Legislature(2017 - 2018)BUTROVICH 205
04/24/2017 02:00 PM Senate RESOURCES
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| Audio | Topic |
|---|---|
| Start | |
| HB111 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 111 | TELECONFERENCED | |
HB 111-OIL & GAS PRODUCTION TAX;PAYMENTS;CREDITS
2:00:45 PM
CHAIR GIESSEL announced consideration of HB 111 [CSHB
111(FIN)(efd)(fld) was before the committee]. It was first heard
on April 14; it had two hearings on April 15 and two more
hearings on April 17. They had a hearing on April 18 with the
Department of Revenue (DOR) and follow up with legislative
consultants; and on April 19 another meeting with a legislative
consultant. They now have a proposed committee substitute (CS).
SENATOR COGHILL moved to adopt SCS CSHB 111 (RES), version 30-
LS0450\P as the working document.
CHAIR GIESSEL objected for discussion purposes.
2:01:36 PM
AKIS GIALOPSOS, staff to Senator Giessel and the Senate
Resources Committee, Alaska State Legislature, Juneau, Alaska,
explained the changes in the CS. He said the three elements in
this CS are:
1. Elimination of the refundable tax credits (Oil and Gas Tax
Credit Fund established in AS 43.55.028) as of January 1, 2018.
2. Transition to carried forward (CF) losses with the statewide
repeal of the net operating loss credit (NOL) under AS
43.55.023(b). This CS transition the loss carry forward
mechanism to a deduction, allowing the taxpayer to recover their
full losses.
3. Expansion of the timeframe for the interest rate for
delinquent taxes under AS 43.55 to six years while lowering it
to 3 percent compounded quarterly, and combining the assessment
for delinquent taxes under AS 43.55 with all other delinquent
taxes under AS 43.05 statutes.
2:03:15 PM
MR. GIALOPSOS presented the sectional analysis for SCS CSHB
111(RES), version \P, as follows:
Section 1 amends AS.05.2225, Administration of Revenue Laws,
Interest on page 1, line 7-page 2, line 20, by changing the
interest rate to 3 percent compounded quarterly for delinquent
taxes; effective January 1, 2018.
Section 2 amends AS 43.20.044(a), Alaska Net Income Act,
Exploration incentive credit on page 2, lines 21-25 that states
the credit accrued under AS 43.55.025, the Middle Earth credits,
can be used as a deduction against that taxpayer's corporate
income taxes. That function is not transferable.
Section 3 amends AS 43.20.046(e), Alaska Net Income Act, Gas
storage facility tax credit, on page 2, line 26-page 3, line 1.
Sections 4, 5, and 6 do the same thing for those respective
three credits that are cashable and found in the corporate
income tax credit system: the LNG storage facility, the natural
gas storage facility, and the oil refinery. Those will remain
cashable until their natural expiration and they are going to be
available in their cash-ability through general appropriation.
Sections 4 and 5 conform to that.
2:04:38 PM
Section 6 adds a new section to AS 43.20, Alaska Net Income Tax,
by taking the language that had previously been in the oil and
gas tax credit fund in AS 43.55.028 and put it into the income
tax statutes for those three credits to have the same provisions
of making them applicable through general appropriation.
2:04:53 PM
Section 7 amends AS 43.55.023(c), Oil and Gas Production Tax, on
Tax credits for certain losses and expenditures on page 4, line
16-page 4, line 20. This enables a taxpayer to apply credits
issued under .023 against prior year taxes, interests,
penalties, and fees related to the oil and gas production tax.
This includes amended oil and gas production taxes, provided
that the assessment was not subject to an administrative
procedural appeal or litigation.
Section 8 amends AS 43.55.023(d), Oil and Gas Production Tax,
Tax credits for certain losses and expenditures, on page 4, line
27-page 5, line 13. It conforms to the repeal of the oil and gas
tax credit fund later in this bill (in Section 25).
2:05:33 PM
Section 9 amends AS 43.55.023(e), Oil and Gas Production Tax,
Tax credits for certain losses and expenditures, on page 5, line
14-page 6, line 1. Like section 7, this also enables a taxpayer
to use a transferable credit that had been issued under AS
43.55.023 against those prior year taxes with the same
limitations.
