be exercised  to 7                                                               
years rather than  15 years.  It may have  the salutary effect of                                                               
incentivizing production  because it doesn't  benefit exploration                                                               
and development, it  benefits production.  The  amendment says to                                                               
get to  production if the company  is going to get  there, and if                                                               
the company doesn't  get there the credit would be  lost.  So, it                                                               
is another way  of looking at reform of this  very long period of                                                               
incentive credits  which has existed  since 1951 and  which needs                                                               
another consideration.                                                                                                          
                                                                                                                                
REPRESENTATIVE  HERRON   related  his  understanding   that  this                                                               
amendment was within Amendment 4,  which was passed, and the only                                                               
difference  is  that there  was  a  15  year  time limit  for  an                                                               
exploration incentive  credit, and the amendment  would change it                                                               
to 7 years.  He asked why 7 years and not 10 or 5 years.                                                                        
                                                                                                                                
REPRESENTATIVE JOSEPHSON  replied that he consulted  with the Tax                                                               
Division and is trying to strike a middle ground.                                                                               
                                                                                                                                
1:52:13 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HERRON  asked  whether someone  is  available  to                                                               
speak to  the amendment being  an incentive and whether  it would                                                               
be an advantage to miners or a complication for miners.                                                                         
                                                                                                                                
ED  FOGELS,  Deputy  Commissioner, Office  of  the  Commissioner,                                                               
Department of Natural Resources (DNR),  explained that the once a                                                               
company has built  up some exploration and  incentive credits and                                                               
then starts  production, the company has  up to 15 years  to cash                                                               
in those credits;  Amendment 12 would reduce it to  7 years.  The                                                               
issue is what  the company's tax liability would be  in any given                                                               
year for  those first 7 years  and whether the company  could use                                                               
up all $20 million if it  had accumulated the maximum amount.  It                                                               
is  hard to  say whether  that would  be a  net positive  for the                                                               
state's  treasury  or   some  kind  of  a   disadvantage  to  the                                                               
individual  miner because  it would  depend  upon the  particular                                                               
project and the project's tax liability year to year.                                                                           
                                                                                                                                
REPRESENTATIVE HERRON related that he  is seeking an answer as to                                                               
whether he  should vote  for this  amendment because  it benefits                                                               
the mining operation or unfairly harms the mining operations.                                                                   
                                                                                                                                
MR. FOGELS surmised that the  longer time period a mining company                                                               
has to utilize its credits the  more advantageous it would be for                                                               
the company.                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HERRON asked  whether  there is  an analysis  and                                                               
whether it means  more money in the treasury.   He said he wishes                                                               
he knew that answer before making a policy decision.                                                                            
                                                                                                                                
CO-CHAIR  TALERICO responded  he is  unsure that  anyone has  the                                                               
ability to  answer that  question.  He  recalled that  DOR Deputy                                                               
Commissioner Burnett testified that  one of the particular things                                                               
in  the bill  was the  exemption which  didn't seem  to be  a hot                                                               
ticket item  for the administration because  there isn't anything                                                               
on the immediate horizon that is going to get underway.                                                                         
                                                                                                                                
MR. FOGELS noted that as far  as the 3.5 year exemption, DNR does                                                               
not see  any mines coming  on line  in the immediate  future that                                                               
would be  affected by  this.    That would be  down the  road far                                                               
enough where  it is out of  the range of the  department's fiscal                                                               
analysis.   So,  he  said,  he thinks  that  for that  particular                                                               
provision  there  would be  no  immediate  fiscal impact  to  the                                                               
return to the state down the road.                                                                                              
                                                                                                                                
CO-CHAIR  TALERICO remarked  it could  be  a good  topic for  the                                                               
working group.                                                                                                                  
                                                                                                                                
1:56:40 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOSEPHSON held that this  is a hot ticket item for                                                               
the administration in  that the original bill  dispensed with the                                                               
credit altogether.   He  therefore surmised  the administration's                                                               
position is that it does not want this credit.                                                                                  
                                                                                                                                
