Legislature(2005 - 2006)HOUSE FINANCE 519
05/06/2006 08:30 AM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| SB305 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| = | SB 305 | ||
HOUSE FINANCE COMMITTEE
May 6, 2006
9:15 a.m.
CALL TO ORDER
Co-Chair Chenault called the House Finance Committee meeting
to order at 9:15:52 AM.
MEMBERS PRESENT
Representative Mike Chenault, Co-Chair
Representative Kevin Meyer, Co-Chair
Representative Bill Stoltze, Vice-Chair
Representative Richard Foster
Representative Mike Hawker
Representative Jim Holm
Representative Reggie Joule
Representative Mike Kelly
Representative Beth Kerttula
Representative Carl Moses
Representative Bruce Weyhrauch
MEMBERS ABSENT
None
ALSO PRESENT
Robynn Wilson, Director, Division of Tax, Department of
Revenue; Dan Dickinson, Consultant, Tax Division, Department
of Revenue; Mr. Robert Mintz, Assistant Attorney General,
Department of Law; Representative Ralph Samuels;
Representative Harry Crawford; Representative Norm Rokeberg;
Representative Ethan Berkowitz; Representative Carl Gatto;
Representative Donny Olson
PRESENT VIA TELECONFERENCE
None
SUMMARY
CSSB 305(FIN) am
"An Act repealing the oil production tax and the
gas production tax and providing for a production
tax on oil and gas; relating to the calculation of
the gross value at the point of production of oil
and gas and to the determination of the value of
oil and gas for purposes of the production tax on
oil and gas; providing for tax credits against the
production tax on oil and gas; relating to the
relationship of the production tax on oil and gas
to other taxes, to the dates those tax payments
and surcharges are due, to interest on
overpayments of the tax, and to the treatment of
the tax in a producer's settlement with the
royalty owners; relating to flared gas, and to oil
and gas used in the operation of a lease or
property under the production tax; relating to the
prevailing value of oil and gas under the
production tax; relating to surcharges on oil;
relating to statements or other information
required to be filed with or furnished to the
Department of Revenue, to the penalty for failure
to file certain reports for the tax, to the powers
of the Department of Revenue, and to the
disclosure of certain information required to be
furnished to the Department of Revenue as
applicable to the administration of the tax;
relating to criminal penalties for violating
conditions governing access to and use of
confidential information relating to the tax, and
to the deposit of tax money collected by the
Department of Revenue; amending the definitions of
'gas,' 'oil,' and certain other terms for purposes
of the production tax, and as the definition of
the term 'gas' applies in the Alaska Stranded Gas
Development Act, and adding further definitions;
making conforming amendments; and providing for an
effective date."
HCS CSSB 305 (FIN) was REPORTED out of Committee
with an "amend" recommendation and with a new
fiscal note by the Department of Revenue.
9:16:01 AM
CS FOR SENATE BILL NO. 305(FIN) am
"An Act repealing the oil production tax and the gas
production tax and providing for a production tax on
oil and gas; relating to the calculation of the gross
value at the point of production of oil and gas and to
the determination of the value of oil and gas for
purposes of the production tax on oil and gas;
providing for tax credits against the production tax on
oil and gas; relating to the relationship of the
production tax on oil and gas to other taxes, to the
dates those tax payments and surcharges are due, to
interest on overpayments of the tax, and to the
treatment of the tax in a producer's settlement with
the royalty owners; relating to flared gas, and to oil
and gas used in the operation of a lease or property
under the production tax; relating to the prevailing
value of oil and gas under the production tax; relating
to surcharges on oil; relating to statements or other
information required to be filed with or furnished to
the Department of Revenue, to the penalty for failure
to file certain reports for the tax, to the powers of
the Department of Revenue, and to the disclosure of
certain information required to be furnished to the
Department of Revenue as applicable to the
administration of the tax; relating to criminal
penalties for violating conditions governing access to
and use of confidential information relating to the
tax, and to the deposit of tax money collected by the
Department of Revenue; amending the definitions of
'gas,' 'oil,' and certain other terms for purposes of
the production tax, and as the definition of the term
'gas' applies in the Alaska Stranded Gas Development
Act, and adding further definitions; making conforming
amendments; and providing for an effective date."
9:17:40 AM
Representative Kerttula MOVED to ADOPT Amendment 38 b:
Page 1, line 1, through page 2, line - 9:
Delete all material.
Insert ""An Act relating to oil and gas, the oil and
gas properties production (severance) tax as it applies
to oil; providing for an adjustment to increase the tax
collected when oil prices exceed $20 per barrel and to
reduce the tax collected when oil prices fall below $16
per barrel; providing for relief from the tax when the
price per barrel is low or when the taxpayer
demonstrates that a reduction in the tax is necessary
to establish or reestablish production from an oil
field or pool that would not otherwise be economically
feasible; delaying until July 1, 2016, the deadline for
certain exploration expenditures that form the basis
for a credit against the tax on oil and gas produced
from a lease or property in the state; and amending the
powers and duties of the Alaska Oil and Gas
Conservation Commission.""