Section 10 adds a new subsection to AS 43.55.024, Oil and Gas
Production Tax, Additional nontransferable tax credits, on page
6, lines 2-8. It states that tax credits under AS 43.55.024(c),
the small producer credit, and AS 43.55.024(i), the per-barrel
credit for new oil, could be used to reduce the taxpayer's
liability below the minimum, but not below zero, including a
year in which the sliding-scale credit (AS 43.55.024(j)) is used
and the taxpayer can decide the ordering of those credits when
calculating their tax liability.
2:06:30 PM
Section 11 amends AS 43.55.025(a), Oil and Gas Production Tax,
Alternative tax credit for oil and gas exploration, on page 6,
lines 9-31. The tax credit in AS 43.55.025 (Middle Earth
statutes) conforming to their ability to use a credit accrued
under those statutes against production tax or corporate income
taxes.
Section 12 amends AS 43.55.025(f), Oil and Gas Production Tax,
Alternative tax credit for oil and gas exploration, on page 7,
line 1-page 9, line 16. This allows those same provisions of
deductibility against corporate income tax for a taxpayer that
has earned it under AS 43.55.025 and it also directs the
Department of Revenue to grant or deny a credit application
under .025 within 120 days of receipt of that application.
2:07:16 PM
Section 13 amends AS 43.55.025(h), Oil and Gas Production Tax,
Alternative tax credit for oil and gas exploration, on page 9
lines 17-31. This is the explicit provision that a taxpayer may
apply credits issued under AS 43.55.025 against prior year
taxes, interest, penalties, and fees, similar to the same
language allowed for a transferable credit issued under AS
43.55.023 and subject to the same limitations, litigation,
appeal, etc.
2:07:44 PM
Section 14 amends AS 43.55.025(i), Oil and Gas Production Tax,
Alternative tax credit for oil and gas exploration, on page 10,
lines 1-9. It states that credits under AS 43.55.025(i) can be
applied against both the production tax or the corporate income
tax, but cannot be used to reduce taxes below zero.
Section 15 Amends As 43.55.028(e), Oil and Gas Production Tax,
Oil and gas tax credit fund established; cash purchases of tax
credit certificates, on page 10, line 10-page 11, line 4. It
established that pursuant to Section 25, this fund will be
appealed as of January 1, 2018. Any funds that are outstanding
can be refunded through general appropriation. It removes the
maximum amount per year a company can receive in refunds and
makes conforming changes. It maintains requirements that only
companies producing less than 50,000 barrels per day can receive
cash payments.
2:08:39 PM
Section 16 amends AS 43.55.028(g), Oil and Gas Production Tax,
Oil and gas tax credit fund established; cash purchases of tax
credit certificates, on page 11, line 5-page 12, line 2. It is
another conforming to the repeal of the Oil and Gas Tax Credit
Fund in Section 25, and carves out the language for the credits
that are used against a corporate income tax liability for an
LNG storage and gas storage facility, or a oil refinery to
conform to the changes found in Section 6.
2:09:06 PM
Section 17 amends AS 43.55.028(j) and AS 43.55.028(g), Oil and
Gas Production Tax, Oil and gas tax credit fund established;
cash purchases of tax credit certificates, on page 12, lines 3-
19. This conforms to the repeal of the Oil and Gas Tax Credit
Fund in Section 25.
Section 18 amends AS 43.55.029(a), Oil and Gas Production Tax,
Assignment of tax credit certificate, on page 12, line 20-page
13, line 1. This conforms as well to the Section 25, the repeal
of AS 43.55.023(b), net operating loss (NOL) credit.
Section 19 amends AS 43.55.160(d), Oil and Gas Production Tax,
Determination of production tax value of oil and gas, on page
13, line 2-page 13, line 13. This also conforms to the section
25 repeal of AS 43.55.023(b), net operating loss credit.
Section 20 amends AS 43.55.160(e), Oil and Gas Production Tax,
Determination of production tax value of oil and gas, on page
13, line 14- page 14, line 5. This conforms to the repeal of the
NOL credit in Section 25 as well as to the change to lease
expenditures in section 21.
Section 21 amends AS 43.55.165(a), Oil and Gas Production Tax,
Lease expenditures (as amended by Sec. 29, ch.4, 4SSLA 2016 -
House Bill 247), on page 14, line 6-page 15, line 7. It states
that for the North Slope only, lease expenditures include those
incurred in a previous year that were not deducted in
determining production tax value and were not the basis of a
credit.
2:10:06 PM
Section 22 amends AS 43.55.165(f), Oil and Gas Production Tax,
Lease expenditures, on page 15, lines 8-12. This conforms to the
Section 25 repeal of AS 43.55.023(b), net operating loss credit.