MR. FOGELS agreed that that  provision is in the governor's bill,                                                               
and  Deputy  Commissioner  Burnett   said  it  is  something  the                                                               
administration is willing to discuss as the bill moves forward.                                                                 
                                                                                                                                
REPRESENTATIVE SEATON  referred to  the statement that  right now                                                               
nothing is seen on the immediate  horizon so the issue could wait                                                               
until a  later time.   He posited that  it would be  advisable to                                                               
have changes the  industry is aware of rather  than waiting until                                                               
a project is about to come online.                                                                                              
                                                                                                                                
MR. FOGELS agreed and clarified  he is not advising the committee                                                               
to  rule on  that provision  one  way or  the other,  he is  just                                                               
pointing that if the tax exemption  is deleted there won't be any                                                               
real immediate benefit to the state's treasury in the near term.                                                                
                                                                                                                                
REPRESENTATIVE SEATON stated this should  be an issue the working                                                               
group  contemplates  to  be certain  the  legislature  has  those                                                               
decisions in place before a mine is coming close to production.                                                                 
                                                                                                                                
MR.  FOGELS agreed  it would  be advisable  and would  be a  good                                                               
topic  for  the  working  group  along  with  all  of  the  other                                                               
components in the fiscal picture for a mining operation.                                                                        
                                                                                                                                
1:59:20 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HERRON  noted the administration wanted  to remove                                                               
this and it is back in, his  colleague wants to reduce it from 15                                                               
years to  7 years, and the  advantage or harm that  the reduction                                                               
could cause is unknown.   He asked Co-Chair Talerico whether this                                                               
committee could request an analysis so  it is there for the House                                                               
Finance Committee  to review.   Even if the amendment  passes, it                                                               
would be important  for the next committee to  understand what it                                                               
means.    Responding Co-Chair  Talerico,  he  clarified that  his                                                               
request is  for the co-chair's  office to  send a note  along for                                                               
the House Finance Committee to seek analysis on this question.                                                                  
                                                                                                                                
CO-CHAIR TALERICO agreed to do so.                                                                                              
                                                                                                                                
MR. SPANOS  clarified that the  exploration incentive  credit and                                                               
the 3.5  year exemption often  get confused.   The administration                                                               
was  trying  to  remove  the  3.5 year  exemption  in  the  bill.                                                               
Therefore,  he  is  unsure  whether   the  administration  has  a                                                               
position on the credit.                                                                                                         
                                                                                                                                
2:01:07 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HERRON maintained his objection to Amendment 12.                                                                 
                                                                                                                                
A roll call  vote was taken.  Representatives  Tarr and Josephson                                                               
voted  in  favor  of  Amendment   12.    Representatives  Herron,                                                               
Chenault,  Johnson, Seaton,  Talerico, and  Nageak voted  against                                                               
it.   Therefore, Amendment 12 failed  to be adopted by  a vote of                                                               
2-6.                                                                                                                            
                                                                                                                                
2:02:03 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOSEPHSON moved to adopt Amendment 13, labeled                                                                   
29-GN2924\N.11, Nauman, 3/29/16, which read:                                                                                    
                                                                                                                                
     Page 1, following line 9:                                                                                                  
     Insert a new bill section to read:                                                                                         
        "* Sec. 2. AS 43.65.010(a),  as amended by sec. 1 of                                                                
     this Act, is amended to read:                                                                                              
          (a)  A person prosecuting or attempting to                                                                            
     prosecute,  or engaging  in the  business of  mining in                                                                    
     the state  shall obtain a license  from the department.                                                                    
     [ALL  NEW MINING  OPERATIONS ARE  EXEMPT  FROM THE  TAX                                                                    
     LEVIED   BY  THIS   CHAPTER  FOR   THREE  YEARS   AFTER                                                                    
     PRODUCTION BEGINS.]"                                                                                                       
                                                                                                                                