Page 2, line 11, through page 36, line 5:
Delete all material and insert:
"* Section 1. AS 31.05.030(d) is amended to read:
(d) The commission may require
(1) identification of ownership of wells,
producing leases, tanks, plants and drilling
structures;
(2) the making and filing of reports, well
logs, drilling logs, electric logs, lithologic logs,
directional surveys, and all other subsurface
information on a well drilled for oil or gas, or for
the discovery of oil or gas, or for geologic
information, and the required reports and information
shall be filed within 30 days after the completion,
abandonment, or suspension of the well;
(3) the drilling, casing, and plugging of
wells in a manner that will prevent the escape of oil
or gas out of one stratum into another, the intrusion
of water into an oil or gas stratum, the pollution of
fresh water supplies by oil, gas, or salt water, and
prevent blowouts, cavings, seepages and fires;
(4) the furnishing of a reasonable bond with
sufficient surety conditions for the performance of the
duty to plug each dry or abandoned well or the repair
of wells causing waste;
(5) the operation of wells with efficient
gas-oil and water-oil ratios, and may fix these ratios;
(6) the gauging or other measuring of oil
and gas to determine the quality and quantity of oil
and gas;
(7) every person who produces oil or gas in
the state to keep and maintain for a period of five
years in the state complete and accurate records of the
quantities of oil and gas produced, which shall be
available for examination by the Department of Natural
Resources or its agents at all reasonable times;
(8) the measuring and monitoring of oil and
gas pool pressures;
(9) the filing and approval of a plan of
development and operation for a field or pool in order
to prevent waste, ensure [INSURE] a greater ultimate
recovery of oil and gas, and protect the correlative
rights of persons owning interests in the tracts of
land affected.
(10) working interest owners to provide, at
a commercially reasonable rate of return, not to exceed
costs plus 10 percent, access to production and other
facilities whenever necessary; the commission may act
under this paragraph
(A) to
(i) maximize the economic and
physical recovery of the state's oil and gas
resources;
(ii) maximize competition among
parties seeking to explore and develop the
state's oil and gas resources;
(iii) minimize the adverse affects
of exploration, development, production, and
transportation activity; or
(iv) otherwise protect the best
interest of the state; and
(B) only if the commission finds that
the facility has excess capacity and that
directing the working interest owner to provide
access by or for the benefit of others would not
materially interfere with the owner's paramount
use of the facility.
* Sec. 2. AS 36.30.850(b)(33) is amended to read:
(33) contracts between the Department of
Natural Resources or the Department of Revenue, as
appropriate, and contractors qualified to evaluate
hydrocarbon development, production, transportation,
and economics, to assist the commissioner of natural
resources or the commissioner of revenue, as
appropriate, in evaluating applications for
(A) royalty increases or decreases or
other royalty adjustments, and evaluating the
related financial and technical data, entered into
under AS 38.05.180(j); or
(B) tax reductions, and evaluating the
related financial and technical data, as
authorized by AS 43.55.011(i) and (j);
* Sec. 3. AS 43.55.011(a) is amended to read:
(a) There is levied upon the producer of oil a
tax for all oil produced from each lease or property in
the state, less any oil the ownership or right to which
is exempt from taxation. The tax is equal to,
(1) in the case of North Slope oil, either
the percentage-of-value amount calculated under (b)(1)
[(b)] of this section or the cents-per-barrel amount
calculated under (c)(1) [(c)] of this section,
whichever is greater; if [, MULTIPLIED BY THE ECONOMIC
LIMIT FACTOR DETERMINED FOR THE OIL PRODUCTION OF THE
LEASE OR PROPERTY UNDER AS 43.55.013. IF] the amounts
calculated under (b)(1) and (c)(1) [(b) AND (c)] of
this section are equal, the amount calculated under
(b)(1) [(b)] of this section shall be treated as if it
were the greater for purposes of this section;
(2) in the case of oil that is not North
Slope oil, either the percentage-of-value amount
calculated under (b)(2) of this section or the cents-
per-barrel amount calculated under (c)(2) of this
section, whichever is greater, multiplied by the
economic limit factor determined for the oil production
of the lease or property under AS 43.55.013; if the
amounts calculated under (b)(2) and (c)(2) of this
section are equal, the amount calculated under (b)(2)
of this section shall be treated as if it were the
greater for purposes of this section.
* Sec. 4. AS 43.55.011(b) is amended to read:
(b) The percentage-of-value amount equals,
(1) in the case of North Slope oil, the tax
rate set out in (e) of this section multiplied by the
gross value at the point of production of taxable oil
produced from the lease or property;
(2) in the case of oil that is not North
Slope oil, 12.25 percent of the gross value at the
point of production of taxable oil produced on or
before June 30, 1981, from the lease or property and 15
percent of the gross value at the point of production
of taxable oil produced from the lease or property
after June 30, 1981; except that, for a lease or
property coming into commercial oil production after
June 30, 1981, the percentage-of-value amount equals
12.25 percent of the gross value at the point of
production of taxable oil produced from the lease or
property in the first five years after the start of
commercial oil production and equals 15 percent of the
gross value at the point of production of taxable oil
produced [THEREAFTER] from the lease or property.
* Sec. 5. AS 43.55.011(c) is amended to read:
(c) The cents-per-barrel amount equals,
(1) in the case of North Slope oil, $0.80
per barrel of taxable crude oil produced from the lease
or property, as adjusted by AS 43.55.012, multiplied by
the economic limit factor determined for oil production
of the lease or property under AS 43.55.013 and by the
price adjustment factor set out in (e)(2)(D) of this
section;
(2) in the case of oil that is not North
Slope oil, $0.60 per barrel of taxable old crude oil
produced from the lease or property, and $0.80 per
barrel for all other taxable oil produced from the
lease or property, both as adjusted by AS 43.55.012.