2:10:35 PM
Section 23 adds new subsections to AS 43.55.165, Oil and Gas
Production Tax, Lease expenditures, on page 15, line 13-page 16,
line 17. These subsections respectively create an uplift in the
amount of 10 percent compounded annually, for seven years. Only
companies without commercial production when the expenditure
occurred are eligible for the uplift. The increased value
(uplift) can be applied generally providing the producer holds
interest in the leases on which the expenditure generating the
uplift occurred and the leases entered production.
That same section specifies that current year lease expenditures
are to be applied before carryforward lease expenditures when
calculating tax liability. In applying carry-forward lease
expenditures, a producer only needs to apply the amount that
would reduce taxes to the equal amount under the minimum tax,
and not to zero. Carry-forward lease expenditures in excess of
the amount applied to reduce taxes to the equal of the minimum
tax are carried forward to a future year.
Section 24 amends AS 43.55.170(c), Oil and Gas Production Tax,
Adjustments to lease expenditures, on page 16, lines 18-22. This
conforms to the section 25 repeal of AS 43.55.023(b), net
operating loss credit.
2:11:59 PM
Section 25 repeals multiple sections of statute on page 16,
lines 23-24. It repeals the NOL credit as well as all relevant
sections pursuant to the oil and gas tax credit fund, as well as
the assignment of tax credit certificates, which have been
constricted to third-party access before certification.
[AS 43.55.023(b) Net operating loss credit
AS 43.55.028(a) Oil and gas tax credit fund, fund
established
AS 43.55.028(b) Oil and gas tax credit fund, fund
consists of money to the fund and earnings on the fund
AS 43.55.028(c) Oil and gas tax credit fund, statutory
minimum calculation
AS 43.55.028(d) Oil and gas tax credit fund, fund
management
AS 43.55.028(f) Oil and gas tax credit fund, money in
fund does not lapse
AS 43.55.028(h) Oil and gas tax credit fund, not a
dedicated fund AS
43.55.028(i) Oil and gas tax credit fund, qualified
capital expenditure definition in relation to the fund
section of statute
AS 43.55.029(b)(4) Assignment of tax credit
certificate, assignment must contain an account with a
bank with which to receive funds when credit
certificate is repurchased]
Section 26, on page 16, lines 25-30, is applicability language
related to the new ability to apply AS 43.55.025 credits to
corporate income tax liability.
Section 27, on page 16, line 31-page 17, line 7, is
applicability language related to the new timelines in section
12 for the Department of Revenue to grant or deny applications
for credits under AS 43.55.025.
Section 28, on page 17, lines 8-14, is applicability language
related to credits used against prior years' production tax
liability.
Section 29, page 17, lines 15-19, is applicability language
related to lease expenditures.
2:13:09 PM
Section 30, on page 17, lines 20-25, is transition language
related to the changes in the interest rate on delinquent taxes,
insuring that the effective date is January 1, 2018 and no
retroactivity is applied to those.
Section 31, on page 17, line 26-page 18, line 8, is transition
language related to carry-forward annual losses.
Section 32, on page 18, lines 9-16, is transition language
related to transferrable tax credit certificates.
Section 33, on page 18, lines 17-21, is transition language
related to the repeal of the Oil and Gas Tax Credit Fund.
2:13:55 PM
Section 34, on page 18, lines 22-23, sets an immediate effective
date for Secs. 2, 7, 9, 11-14, and 26-28.
Section 35, on page 18, lines 24-25, sets an effective date for
section 21 based on the effective date of changes made in HB 247
of 2016 (effectively January 1, 2018).
Section 36, page 18, lines 26-27, sets a January 1, 2018,
effective date for all other sections.
2:14:35 PM
CHAIR GIESSEL removed her objection, and finding no further
objection announced that SCS CSHB 111 (RES), version 30-
LS0450\P, was before the committee. She noted that it would
remove all cashable credits, clarifies the hard 4-percent
minimum tax floor, and fixes an interest rate.
She said the committee had heard from the two legislative
consultants and many of their recommendations are in this bill.
The Senate has consensus around the issue of the need to remove
the cashable credit option, because the state simply can't
afford them.
2:15:29 PM
SENATOR MEYER commented that the legislature and the Governor
have acknowledged that the state's refundable credit program is
very unusual and makes its tax program problematic to implement.