     Renumber the following bill sections accordingly.                                                                          
                                                                                                                                
     Page 2, following line 14:                                                                                                 
     Insert a new bill section to read:                                                                                         
        "*Sec. 6.  AS 27.30.030(b)(2), AS  43.65.010(b), and                                                                
     43.65.060(4) are repealed."                                                                                                
                                                                                                                                
     Page 2, following line 18:                                                                                                 
          Insert a new subsection to read:                                                                                      
          "(b)  AS 43.65.010(a), as amended by sec. 2 of                                                                        
     this  Act, applies  to a  mining operation  that begins                                                                    
     production on or after the  effective date of sec. 2 of                                                                    
     this Act."                                                                                                                 
                                                                                                                                
     Reletter the following subsection accordingly.                                                                             
                                                                                                                                
     Page 2, line 19:                                                                                                           
          Delete "sec. 2"                                                                                                       
          Insert "sec. 3"                                                                                                       
                                                                                                                                
     Page 2, line 21:                                                                                                           
          Delete "sec. 2"                                                                                                       
          Insert "sec. 3"                                                                                                       
                                                                                                                                
     Page 2, line 28:                                                                                                           
          Delete "Section 6"                                                                                                    
          Insert "Section 8"                                                                                                    
                                                                                                                                
     Page 2, following line 28:                                                                                                 
     Insert a new bill section to read:                                                                                         
        "*  Sec. 10.  Sections  2  and 6  of  this Act  take                                                                
     effect January 1, 2020."                                                                                                   
                                                                                                                                
     Renumber the following bill section accordingly.                                                                           
                                                                                                                                
     Page 2, line 29:                                                                                                           
          Delete "sec. 7"                                                                                                       
          Insert "secs. 9 and 10"                                                                                               
                                                                                                                                
CO-CHAIR TALERICO objected for discussion purposes.                                                                             
                                                                                                                                
2:02:17 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOSEPHSON  explained Amendment  13.  He  noted the                                                               
administration would like to collect  taxes in every year and end                                                               
what  he calls  "the  tax  holiday" for  hard  rock  mines.   The                                                               
committee  has  so  far rejected  that,  although  the  committee                                                               
reduced  from 3.5  years to  3 year  the term  of the  exemption.                                                               
Amendment 13 would remove that exemption  in 2020.  As heard from                                                               
the  deputy  commissioner, there's  probably  no  one known,  and                                                               
there are only really six or  seven players, who in the near term                                                               
are probably  in their exempt profile.   If there is  any concern                                                               
about  that, they  would be  captured  in this  window and  would                                                               
continue to  enjoy the  exemption for another  3 years  8 months.                                                               
However,  as   pointed  out  by  Representative   Seaton,  vested                                                               
interests  could grow  during that  span under  anticipation that                                                               
the tax holiday  would be there for them.   Those interests would                                                               
know  now at  the outset  that it  would not  be there  for them.                                                               
Therefore,  the amendment  is designed  to offer  some amount  of                                                               
comfort  to both  sides, and  also put  the state  in a  position                                                               
where  the maximum  benefit is  arrived  to the  people from  the                                                               
"taxation scheme that we have."                                                                                                 
                                                                                                                                
2:04:22 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HERRON  asked  whether   the  new  bill  section,                                                               
Section 2,  proposed by Amendment  13 is a business  license that                                                               
shall be obtained.                                                                                                              
                                                                                                                                
REPRESENTATIVE  JOSEPHSON   responded  yes,  the   amendment  was                                                               
written so  that it  attaches itself to  the mining  tax statute,                                                               
which is the mining license tax.   It uses the language "business                                                               
of mining"  in the narrative at  line 5 of the  amendment, but he                                                               
thinks this part of the mining  license tax.  It would repeal the                                                               
reprieve from tax effective January 1, 2020.                                                                                    
                                                                                                                                