* Sec. 6. AS 43.55.011 is amended by adding new
subsections to read:
(e) This subsection and (f) - (k) of this section
apply only to North Slope oil. Except as provided in
(h) of this section for heavy oil, the tax rate is the
lesser of
(1) 25 percent; or
(2) the product of the volume adjusted tax
rate multiplied by the price adjustment factor; for
purposes of
(A) this paragraph, the volume adjusted
tax rate is the greater of
(i) the applicable tax rate, not
to exceed five percent, determined under (C)
of this paragraph, except that, if during a
month in which the West Coast prevailing
value for oil under AS 43.55.020(f) is less
than $12, the applicable tax rate is zero and
the volume adjusted tax rate is determined
only by the application of (ii) of this
subparagraph; or
(ii) the economic limit factor
determined for the oil production of the
lease or property under AS 43.55.013
multiplied by the nominal tax rate;
(B) subparagraph (A) of this paragraph,
the nominal tax rate is
(i) 12.25 percent during the first
five years from the date that is the start of
commercial oil production; and
(ii) 15 percent after the first
five years from the date that is the start of
commercial oil production;
(C) sub-subparagraph (A)(i) of this
paragraph, during each month in which the West
Coast prevailing value for oil under
AS 43.55.020(f) averages
(i) at least $16, the applicable
rate is five percent;
(ii) at least $15 but not $16, the
applicable rate is four percent;
(iii) at least $14 but not $15,
the applicable rate is three percent;
(iv) at least $13 but not $14, the
applicable rate is two percent; and
(v) at least $12 but not $13, the
applicable rate is one percent; and
(D) this paragraph and for the purpose
of determining the cents-per-barrel amount under
(c) of this section, the price adjustment factor
is one, except that the price adjustment factor is
the West Coast prevailing value divided by
(i) 16 during each month in which
the West Coast prevailing value for oil under
AS 43.55.020(f) averages less than $16 per
barrel;
(ii) 20 during each month in which
the West Coast prevailing value for oil under
AS 43.55.020(f) averages more than $20 per
barrel.
(f) During a month in which the West Coast
prevailing value for oil determined under
AS 43.55.020(f) on which tax is due under this chapter
averages less than $10 per barrel, the payment of
(1) one-half of the tax due and payable
under this chapter is waived; and
(2) the remaining one-half of the tax due
and payable under this chapter is deferred, subject to
the following:
(A) the amount of tax payment that is
deferred under this paragraph is payable by the
taxpayer
(i) during each month in which the
West Coast prevailing value for oil on which
tax is due under this chapter averages at
least $16 per barrel; and
(ii) sequentially on a month-for-
month basis in the order in which the tax
payment was deferred based on payment of one
month's deferred tax during each month that
the West Coast prevailing value for oil on
which tax is due under this chapter averages
at least $16 per barrel; and
(B) amounts due and payable because of
a payment deferral under this paragraph bear
interest at the rate of a 10-year note of the
United States treasury at the time of the
deferral.
(g) On and after July 1, 2006, the commissioner
shall
(1) annually revise the dollar prices
described in (e) and (f) of this section and the
related denominators setout in (e)(2)(D)(i) and (ii) of
this section to reflect inflation as defined by
regulation adopted by the department; and
(2) promptly report the application of the
revisions to all taxpayers subject to the tax levied
and collected under this chapter.
(h) Notwithstanding (e) of this section, the tax
rate for heavy oil is the volume adjusted tax rate.
The volume adjusted tax rate for heavy oil is
determined by multiplying the economic limit factor
determined for the oil production of the lease or
property under AS 43.55.013 by the nominal tax rate set
out in (e)(2)(A)(i) and (ii) of this section. In this
subsection, "heavy oil" means oil equal to or less than
20 degrees API gravity.
(i) A producer of oil that is North Slope oil may
apply for a reduction of the tax due under (e), (j),
and (k) of this section on the production of the oil
(1) if and to the extent that the amount
calculated under (A) of this paragraph is greater than
the amount calculated under (B) of this paragraph, but
a reduction of the tax may not result in collection of
tax due under this section that is less than the amount
calculated under (B) of this paragraph:
(A) the amount of tax on the production
of the oil that results from applying the
provisions of (e) of this section;
(B) the amount of tax on the production
of the oil that would result from not applying the
provisions of (e) of this section; and
(2) if the commissioner determines that the
application meets the requirements of
AS 38.05.180(j)(1)(A), (j)(1)(B), or (j)(1)(C).
