04/16/2010 09:00 AM Senate FINANCE

SENATE BILL NO. 309                                                                                                           
                                                                                                                                
     "An Act amending and extending the exploration and                                                                         
     development incentive tax credit under the Alaska Net                                                                      
     Income Tax Act for operators and working interest                                                                          
     owners directly engaged in the exploration for and                                                                         
     development of gas from a lease or property in the                                                                         
     state; providing for an effective date by amending the                                                                     
     effective date for sec. 2, ch. 61, SLA 2003; and                                                                           
     providing for an effective date."                                                                                          
                                                                                                                                
Co-Chair  Stedman said  it  was the  second  hearing on  the                                                                    
bill.                                                                                                                           
                                                                                                                                
9:18:12 AM                                                                                                                    
                                                                                                                                
Co-Chair Hoffman MOVED  to ADOPT the CS for  SB 309, Version                                                                    
S, as the working document.                                                                                                     
                                                                                                                                
Co-Chair Stedman OBJECTED.                                                                                                      
                                                                                                                                
DARWIN  PETERSON,  STAFF,  CO-CHAIR STEDMAN,  explained  the                                                                    
changes  in  the  new  CS.  In this  version  of  the  bill,                                                                    
Sections 8  and 9  were removed  from the  previous version.                                                                    
Those  were the  sections  that allowed  the  credits to  be                                                                    
applied in one year. That results  in a return to the status                                                                    
quo, which is that 50 percent  of the credits can be applied                                                                    
for in the first year and  the remainder in the second year.                                                                    
The next change is found on  page 3, Section 3, lines 12 and                                                                    
13.  The previous  version allowed  the taxpayer  to take  a                                                                    
credit up  to 100  percent of  the taxpayer's  liability, as                                                                    
opposed to the status quo of  50 percent. This CS splits the                                                                    
difference and  the taxpayer  can take up  to 75  percent of                                                                    
their liability                                                                                                                 
                                                                                                                                
Mr. Peterson  related that  the third change  is on  page 5,                                                                    
Section 8, and  is an amendment by Senator  Huggins that the                                                                    
committee adopted  previously. The amendment dealt  with not                                                                    
incurring penalties on underpayments  or overpayments due to                                                                    
the retroactivity in  the legislation. Page 6,  Section 9 is                                                                    
a renumbering of the section.                                                                                                   
                                                                                                                                
Mr.  Peterson explained  that  page 7,  Section  10, is  the                                                                    
section that deals  with jackup rigs. Mr.  Peterson read the                                                                    
new language from the bill.                                                                                                     
                                                                                                                                
     The  first three  unaffiliated  persons  that drill  an                                                                    
     offshore   explanation   well   for  the   purpose   of                                                                    
     discovering oil  or gas in  Cook Inlet  that penetrates                                                                    
     at least 3,000 feet below  the base of the tertiary age                                                                    
     strata  and evaluates  a prospect  in the  pre-tertiary                                                                    
     zone using  a jackup  drill rig,  are eligible  for the                                                                    
     credit under this subsection.                                                                                              
                                                                                                                                
9:20:38 AM                                                                                                                    
                                                                                                                                
Mr.  Peterson turned  to Section  10,  page 7,  line 25,  to                                                                    
describe  a  date change  to  March  31,  2010 so  that  the                                                                    
credits would apply to the  entire construction season. Page                                                                    
8,  Section  13,  is   a  continuing  conforming  amendment.                                                                    
Sections  14  and 15  are  also  a  part of  the  conforming                                                                    
amendment. Section 16 is a  new sunset date for the credits,                                                                    
since  that  date is  now  2016.  Sections  17 and  18  also                                                                    
reflect the conforming amendment.                                                                                               
                                                                                                                                
Senator Ellis asked  if it was standard  practice to require                                                                    
a "sharing  of the data"  when the state provides  money. He                                                                    
wondered if the  CS addressed that issue.  Mr. Peterson said                                                                    
he  did not  receive  any  orders to  make  changes to  that                                                                    
policy.                                                                                                                         
                                                                                                                                
9:22:23 AM                                                                                                                    
                                                                                                                                
SENATOR  LESIL MCGUIRE,  SPONSOR,  addressed Senator  Ellis'                                                                    
question. She reported  that the CS was left  alone in order                                                                    
for the  credits to function.  She emphasized that  this was                                                                    
an  exclusive credit  and disallowed  companies from  taking                                                                    
other credits.                                                                                                                  
                                                                                                                                
Senator  Ellis asked  for the  rationale for  the state  not                                                                    
requiring data sharing in this bill.                                                                                            
                                                                                                                                
Senator McGuire reported that she  met with the companies to                                                                    
discuss what would make the  credit work. The companies felt                                                                    
that  if  the  data  was  made public,  they  would  not  be                                                                    
competitive.                                                                                                                    
                                                                                                                                
Senator Ellis offered to pursue his concerns later.                                                                             
                                                                                                                                
9:25:03 AM                                                                                                                    
                                                                                                                                
Senator Thomas  noted in  a previous  CS there  was language                                                                    
that allowed  companies to  take credits  in the  same year,                                                                    
rather than for two years.                                                                                                      
                                                                                                                                
Co-Chair  Stedman explained  that  current statutes  require                                                                    
capital credits to be taken  over two years, 50 percent each                                                                    
year. It was to the state's advantage to do so.                                                                                 
                                                                                                                                
Senator  Thomas  commented  that  it works  well  for  large                                                                    
explorers. He suggested a situation  where a smaller company                                                                    
would  run  into problems  applying  credits  in the  second                                                                    
year. He voiced concern about that.                                                                                             
                                                                                                                                
9:27:05 AM                                                                                                                    
                                                                                                                                
Co-Chair Stedman WITHDREW his  OBJECTION to adopting the CS.                                                                    
There being NO OBJECTION, it was so ordered.                                                                                    
                                                                                                                                
Senator  McGuire related  a conversation  with a  Cook Inlet                                                                    
company who stated that the  scenario would be worse without                                                                    
the secrecy of data.                                                                                                            
                                                                                                                                
Co-Chair  Hoffman MOVED  to  report CSSB  309  (FIN) out  of                                                                    
Committee   with   individual    recommendations   and   the                                                                    
accompanying fiscal  note. There being NO  OBJECTION, it was                                                                    
so ordered.                                                                                                                     
                                                                                                                                
CSSB  309 (FIN)  was REPORTED  out of  Committee with  a "do                                                                    
pass" recommendation, with indeterminate  FN 1 REV, and with                                                                    
a  new  zero  fiscal  note  by  the  Department  of  Natural                                                                    
Resources.                                                                                                                      
                                                                                                                                
9:28:48 AM