MR. SPANOS clarified the mining license  is in lieu of a business                                                               
tax.  So,  a person only in  the business of mining  can obtain a                                                               
mining license through  the Tax Division, and  a business license                                                               
would be unnecessary.                                                                                                           
                                                                                                                                
CO-CHAIR  TALERICO surmised  that a  typical business  license is                                                               
not required for mining due to the mining license.                                                                              
                                                                                                                                
MR. SPANOS replied correct.  If  mining is the only business then                                                               
obtaining  a business  license is  not required;  if a  person is                                                               
building roads and mining, a  business license would be required.                                                               
If just mining,  the mining tax license is in  lieu of a business                                                               
license;  the Tax  Division administers  that and  when a  person                                                               
gets a license the person must then file a tax return.                                                                          
                                                                                                                                
REPRESENTATIVE SEATON offered  that Section 2 refers  to a person                                                               
obtaining a  license, and Section  10 reads that it  takes effect                                                               
after January 1, 2020.  He asked  whether page 2, line 13, of the                                                               
amendment means that  people do not need to get  a mining license                                                               
until January  1, 2020,  because Version N,  [page 1,  lines 6-7,                                                               
states, "(a) a  person prosecuting or attempting  to prosecute or                                                               
engaging in  the business of mining  in the state shall  obtain a                                                               
license from the department."                                                                                                   
                                                                                                                                
2:08:00 PM                                                                                                                    
                                                                                                                                
The committee took an at-ease from 2:08 p.m. to 2:14 p.m.                                                                       
                                                                                                                                
2:14:20 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON  said the  construction of Amendment  13 is                                                               
confusing.   He  understood  that the  [amendment] reinserts  the                                                               
original bill  language that  the three  year tax  exemption goes                                                               
away, but starting  in 2020.  He further  understood that Section                                                               
6 of the  amendment would not apply to current  mines.  It simply                                                               
says to  stay with the three  year exemption until 2020  and then                                                               
the tax exemption will go away.                                                                                                 
                                                                                                                                
REPRESENTATIVE  JOSEPHSON  held  that  Amendment  13  captures  a                                                               
couple of concerns.  One is  that in the near term there probably                                                               
will  not be  anyone  who  would be  affected  in  regard to  tax                                                               
exemptions.   He reminded the  committee of testimony  on various                                                               
bills regarding resource development that  it is important not to                                                               
pull the rug  out and disrupt something and make  it less viable.                                                               
This amendment allows that if a  company is in the early phase of                                                               
development, the  company knows before making  serious investment                                                               
that  there has  been a  change in  the 65-year-old  policy.   He                                                               
recalled   that  in   HB  247   the  committee   looked  at   the                                                               
affordability of tax credits.  He  pointed to a discussion of the                                                               
Pebble Mine  from Mr.  [Brune] of  receiving $200  million, which                                                               
included all sorts  of revenue and not solely  the mining license                                                               
tax.    Amendment  13  would achieve  some  balance  between  the                                                               
administration's position,  which was  a more  abrupt end,  and a                                                               
nearly four year extension of the exemption.                                                                                    
                                                                                                                                
2:17:03 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HERRON maintained his objection.                                                                                 
                                                                                                                                
A roll  call vote  was taken.   Representatives  Josephson, Tarr,                                                               
and Seaton voted in favor  Amendment 13.  Representatives Herron,                                                               
Johnson,  Talerico,  and Nageak  voted  against  it.   Therefore,                                                               
Amendment 13 failed to be adopted by a vote of 3-4.                                                                             
                                                                                                                                
2:18:08 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  TALERICO clarified  for  the record  that Amendment  3,                                                               
labeled 29-GH2924\N.8,  Shutts/Nauman, 3/29/16, had  been adopted                                                               
[at  the  previous  hearing].     That  amendment  established  a                                                               
legislative working group to study the tax structure for mining.                                                                
                                                                                                                                