(j) When the commissioner receives an application
under (i) of this section, the commissioner
(1) may not approve a tax reduction
(A) unless the applicant makes a clear
and convincing showing that the tax reduction
meets the requirements of (i) of this section and
this subsection and is in the best interests of
the state;
(B) that reduces the amount of the tax
recovered to less than the amount determined under
(i)(1)(B) of this section;
(C) without including an explicit
condition that the tax reduction is not assignable
without the prior written approval, which may not
be unreasonably withheld, by the commissioner; the
commissioner shall, in the preliminary and final
findings and determinations, set out the
conditions under which the tax reduction may be
assigned;
(2) shall require the applicant to submit,
with the application for the tax reduction, financial
and technical data that demonstrate that the
requirements of (i) of this section and this subsection
are met; the commissioner
(A) may require disclosure of only the
financial and technical data related to
development, production, and transportation of oil
and gas or gas only from the field or pool that
are reasonably available to the applicant; and
(B) shall keep the data confidential
under AS 38.05.035(a)(9) at the request of the
applicant; the confidential data may be disclosed
by the commissioner to legislators and to the
legislative auditor and as directed by the chair
or vice-chair of the Legislative Budget and Audit
Committee to the director of the division of
legislative finance, the permanent employees of
their respective divisions who are responsible for
evaluating a tax reduction, and to agents or
contractors of the legislative auditor or the
legislative finance director who are engaged under
contract to evaluate the tax reduction, if they
sign an appropriate confidentiality agreement;
(3) may require the applicant for the tax
reduction under (i) of this section and this subsection
to pay for the services of an independent contractor,
selected by the applicant from a list of qualified
consultants compiled by the commissioner, to evaluate
hydrocarbon development, production, transportation,
and economics and to assist the commissioner in
evaluating the application and financial and technical
data; if, under this paragraph, the commissioner
requires payment for the services of an independent
contractor, the total cost of the services to be paid
for by the applicant may not exceed $150,000 for each
application, and the commissioner shall determine the
relevant scope of the work to be performed by the
contractor; selection of an independent contractor
under this paragraph is not subject to AS 36.30;
(4) shall make and publish a preliminary
findings and determination on the tax reduction
application, give reasonable public notice of the
preliminary findings and determination, and invite
public comment on the preliminary findings and
determination during a 30-day period for receipt of
public comment;
(5) shall offer to appear before the
Legislative Budget and Audit Committee, on a day that
is not earlier than 10 days and not later than 20 days
after giving public notice under (4) of this
subsection, to provide the committee a review of the
commissioner's preliminary findings and determination
on the tax reduction application and administrative
process; if the Legislative Budget and Audit Committee
accepts the commissioner's offer, the committee shall
give notice of the committee's meeting to all members
of the legislature;
(6) shall make copies of the preliminary
findings and determination available to
(A) the presiding officer of each house
of the legislature;
(B) the chairs of the legislature's
standing committees on resources; and
(C) the chairs of the legislature's
special committees on oil and gas, if any; and
(7) shall, within 30 days after the close of
the public comment period under (4) of this subsection,
(A) prepare a summary of the public
response to the commissioner's preliminary
findings and determination;
(B) make a final findings and
determination; the commissioner's final findings
and determination prepared under this subparagraph
regarding a tax reduction is final and not
appealable to the court;
(C) transmit a copy of the final
findings and determination to the lessee; and
(D) make copies of the final findings
and determination available to each person who
submitted comment under (4) of this subsection and
who has filed a request for the copies.
(k) In this section, "North Slope oil" means oil
produced from a portion of a reservoir located north of
68 degrees North latitude.
* Sec. 7. AS 43.55.012(b) is amended to read:
(b) The cents-per-barrel amount set out in
AS 43.55.011(c)(1) and (2) [AS 43.55.011(c)] applies to
oil of 27 degrees API gravity. For each degree of API
gravity less than 27 degrees, the cents-per-barrel
amount shall be reduced by $.005 and for each degree of
API gravity greater than 27 degrees the cents-per-
barrel amount shall be increased by $.005 except that
oil above 40 degrees API gravity shall be taxed as 40
degree oil. In applying the gravity adjustment under
this subsection, fractional degrees of API gravity
shall be disregarded.
* Sec. 8. AS 43.55.025(b) is amended to read:
(b) To qualify for the production tax credit
under (a) of this section, an exploration expenditure
must be incurred for work performed on or after July 1,
2003, and before July 1, 2016 [2007], except that an
exploration expenditure for a Cook Inlet prospect must
be incurred for work performed on or after July 1,
2005, [AND BEFORE JULY 1, 2010, AND EXCEPT THAT AN
EXPLORATION EXPENDITURE, IN WHOLE OR IN PART, SOUTH OF
68 DEGREES, 15 MINUTES, NORTH LATITUDE, AND NOT PART OF
A COOK INLET PROSPECT MUST BE INCURRED FOR WORK
PERFORMED ON OR AFTER JULY 1, 2003, AND BEFORE JULY 1,
2010,] and
(1) may be for seismic or geophysical
exploration costs not connected with a specific well;
(2) if for an exploration well,
(A) must be incurred by an explorer
that holds an interest in the exploration well for
which the production tax credit is claimed;
(B) may be for either an oil or gas
discovery well or a dry hole; and
(C) must be for goods, services, or
rentals of personal property reasonably required
for the surface preparation, drilling, casing,
cementing, and logging of an exploration well,
and, in the case of a dry hole, for the expenses
required for abandonment if the well is abandoned
within 18 months after the date the well was
spudded;
(3) may not be for testing, stimulation, or
completion costs; administration, supervision,
engineering, or lease operating costs; geological or
management costs; community relations or environmental
costs; bonuses, taxes, or other payments to governments
related to the well; or other costs that are generally
recognized as indirect costs or financing costs; and
(4) may not be incurred for an exploration well or
seismic exploration that is included in a plan of
exploration or a plan of development for any unit on
May 13, 2003."
