Legislature(2005 - 2006)BELTZ 211
05/02/2005 01:30 PM Senate COMMUNITY & REGIONAL AFFAIRS
| Audio | Topic |
|---|---|
| Start | |
| HB133 | |
| SB179 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HB 133 | TELECONFERENCED | |
| = | SB 179 | ||
SB 179-MINERALS TAX/PAYMENTS TO MUNIS IN LIEU
1:52:15 PM
CHAIR GARY STEVENS announced SB 179 to be up for consideration.
He asked Mr. Van Sant to come forward and discuss the issue of
prohibiting communities from having a severance tax on minerals
and mining and how that would be implemented.
STEVE VAN SANT, State Assessor, Department of Commerce,
Community & Economic Development (DCCED), introduced himself and
explained that original bill exempted nearly every tax you could
think of. The committee substitute (CS) made a number of changes
that his office recommended one of which was the severance tax
issue. It appeared as though a municipality could hold a mining
operation hostage by threatening a severance tax. DCCED contends
that resources belong to the people of the State of Alaska and
therefore a severance tax should be reserved to the state rather
than a local municipality. If the state decided to levy a
severance tax, it could do so statewide or by category.
Looking at other changes made in the CS, he said they are
acceptable to the department at this time. The primary point was
that one entity should not carry the total tax burden for a
community or proposed borough. All residents of an area should
share the burden.
CHAIR GARY STEVENS asked how property tax is established.
MR. VAN SANT explained that when speaking about property tax
everything is taxable unless state law specifically exempts it.
Obviously state property, federal property, city property, and
borough property would be exempt from property tax unless a
private entity uses the property for its own purpose. For
example, the railroad pays a possessory-interest tax on land it
leases from the state.
Ownership on January 1 dictates taxability of a property. If a
church owned a piece of property on January 1 and used it for
religious purposes until January 5 and then sold the property,
the exemption would carry through for the entire year. But if
the church purchased a property on January 5, it would be
taxable the entire year.
1:57:45 PM
The Red Dog Mine itself is taxable. When he put the full value
on the mine it amounted to about $130 million in property
including the road, the port, the storage facilities. That was
all property not owned by the Red Dog Mine, but they had an
interest in it and were therefore subject to possessory-interest
property tax. Subsequently, the Legislature specifically
exempted that interest, but any other operation that came in
would pay a local property tax. If they didn't have a local
property tax the assessor would include it in the full value
determination for educational funding.
CHAIR GARY STEVENS recalled that the Alaska Municipal League
(AML) testified that there is a perfect balance here if there is
a new borough. If a property tax were assessed against the mine
then residents would have to pay a similar property tax on their
homes. He asked whether that would be true or would many homes
be exempt.
MR. VAN SANT explained that most property in those areas is
exempt because it is state or federal land. Private homes on
restricted deeds, Native allotments or ANCSA property would be
exempt unless leased to third parties. Restricted deeds are
exempt and ANCSA property would be exempt unless it's developed.
The same thing applies and is done in Anchorage, Fairbanks and
Kodiak.
A question that typically arises relates to HUD homes. An
attorney general opinion says that while the underlying fee is
exempt the possessory interest that the purchaser has in the
property is taxable. As a result, the Legislature passed a bill
allowing a municipality to exempt those interests because
collection may be problematic and the cost of collection more
than it's worth. Nonetheless, that value is included in the full
value determination for school funding. "Even if we have
$100,000 or $150 million of those properties, we would include
them in the full value so they are going to have to raise the 4
mills equivalency somehow on those."
CHAIR GARY STEVENS observed that there is probably no definitive
answer as to whether that is a control. AML says it is a good
control over how much property tax a mine would be charged and
you say it's not a control.
2:01:54 PM
MR. VAN SANT replied it is a control to some extent. He
suggested the City of Valdez provides a good example. It levies
a 20 mill tax, which is quite high but that's the tax rate the
state levies against oil and gas properties. The City of Valdez
takes all the tax dollars for oil and gas within city
boundaries, but every person living in Valdez pays 20 mills on
their property as well. Certainly that's a control. People that
do pay property tax are well cognizant of the fact that the tax
comes from their pocket and if the city wants to levy a property
tax against a mine it can't get around the fact that residents
will pay the same rate.
CHAIR GARY STEVENS asked if 4 mills is enough or a fair amount.
MR. VAN SANT replied 4 mills is the minimum required
contribution, "but if you're looking at doing your own schools -
I don't know of anybody that goes 4 mills." Typically when a
community funds its own schools the millage rate isn't just the
minimum. He noted that the CS changes that rate if an area
chooses to organize.
2:04:49 PM
SENATOR GENE THERRIAULT, Sponsor, stated agreement that the
severance tax should be reserved to the state as the supreme
taxing authority. He continued to say:
Certainly, those minerals are reserved to the state
and that's one of the concerns that there has been.
That if you allowed the mine to be the only entity
that's taxed, then what they do is they use that
jointly owned property - which my 32,000 people own
part of and your 32,000 people own part of - and they
pay their entire burden off of that jointly owned
resource. We'd rather have them tax the enterprise,
tax the activity that's going on as that jointly owned
resource is developed and mined.
He suggested that the CS is a good work product that addresses
many of the concerns that have been raised and that Mr. Balash
could answer any technical questions.
CHAIR GARY STEVENS asked Mr. Balash to explain how the CS
changes the original bill.