The refundable credits have become the third-largest line in the
general fund budget. When oil was $100/barrel, it wasn't so
noticeable, but when oil is at $45/barrel, it is noticeable and
a problem to the budget. The key is remembering that the
cashable credits have worked exactly the way lawmakers wanted
them to. For example, four or five years ago they were looking
at how to import gas to Southcentral Alaska, and small companies
were attracted to Cook Inlet that has gone from having a
shortage of gas to having a surplus with those cashable credits.
The same can be said for the North Slope: Alaska wanted to
attract smaller companies to an area that is probably one of the
most expensive areas to do oil and gas exploration and
production. Some smaller companies have been enabled to go up
there by those cashable credits and have had some huge
successes.
SENATOR MEYER said Alaska just can't afford to do this anymore.
This SCS puts Alaska on a stable path going forward without the
fear of incurring greater liability. The whole tax policy
doesn't need to be rewritten, and HB 111 refocuses attention on
where it needs to be.
2:19:49 PM
SENATOR HUGHES supported Senator Meyer's remarks regarding the
cashable credits. They listened to their consultants for many
hours about the specifics and levers of our tax system, and some
good recommendations.
She thanked the House for its focus on cashable credits, but she
was concerned about the tax rewrite, because SB 21 is working.
Trying to tax Alaska into prosperity is like a man standing in a
bucket trying to lift himself up by a handle. Since the state
has been faced with this fiscal crisis, there has been a lot of
talk about spending and revenue, and in many ways this committee
has been good about understanding the issues. This version of HB
111 represents that their focus at this point really should be
about getting more oil in TAPS.
This bill strikes a balance. The oil industry has provided
"billions upon billions of dollars of revenue" to Alaska, and it
doesn't make sense to tax oil more when its price is down. Doing
that would risk having less oil in the pipe and job decreases
for already struggling companies.
As policy makers, Senator Hughes said, it is their
responsibility to stick with what they know, and they know SB 21
is working. She looks forward to continuing focusing on how to
get more oil into the pipeline. She wants explorers to continue
exploring and producers to continue producing.
SENATOR HUGHES said the balance SCS CSHB 111(RES) strikes
addresses the cashable credits, but also respects the voters'
will when it comes to SB 21. They are doing the right thing by
not focusing on the short term, which might mean a little more
revenue now, but rather focusing on the long term, because if
exploration continues, production will continue, and that means
revenue will continue.
2:25:56 PM
SENATOR VON IMHOF said one of the big takeaways from all the
testimony they heard last week is that small producers who have
generated millions of dollars in tax credits are left hanging,
and they have bills to pay; there are jobs on the line. HB 111
tries to create additional options for those tax credits where
the state is not the only entity paying for them. Legislators
are looking for a way so that these small companies can get cash
sooner rather than later while not reducing oil taxes expected
to be paid to the state, and therefore not affecting the revenue
forecast. It creates a win/win situation for everybody.
She said right now, companies can buy tax credits and use them
for current or future years and that has not changed. Instead
the SCS is opening up the market so that tax credits can be used
for prior years if a company must amend a previous tax return or
pay an assessment issued after an audit is complete. It was
never money the state could have predicted to receive or have
created a budget from, or ever really counted on.
SENATOR VON IMHOF said this means that small producers can get
money now with third-party transferability, and continue
operating and continue to secure future oil production. The
companies who purchase the tax credits can use them on past
taxes that they might unexpectedly owe during an audit or an
amended return with the stipulation that they don't appeal or
litigate the tax decision. They must accept the ruling, use the
tax credit, and move on.
The state benefits because of reducing the likelihood of
expensive and time-consuming disputes and it gets a second wind
by reducing the backlog of tax credits waiting to get cashed
out.
SENATOR VON IMHOF said she believes SCS CSHB 111(RES) is a
reasonable compromise to address the over $200 million in
cashable tax credits that have been earned and are sitting in
limbo.
2:28:40 PM
SENATOR COGHILL said it looks like the SCS CSHB 111(RES) answers
the question of how to retain value the best you can for those
who have already invested in Alaska. It finds a way in a cash-
strapped world to retain that value that the state set up an
expectation for. The bill doesn't address the complexity of
Alaska's tax system, but that conversation will go on for a long
time.
2:29:55 PM
SENATOR STEDMAN said one of the concerns he has is removal of
the tax credit fund and the requirement for state to make
minimum payments. The state has an outstanding backlog of $1
billion; so, how will that work? Currently, the state must pay a
minimum requirement, so a lender will always know he will get
some funds back. He didn't want to go into the Permanent Fund to
pay off that liability and he wanted to hear how removing that
minimum payment might affect the lenders.