Co-Chair Chenault OBJECTED.
REPRESENTATIVE HARRY CRAWFORD explained that the amendment
puts an adjusted ELF in place. It goes from 5 percent at
$16 per barrel to 25 percent at $100 per barrel. At $60 per
barrel it is at 15 percent. It taxes at the gross amount of
production. He opined that a net profits tax introduces
inefficiency into the system. He related his experience as
an ironworker and the two types of contracts used, "cost
plus" contract and "hard money" contract. The hard money
contracts are far more efficient.
Representative Crawford mentioned inefficiencies in the TAPS
project due to the cost plus contract used. The emphasis
was on running up costs rather than trying to get the job
done in the cheapest, most efficient manner. The current
PPT puts an emphasis on raising the cost. The amendment has
a facilities access provision to help the explorers,
provides the state protection at low oil prices, and raises
the same amount of money as from the PPT, but does not allow
for costs to be inflated. It uses real numbers.
9:22:57 AM
Representative Crawford recalled testimony about how well
ELF worked in the past. The amendment builds on the ELF
concept. It raises the price 2.5 percent for every $10 per
barrel and maxes out at 25 percent at $100 per barrel. It
is a simple tax on the gross, rather than on the net.
9:24:44 AM
DAN DICKINSON, CONSULTANT, TAX DIVISION, DEPARTMENT OF
REVENUE agreed that there are some good ideas for taxing on
the gross. The PPT focuses on investment, is a tax on net,
and is a better way to go. He spoke against Amendment 38 b.
Co-Chair Chenault spoke of his experience with bid jobs and
maintained that they often run over cost and are not as
efficient as time and material jobs. It depends on
management and the accuracy of bidding and standards vary.
He spoke against the amendment. He maintained that the
current HCS has been worked on to their best ability.
9:28:49 AM
Representative Stoltze noted that gross vs. net was not
discussed previously. He requested Representative Samuels'
perspective.
REPRESENTATIVE RALPH SAMUELS noted that the most disturbing
part of the debate has been about the tax rate, and it
should have been about the methodology - whether or not to
use direct cost recovery as a method of taxation for oil.
He opined that progressivity is the most important factor.
As long as progressivity is included, the risk at the low
end is worth it. The trust factor is based on how to make
sure that the corporations don't "game us on the cost". He
wanted to make sure to get the cost recovery right. He
agreed to go with the net tax. He assured the committee
that auditing would take place in the future. He maintained
that the smaller players would be needed eventually. For
the larger fields today, access to information such as tax
returns is vital in order to tax the net. There needs to be
pressure on the administration for accurate information.
Representative Samuels stated his dislike for regulators.
He agreed that most of this should be in regulation to
prevent political fighting in the future. He said he has
bought into the idea of cost recovery and is comfortable
going with the net tax and the risk to the state, which is
in the cost recovery.
9:34:32 AM
Representative Kerttula asked for Representative Berkowitz's
opinion.
REPRESENTATIVE ETHAN BERKOWITZ agreed with Representative
Samuels' comment that there has not been enough talk about
structure. He opined that the gross process, as proposed by
the amendment, is the way to go because it protects the
state's assets. He noted that people who work for the
state, protecting the state's assets, get lured into the
private sector, which leaves the state at a competitive
disadvantage. This conversation should be about creating a
method that is transparent, simple and easy to administer.
He requested more time for a conversation about gross and
net.
9:37:06 AM
Representative Crawford said his intention was to get the
conversation started. Some consultants reported on the
merits to PPT, but agreed it would take accountants and
lawyers to make it work. A better system would be a tax on
the gross. The allegiance of the oil companies is to their
shareholders. The state's job is to protect the state for
the future. PPT is not in the state's best interest. The
legislature should have been debating all along what the
best system for Alaska is.
Representative Kerttula agreed with Representative Samuels'
comments on the structure. With the PPT there are too many
questions. Without certainty, more questions need to be
asked. Amendment 38 b maintains the ELF as a wise first
step.
9:41:26 AM
A roll call vote was taken on the motion to ADOPT Amendment
38 b.
IN FAVOR: Kerttula, Moses, Joule
OPPOSED: Stoltze, Weyhrauch, Foster, Hawker, Holm, Kelly,
Chenault, Meyer
The MOTION FAILED (3-8).
9:42:49 AM
Representative Weyhrauch MOVED to ADOPT Amendment 40:
Page 5, line 4, following "gas":
Insert ", except that, for years beginning after
December 31, 2007, the commissioner shall adjust the
number to be subtracted to account for inflation"
Page 5, lines 5 - 6:
Delete all material and insert:
"For purposes of this subsection,
(1) a barrel of oil equivalent is a barrel of
oil, in the case of oil, or 6,000 cubic feet of gas, in
the case of gas; and
(2) the commissioner shall adjust the figure to be
subtracted according to and to the extent of changes in
the Consumer Price Index for all Urban Consumers for
the Anchorage Metropolitan Area compiled by the Bureau
of Labor Statistics, United States Department of Labor
and applied to the rate specified in this subsection;
for purposes of this subsection, the index for January
of 2007, is the reference base index."
Representative Hawker OBJECTED.
Representative Weyhrauch related that Amendment 40 is
intended to deal with inflation. He requested the
Department's viewpoint.