2:07:06 PM
JOE BALASH, Staff to the Legislative Budget & Audit Committee
and to Senator Therriault, explained that a different approach
was taken on the committee substitute. They took language
suggested by Mr. Van Sant and "jumped between Title 29 and Title
43 as appropriate."
Section 1 simply adds a reference.
Section 2 describes the way - through Title 29 - the tax would
affect mines in the unorganized area.
Section 3 reserves the severance tax to the state, but it
grandfathers in those severance taxes that are currently in
place or that come into being by January 1, 2006. It doesn't go
back to January 1, 2005 because that would necessitate a
retroactive effective date.
Section 4 has a few changes. The mill-rate is still linked to
the foundation formula. It is 4 mills when a mine is located in
an unorganized borough or it is the mill rate levied by a newly
incorporated municipality or the municipality into which the
mine is annexed. The levy is the same as all other property in
that municipality. If the Pogo Mine were annexed into the
Fairbanks North Star Borough, it would be assessed 15 mills just
like every other piece of property in the borough. If the
Deltana Charter Commission were to be successful in
incorporating a new borough with a 10 mill property tax, then
that would be the mill rate. The tax would still be assessed and
collected by the state but it would be payable to that
municipality.
In addition, there is a provision for the negotiation of a state
PILT in place of the property tax. Likewise, the newly
incorporated government or the annexing government could
negotiate a PILT with the mine.
The 15-year exemption on particular things that you could
otherwise tax on the mine after production commences remains the
same.
The State Assessor will do the assessment and much of the
language Mr. Van Sant recommended is included.
2:11:13 PM
Referencing page 6, line 24, he noted that the CS does not
incorporate Mr. Van Sant's recommendation to reduce the
exemption on property valuation to $1 million. The original $10
million exemption remains unchanged. The Alaska Miners
Association has weighed in and although he hasn't had the
opportunity for a direct conversation, the provision was
intended to shield small mining operations that have made
substantial investments.
2:12:42 PM
CHAIR GARY STEVENS referenced the $10 million exemption and
asked if that includes just the value of the land or the value
of the facilities built on the land.
MR. BALASH replied it would include those facilities that aren't
open to the public.
CHAIR GARY STEVENS asked if it would be the physical structure
that the mine installs.
MR. BALASH said that's correct. At Fort Knox in the Fairbanks
North Star Borough, the assessor taxes everything that has been
added to the property. This includes the power poles and power
lines on the property. Similarly, the road beyond the security
gate leading to the mine is taxed while the part of the road
leading up to the gate is not taxed.
2:14:25 PM
MR. BALASH explained that the mechanism used to negotiate a PILT
agreement with the state directs the Commissioner to follow the
procedures in AS 43.82 - the Stranded Gas Act - and then submit
it to the Legislature for approval. In no way does this contract
away the state's right to levy, change or remove a tax. The
Legislature would still have the full ability to modify the
terms of the PILT agreement.
CHAIR GARY STEVENS noted that a question was raised earlier
about the issue in the constitution about not contracting away
the right to tax. He asked if a legal opinion was received as to
whether PILT agreements are included.
MR. BALASH replied there is specific language regarding the
state PILT. Although he didn't have anything in writing with
regard to a municipal PILT the bill drafter posited the question
to him. He suggested that the municipality's authority to put in
place a PILT was implied, as it exists today. The proposed
legislation gives a mechanism authorizing municipalities to go
through a process and do the same thing, which would then be
binding. "However, that contract wouldn't be absolute in its
binding effect. The municipality could appeal to the Legislature
for relief." The drafter thought that was a plausible remedy. He
said he didn't ask for an opinion beyond that.
2:16:52 PM
SENATOR THERRIAULT referenced the issue of property subject to
taxation and emphasized that property that has limited public
access should be taxable.
With regard to the $10 million threshold, the determination
would be the same. If the public had free access it wouldn't be
taxed, but if a company exerts control as part of the operation
then it's part of the calculation to determine whether or not
the $10 million threshold is met. Large mines and small mines
are treated the same with regard to valuation of the property
itself.
CHAIR GARY STEVENS asked for an explanation of when a tax would
be levied as it relates to beginning production.
MR. BALASH read page 3, line 23 then pointed to the definition
section on page 6, line 29. The date on which the initial
shipment of product is made is the year that the tax begins. No
tax would be levied during construction.
SENATOR THERRIAULT added there might be concern that companies
would delay the initial shipment, but because the upfront
investment is huge, companies will rush to get minerals to
market so that they can service their debt.
2:21:15 PM
CHAIR GARY STEVENS asked if he had any final comments.
SENATOR THERRIAULT said the till is tied to the Stranded Gas Act
so that that structure could be used.
CHAIR GARY STEVENS asked Mr. Van Sant if he had any response or
questions.
2:22:16 PM
MR. VAN SANT acknowledged he did have several questions. First
he referenced the change in wording for exemptions on page 6,
line 20 and questioned the intent. He interprets the language as
saying that if it's within a borough it's going to be exempt.
"And I'm not sure that that was the intent," he said.
MR. BALASH said he would have to review his notes.
MR. VAN SANT referenced page 6, line 18 and asked if that is
unlimited use by the public.
MR. BALASH replied yes. The original draft had "limited public
use". Senator Therriault wasn't comfortable with the phrase. He
wanted it clear that the property would be open to public use.
There were no further questions.
2:24:41 PM
CHAIR GARY STEVENS announced he would hold SB 179 in committee.
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