CHAIR GIESSEL said this bill provides an opportunity to begin
the process of taking that liability off the books. It won't
solve the problem tomorrow or next year, but it is a beginning.
SENATOR STEDMAN said they need to have some conversation with
the people who have the outstanding debts on how this might
impact them, because getting a guaranteed small payment if
you're a lender is better than no guarantee at all, especially
if it's subject to a veto.
2:32:58 PM
He said the complexity of the GVR issue along with the per-
barrel deduction is best left for a later date. Clearly, there
are mechanical irregularities within the structure that are
disadvantageous to the state in its ability to have transparency
and predictability. He also noted that only one other sovereign
has a cashable credit, and that is why they are here today; it
doesn't work.
SENATOR STEDMAN said he was hesitant to say SB 21 is a success
when one of its major components is structurally flawed.
2:34:47 PM
SENATOR COGHILL moved to report SCS CSHB 111 (RES), version \P,
from committee with individual recommendations and the
forthcoming fiscal notes. There were no objections and it was so
ordered.
CHAIR GIESSEL commented that SCS CSHB 111 (RES), version \P,
focuses on the important issues around which there is consensus
in the Senate. The Senate began work on the tax credit issue in
2015 when a bi-partisan Senate Tax Credit Working Group was
convened. It had members of Resources and Finance Committees on
it, one of which was a member of this committee as well as
herself. Industry, Native corporations, and labor unions were
part of the group. The outcome were recommendations, one of
which was fixing the cash-ability of the cashable tax credits.
Today implements the next step in that.
The work began last year in HB 247 and a countdown to the
elimination of the Cook Inlet credits. They recognized that Cook
Inlet was a constrained market and that having cash credits by
government was distorting the competition. The Governor's veto
of the earned cashable credits in 2015/16 amplified the issue.
Today, this committee substitute completes the work of
addressing the cash exposure by eliminating cash credits going
forward.
CHAIR GIESSEL said the Senate has looked at this whole topic in
three buckets, and this bill:
1. Allows a more flexible use of those unpaid cashable
credits at no present cost to the state's general
fund. It will open the door to a variety of uses of
those to reduce the backlog.
2. Protects the state from future cash calls by:
-Repealing the Cash credit fund completely so that no
legislator can come up with a new idea of the cashable
credit.
-Moving the NOL from being a credit to a deduction,
which changes the tax liability, but it takes away the
cash exposure for the state.
-Preserving 100 percent of the value of the carried-
forward losses, which both consultants said is
critical, because removing that ability would put
Alaska at the bottom of the competitiveness ladder.
-Incorporating a non-cash uplift for new companies to
respect the time value of money in their investments.
-Preserves Middle Earth giving those companies an
opportunity to use their credits in a valuable way for
them.
-Allowing the natural expiration of the refinery and
gas storage related credits. They will be credited and
paid by appropriation only.
3. Allowing the current tax policy to continue being
implemented. A dramatic increase in production has
been seen, which means more royalty to the state. This
bill hardens the floor, one of the policies set forth
in SB 21 that needed clarification. The minimum tax
floor is still flexible for new and small producers.
The sliding-scale, per-barrel reduction is still
preserved recognizing Alaska's high royalty structure.
This SCS is balanced in terms of all areas of the state, she
said; it doesn't carve out special recognition for certain
companies; and it is a path forward without cashable credits.
2:40:54 PM
CHAIR GIESSEL emphasized that this new policy does increase the
total tax that will be paid by the oil industry, but it also
protects their businesses by allowing 100 percent deductibility
of their losses, and it provides that other important piece: the
process and eventual payment of the unpaid cash credits. She
thanked committee members for their input and work on the bill.
[SCS CSHB 111 (RES) moved from committee.]
| Document Name | Date/Time | Subjects |
|---|---|---|
| AGENDA - 4 - 24 - 17.pdf |
SRES 4/24/2017 2:00:00 PM |
|
| HB 111 - SRES CS Version P - 4 - 24 - 17.pdf |
SRES 4/24/2017 2:00:00 PM |
HB 111 |
| HB 111 - SRES CS Summary Sheet - 4 - 24 - 17.pdf |
SRES 4/24/2017 2:00:00 PM |
HB 111 |
| HB 111 - SRES CS Sectional Analysis - 4 - 24 - 17.pdf |
SRES 4/24/2017 2:00:00 PM |
HB 111 |