Mr. Dickinson said going to a net calculation on the
progressivity would take care of half of the issue; it will
decrease the profit. The change in the value of the
purchasing power of oil is not dealt with in the net. He
stated support for Amendment 40.
Representative Hawker MAINTAINED his OBJECTION. He said the
amendment is an issue that he does not agree with.
Inflation indexing is not the way to go. Budget and program
decisions need to be consistent.
9:46:58 AM
Representative Holm concurred with Representative Hawker.
He asked if there is data about petroleum products tracking
inflation or leading inflation. In this case price
structuring with petroleum cannot be tied to inflation. He
noted that education funding requested to be tied to
inflation.
9:48:36 AM
MR. ROBERT MINTZ, ASSISTANT ATTORNEY GENERAL, DEPARTMENT OF
LAW, suggested a technical correction to the amendment. He
suggested to use the phrase "the number 35".
Representative Weyhrauch requested a vote as the amendment
stands.
Representative Kerttula wondered about the concern regarding
inflation.
A roll call vote was taken on the motion to ADOPT Amendment
40.
IN FAVOR: Weyhrauch, Foster, Meyer
OPPOSED: Moses, Stoltze, Hawker, Holm, Joule, Kelly
Kerttula, Chenault
The MOTION FAILED (3-8).
Representative Weyhrauch MOVED to ADOPT Amendment 41:
Page 2, line 8, following "amendments;":
Insert "relating to the disposition of state income
affected by a provision of this Act;"
Page 2, following line 25:
Insert a new bill section to read:
"* Sec. 2. AS 37.13.145 is amended by adding a new
subsection to read:
(e) Notwithstanding (b) of this section, income
earned on money awarded in or received as a result of
litigation arising out of this Act, including
settlement, summary judgment, or a tax adjustment that
is tied to the outcome of that litigation, or interest
earned on the money, or on the earnings of the money,
shall be treated in the same manner as other income of
the Alaska permanent fund, except that it is not
available for distribution to the dividend fund or for
transfers to the principal under (c) of this section,
and shall be annually deposited into the Alaska capital
income fund (AS 37.05.565)."
Renumber the following bill sections accordingly.
Renumber internal references to bill sections in
accordance with this amendment. Below are all internal
bill section references in this bill:
Page 2, line 13 and 22:
Page 32, lines 16, 17, 19, 20, 24, 26, 29, and 31
Page 33, lines 2, 4, 6, 8, 11, 14, 16, 22, 23, and 30
Page 34, lines 1, 4, 5, 11, 13, 15, 21, 23, 25, and 27
Page 35, lines 1, 2, and 15
Page 36, lines 2, 3, and 4
Representative Hawker OBJECTED.
Representative Weyhrauch explained that the amendment is
derived from the Amerada Hess issue that resulted in appeals
th
to the 9 Circuit Court regarding a fair trail and bias due
to the judge and jury receiving a Permanent Fund Dividend.
The amendment anticipates future litigation.
9:50:53 AM
Mr. Dickinson said he was confused about the reference to
Amerada Hess. No taxes flow directly into the Permanent
Fund. He said he doesn't understand the problem being
addressed.
Representative Weyhrauch explained that he does not want
anything to hold up any payments to the state if there is
any litigation that results in a trial.
Representative Hawker said he does not read that intent into
the amendment. He noted no connection to Amerada Hess.
Representative Weyhrauch WITHDREW Amendment 41.
9:53:34 AM
At-Ease.
11:12:48 AM
Representative Weyhrauch MOVED to ADOPT Amendment 42:
Page 4, line 31, following "section.":
Insert "However, application of this subsection may
not, when added to the tax levied under (e) or (f) of
this section, impose a total tax levy of more than 25
percent of the production tax value of taxable oil and
gas as calculated under AS 43.55.160."
Representative Hawker OBJECTED.
Representative Weyhrauch MOVED to AMEND Amendment 42: Delete
"or (f)". There being NO OBJECTION, it was so ordered.
Representative Weyhrauch spoke about Amendment 42. It deals
with whether there should be a cap on the interest rate.
The amendment would cap it at 25 percent. He requested an
opinion from the Department about the ceiling.
Ms. Wilson replied that there is no cap on the tax rate in
the bill. The Department believes there should be a cap.
Representative Hawker maintained that the citizens of Alaska
should participate in the upside of high oil prices. He
argued against a tax rate cap.
Representative Kerttula asked at what price 100 percent is
reached. Ms. Wilson said it appears to be at $380. Mr.
Dickinson added that many taxes come out of the producer's
share: royalties, income tax, property taxes, and federal
dollars. A cap has to take this into consideration.
11:19:37 AM
Representative Hawker MAINTAINED his OBJECTION.
Ms. Wilson added that today's oil prices used to seem out of
the realm of possibility. She requested that the bill be
intact and functional into the future.
Representative Kelly recalled a 50 percent cap from the
House Resources' version of the bill. He argued that 25
percent is too low.
A roll call vote was taken on the motion to ADOPT Amendment
42, as amended.
IN FAVOR: Weyhrauch, Foster
OPPOSED: Stoltze, Hawker, Holm, Joule, Kelly, Kerttula
Moses, Chenault, Meyer
The MOTION FAILED (2-9).