REPRESENTATIVE  JOSEPHSON noted  that  Amendment  4, labeled  29-                                                               
GH2924\N.16,  Nauman,  3/30/16, had  also  been  adopted [at  the                                                               
previous hearing].   That amendment  was in regard  to deductions                                                               
of the credit against royalty.                                                                                                  
                                                                                                                                
2:19:02 PM                                                                                                                    
                                                                                                                                
CO-CHAIR TALERICO opened committee discussion.                                                                                  
                                                                                                                                
REPRESENTATIVE SEATON  related his appreciation for  the adoption                                                               
of a working group because mining  taxes are complex and the goal                                                               
is to align the industry's needs  with the needs of the state and                                                               
broad  based taxes.   He  reiterated that  the amount  of revenue                                                               
being generated  from all  of the  different industries,  such as                                                               
tobacco and  alcohol at $40  million and the fishing  industry at                                                               
$13 million.   The  committee is discussing  many things  and the                                                               
state does  not have as  much new revenue  to try to  balance the                                                               
state's  books from  this  industry as  the  state receives  from                                                               
other industries.   In moving  forward, he is hoping  the working                                                               
group can  help the legislature  balance between the  industry as                                                               
well as the broad-based taxes.                                                                                                  
                                                                                                                                
REPRESENTATIVE  JOSEPHSON   offered  his  appreciation   for  the                                                               
committee taking some of the  governor's positions - reducing the                                                               
exemption by six months and  increasing the mining license tax by                                                               
a  percentage  point.   Even  though  he gained  enormously  from                                                               
visiting the  Fort Knox  Mine, he related,  part of  this relates                                                               
back  to the  legislative  research  Minerals Extraction  Report,                                                               
which said  the resource value, for  example in 2009, was  just a                                                               
hair under  $2.5 billion,  and the  state received  as government                                                               
revenues a percentage of the $2.5  billion at 2.76 percent.  That                                                               
appears to be a small number,  but obviously the committee has to                                                               
remove itself from  the oil and gas industry  because even though                                                               
that is capital  intensive, this is really  capital intensive and                                                               
they  are  just different  animals.    He  said  he is  glad  the                                                               
legislature intends to continue to study this issue.                                                                            
                                                                                                                                
CO-CHAIR TALERICO said the  committee will forward Representative                                                               
Herron's request to the bill's next committee of referral.                                                                      
                                                                                                                                
2:22:32 PM                                                                                                                    
                                                                                                                                
CO-CHAIR   NAGEAK  moved   to  report   the  proposed   committee                                                               
substitute for  HB 253, Version 29-GH2924\N,  Nauman, 3/17/16, as                                                               
amended,  out of  committee with  individual recommendations  and                                                               
the accompanying  fiscal notes.   There being no  objection, CSHB
253(RES) was passed from the House Resources Standing Committee.                                                                

Document Name Date/Time Subjects
CS HB 253 Amendments Ver. N Packet.PDF HRES 3/31/2016 1:00:00 PM
HB 253
CSHB 253 Version N.pdf HRES 3/31/2016 1:00:00 PM
HB 253
HB 253 Legal Memo.pdf HRES 3/31/2016 1:00:00 PM
HB 253
CS HB 286 Ver E 3 30 2016.pdf HRES 3/31/2016 1:00:00 PM
HB 286
HB0286 Fiscal Note -2-2-012916-DPS-N.PDF HRES 3/31/2016 1:00:00 PM
HB 286
HB0286 Fiscal Note-1-2-012916-DFG-N.PDF HRES 3/31/2016 1:00:00 PM
HB 286
HB286 - Sectional Analysis.pdf HRES 3/31/2016 1:00:00 PM
HB 286
HB286- Fiscal Note F&G-CO-2-2-16.pdf HRES 3/31/2016 1:00:00 PM
HB 286
HB286 Sponsor Statement - Governor's Transmittal Letter.pdf HRES 3/31/2016 1:00:00 PM
HB 286
HB286 ver A.pdf HRES 3/31/2016 1:00:00 PM
HB 286