11:22:09 AM
Representative Weyhrauch MOVED to ADOPT Amendment 43:
Page 2, line 8, following "amendments;":
Insert "amending the powers of the board of trustees of
the Alaska Retirement Management Board to authorize
purchase and sale of transferable tax credit
certificates issued in conjunction with the production
tax on oil and gas;"
Page 2, following line 25:
Insert a new bill section to read:
"* Sec. 2. AS 37.10.220(b) is amended to read:
(b) The board may
(1) employ outside investment advisors to
review investment policies;
(2) enter into an agreement with the
fiduciary of another state fund in order to assume the
management and investment of those assets;
(3) contract for other services necessary to
execute the board's powers and duties;
(4) enter into confidentiality agreements
that would exempt records from AS 40.25.110 and
40.25.120 if the records contain information that could
affect the value of investment by the board or that
could impair the ability of the board to acquire,
maintain, or dispose of investments;
(5) purchase transferable tax credit
certificates issued under AS 43.55.024 for 90 percent
of the face value of a certificate, and sell
transferable tax credit certificates to the Department
of Revenue under AS 43.55.024(k) for a cash refund; the
board may, under this paragraph, sell a transferable
tax credit only if the commissioner of revenue
determines that economic conditions are acceptable for
the state to purchase and pay for the credit; the board
shall apply the proceeds from a sale made under this
paragraph to defray the unfunded pension liabilities of
the systems for which the board has responsibility."
Renumber the following bill sections accordingly.
Page 12, following line 17:
Insert a new subsection to read:
"(k) Under standards established in regulations
adopted by the department and subject to appropriations
made by law, the department, on the written application
of the person to whom a transferable tax credit has
been issued under (e) of this section, shall issue a
cash refund, in whole or in part, for the certificate
if the department finds
(1) after investigation and audit of the tax
credit claim by the department, the applicant is
entitled to the credit to the extent of the refund
amount;
(2) within 24 months after having applied
for the transferable tax credit certificate, the
applicant incurred a qualified capital expenditure or
was the successful bidder on a bid submitted for a
lease on state land under AS 38.05.180(f);
(3) the amount of the refund would not
exceed the total of qualified capital expenditures and
successful bids described in (2) of this subsection
that have not been the subject of a finding made under
this paragraph for purposes of a previous refund;
(4) the applicant
(A) does not have an outstanding
liability to the state for unpaid delinquent taxes
under this title; or
(B) has an outstanding liability to the
state for unpaid delinquent taxes under this
title, but the department may issue a cash refund
for the certificate to the applicant only if
(i) the applicant's outstanding
liability is more than one year old and is
the subject of a proceeding before an
administrative law judge or court to resolve
a dispute about the applicant's liability for
the tax; and
(ii) the applicant agrees in
writing that, if, as a result of a final
order or judgment in a proceeding described
in (i) of this subparagraph, the applicant is
found to be liable for payment of the tax,
the applicant shall remit the tax payment to
the department within 30 days after the order
or judgment, together with interest at the
rate of 18 percent, calculated as for a tax
that has become delinquent under this title;
and
(5) the sum of the amount of the refund
applied for and amounts previously refunded to the
applicant during the calendar year under this
subsection would not exceed $10,000,000."
Reletter the following subsection accordingly.
Conform internal references to bill sections in
accordance with this amendment.
Co-Chair Chenault OBJECTED.
Representative Weyhrauch said the first part has already
been addressed. The second part deals with taxpayers. He
asked the Department to consider the issue of resolving tax
disputes expeditiously.
Representative Weyhrauch WITHDREW Amendment 43.
11:23:45 AM
Representative Weyhrauch MOVED to ADOPT Amendment 44:
Page 24, line 6, following "oil":
Insert ";
(Q) costs, expenses, and damages associated with
unpermitted oil discharges"
Representative Hawker OBJECTED.
Representative Weyhrauch explained Amendment 44. He
addressed costs associated with an unpermitted oil
discharge.
Representative Hawker wondered if such expenses might
encompass costs related to prevention of unpermitted
discharges. Representative Weyhrauch thought that costs for
prevention were already incorporated.
11:25:43 AM
Ms. Wilson responded that the amendment is not clear whether
prevention expenses would be included. It is a policy call.
Representative Weyhrauch addressed Representative Hawker's
concern. He MOVED to AMEND Amendment 44 by adding the words
"but not costs, expenses, and damages associated with
prevention of oil discharges."
Representative Kerttula voiced a concern. She suggested
other wording: "incurred as a result of unpermitted oil
discharges".
Representative Weyhrauch WITHDREW Amendment 44.
11:29:15 AM
Representative Hawker MOVED to ADOPT Amendment 5 a:
Page 23, line 3, following "misconduct, or"
Insert "gross"
Co-Chair Chenault OBJECTED.
Representative Hawker related that the amendment elevates
the standard for disallowance of cost to gross negligence,
as opposed to ordinary negligence.
Co-Chair Chenault WITHDREW his objection.
Representative Kerttula OBJECTED. She maintained that it
left out too much.
A roll call vote was taken on the motion.
IN FAVOR: Moses, Foster, Hawker, Meyer, Chenault
OPPOSED: Stoltze, Weyhrauch, Holm, Joule, Kelly, Kerttula
The MOTION FAILED (5-6).
11:31:34 AM
Co-Chair Chenault MOVED to ADOPT Amendment 14:
Page 15, lines 18 - 28:
Delete "]; however, notwithstanding any other provision
of this section, after the end of the calendar year
following the calendar year in which the total of
production tax credit certificates issued by the
department under this section based on exploration
expenditures for Cook Inlet prospects reaches
$20,000,000, the department may not issue to an
explorer a production tax credit certificate [IF THE
TOTAL OF PRODUCTION TAX CREDITS SUBMITTED FOR COOK
INLET PRODUCTION,] based on an exploration expenditure
for a Cook Inlet prospect [EXPENDITURES FOR WORK
PERFORMED DURING THE PERIOD DESCRIBED IN (b) OF THIS
SECTION FOR THAT PRODUCTION, THAT HAVE BEEN APPROVED BY
THE DEPARTMENT EXCEEDS $20,000,000]"
Insert "; HOWEVER, NOTWITHSTANDING ANY OTHER PROVISION
OF THIS SECTION, THE DEPARTMENT MAY NOT ISSUE TO AN
EXPLORER A PRODUCTION TAX CREDIT CERTIFICATE IF THE
TOTAL OF PRODUCTION TAX CREDITS SUBMITTED FOR COOK
INLET PRODUCTION, BASED ON EXPLORATION EXPENDITURES FOR
WORK PERFORMED DURING THE PERIOD DESCRIBED IN (b) OF
THIS SECTION FOR THAT PRODUCTION, THAT HAVE BEEN
APPROVED BY THE DEPARTMENT EXCEEDS $20,000,000]"
Representative Weyhrauch OBJECTED.
Representative Rokeberg spoke to the amendment. It would
repeal the $20 million cap for tax credit certificates in
Cook Inlet. It is a housekeeping measure. The cap is not
needed in Cook Inlet. This issue came up years ago in a
previous bill.
Representative Weyhrauch requested the Department's opinion.
Ms. Wilson said the Department has no problem with removing
the cap. All the amendment is doing is removing the CS
language to get rid of the $20 million cap. The fix was
intended to be a cap when Cook Inlet credits reached $20
million. The statute reads that there would be no credits
issued anywhere at that cap. There are other problems if
the cap is reached in October. The so-called fix in the CS
took care of the problem by giving a year's notice.
11:36:17 AM
Representative Kerttula asked if the bill already deals with
those issues. Ms. Wilson said the CS takes care of the
technical problem of Cook Inlet vs. the rest of the state
and the sunset. The amendment takes the cap out of the
picture completely.
Representative Weyhrauch WITHDREW his OBJECTION.
Representative Kerttula OBJECTED and restated her question.
Ms. Wilson reiterated the explanation.
Representative Kerttula asked why the cap was left on in the
bill and what the consequence is of removing it. Ms. Wilson
replied that Cook Inlet is separate from the PPT.
11:39:16 AM
At-ease.
11:45:40 AM
Representative Kerttula said she now understands the intent
of the amendment. She WITHDREW her OBJECTION. There being
NO further OBJECTION, Amendment 14 was ADOPTED.
Representative Weyhrauch commented that he appreciated the
efforts of everyone involved with this bill.
11:47:19 AM
Co-Chair Chenault noted that fiscal notes were addressed
earlier.
Co-Chair Chenault MOVED to REPORT CSSB 305 (FIN) am out of
Committee with individual recommendations and with the
accompanying fiscal note.
Co-Chair Chenault said that this debate could have continued
into next year. The current version of SB 305 is the best
effort at this time. He opined that this is the right step
forward for the state to receive a fair share of its oil
resources. It encourages industry to invest. The gas
pipeline is a big project on the horizon.
Representative Stoltze wished that the legislature's
consultants could have been at the table as well, for more
access to their information. This process is one step,
leading to the next phase of the gas line.
11:52:10 AM
Representative Kerttula stated that she would object to the
bill reporting from committee. She thanked the committee
for its hard work. She opined that the bill has not had the
right focus - structure was not dealt with - and the gas
contract needs to be before the committee. She spoke of
many uncertainties. She voiced strong concerns about the
bill.
Representative Joule termed this bill a part of the long-
term fiscal plan, which did not get discussed this session.
He said it is irresponsible not to have a larger fiscal
plan.
Representative Kelly opined that the dealing were fair. He
wished for more time to deal with Cook Inlet issues and the
cap. He spoke in favor of using the rate of 1/3.
11:56:36 AM
Representative Hawker thanked Co-Chair Chenault and the
committee for its work to set the stage for Alaska's
economic independence into the future. He recalled all the
various testimony regarding the bill. He remembered the
consultant who said, "No matter what he says, it will be
wrong". He believed that due diligence was accomplished.
He said he is comfortable with the proposal in front of the
committee.
11:58:51 AM
Representative Kerttula MAINTAINED her OBJECTION.
A roll call vote was taken on the motion to REPORT CSSB 305
(FIN) am out of Committee.
IN FAVOR: Stoltze, Weyhrauch, Hawker, Holm, Joule, Kelly,
Moses, Chenault, Meyer
OPPOSED: Foster, Kerttula
The MOTION PASSED (9-2).
HCS CSSB 305 (FIN) was REPORTED out of Committee with an
"amend" recommendation and with a new fiscal note by the
Department of Revenue.
12:00:26 PM
At-ease.
ADJOURNMENT
The meeting was adjourned at 12:08 PM.
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