Legislature(2005 - 2006)
06/02/2006 05:14 PM House FIN
| Audio | Topic |
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| Start | |
| HB2001 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE FINANCE COMMITTEE
June 2, 2006
5:14 p.m.
CALL TO ORDER
Co-Chair Meyer called the House Finance Committee meeting to
order at 5:14:17 PM.
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
MEMBERS ABSENT
Representative Carl Moses
Representative Bruce Weyhrauch
ALSO PRESENT
Representative Paul Seaton; Representative Norm Rokeberg;
Representative David Guttenberg; Dan Dickinson, Consultant,
Tax Division, Department of Revenue; Robynn Wilson,
Director, Division of Tax, Department of Revenue; Robert
Mintz, Assistant Attorney General, Department of Law
PRESENT VIA TELECONFERENCE
There were no teleconference testifiers.
SUMMARY
CSSB 2001 (FIN)
"An Act relating to the production tax on oil and
gas and to conservation surcharges on oil;
relating to criminal penalties for violating
conditions governing access to and use of
confidential information relating to the
production tax; amending the definition of 'gas'
as that definition applies in the Alaska Stranded
Gas Development Act; making conforming amendments;
and providing for an effective date."
HCS CSSB 2001 (FIN) was REPORTED out of Committee
with a "do pass" recommendation and with a new
fiscal impact note by the Department of Revenue
and previously published zero fiscal note: #1 REV.
CS FOR SENATE BILL NO. 2001(FIN)
"An Act relating to the production tax on oil and gas
and to conservation surcharges on oil; relating to
criminal penalties for violating conditions governing
access to and use of confidential information relating
to the production tax; amending the definition of 'gas'
as that definition applies in the Alaska Stranded Gas
Development Act; making conforming amendments; and
providing for an effective date."
5:16:22 PM
Co-Chair Chenault MOVED to ADOPT Amendment 6. Representative
Hawker OBJECTED.
ROBERT MINTZ, ASSISTANT ATTORNEY GENERAL, DEPARTMENT OF LAW,
explained Amendment 6, which creates special provisions for
the tax rate on oil and gas produced south of the Brooks
Range and outside of the Cook Inlet basin.
5:17:35 PM
Mr. Mintz He explained that the amendment also amends AS
33.55.170 on page 28. A new tax credit would be add a new
tax credit of up to $6 million a year for oil and gas
produced in this area, in addition to the current $12
million dollar credit. There is no production in this area
currently. He explained that for up to 10 years from when
production would started, as long as it started no later
than May 1, 2016, a producer could take a tax credit of up
to $500,000 per month against tax liability under AS
43.55.011 (e), which is the basic PPT.
Mr. Mintz added that the sunset is either 2016 or 10 years
from when commercial production starts (in the case of a
producer that doesn't currently have production.) There is a
potential 20 year period in which the credit could apply.
Mr. Mintz noted that the amendment also amends 43.55.011 (k)
and (l). The amendment exempts Cook Inlet oil from the
requirement that any benefit a producer receives from the
Cook Inlet tax cap be netted out against tax credits that
would otherwise be applicable to Cook Inlet oil and gas. The
amendment eliminates the provisions as they apply to Cook
Inlet oil. The requirement would only apply to Cook Inlet
gas.
5:21:25 PM
DAN DICKINSON, CONSULTANT, TAX DIVISION, DEPARTMENT OF
REVENUE, created a portrait of the four regions being
created. The first would be North Slope oil and gas, which
accounts for 90 percent of the oil and gas production, and
97 percent of the tax. The 20/20 PPT will apply to the North
Slope, credits will be generated and there will be no
restrictions on where they can be used. There are no special
restrictions for this portion, which constitutes the
majority.
Mr. Dickinson observed that both oil and gas in an area that
doesn't fall within the other three regimes was referred to
as everywhere else. This covers Bristol Bay and the Nenana
Basin and other places that are prospective but have no
current production. There is currently no production or
taxes in this area. The 20/20 PPT would apply and all
credits generated could be used against current production
anywhere in the state. There is an additional credit of up
to $6 million a year, which could be applied against
production that comes from this area.
Mr. Dickinson noted that the next area would be Cook Inlet
oil, which constitutes less than two percent of total
production in Alaska and zero percent of the production tax
because there is zero tax on Cook Inlet currently under the
economic limit factor (ELF). There is a look back to prior
taxes. Cook Inlet oil would be taxed at the PPT rate or the
previous year's tax rate whichever is less. With the
production tax now zero there will be no PPT on Cook Inlet
oil. Credits can still be generated and applied elsewhere in
Alaska. Ways of parsing out oil and gas will need to be
generated through regulation. He noted that the costs would
have to be "somewhat arbitrarily" divided up.
Mr. Dickinson observed that the last arena is Cook Inlet
gas. The PPT base would be compared to a baseline of taxes
being currently paid or paid for the past year to form a
cap. Credits generated from Cook Inlet investments would
first be applied against the cap created. He observed that
if there were a tax liability under the PPT $5 million and
there was a look back tax liability of $3 million there
would be a $2 million difference applied if credit is
available. Credits must be used within other Cook Inlet gas
arenas to the degree that they are limited. "IF in fact you
had a credit you could have used without the cap, that can
be used across the state in any area." Cook Inlet gas
constitutes about eight percent of the total production in
Alaska and about three percent of current production taxes:
$35 million annually.
5:26:06 PM
Representative Holms asked if there limitations on the
"everywhere else" portion. He questioned if there should be
a sunset of 10 or 20 years. Mr. Dickinson observed that any
limitation that would apply under 33.55.170 also applies.
There is a sunset provision. There is a 10-year window. The
only additional restriction is that credits would expire at
the end of the year and are not transferable or sellable.
5:27:17 PM
In response to a question by Representative Kelly, Mr.
Dickinson clarified that if the discovery was made on the
last day of the 10-year period, the credit would apply for
the following 10 years (allowing for a 20 year period).
5:28:00 PM
Representative Hawker WITHDREW his OBJECTION. There being NO
OBJECTION, Amendment 6 was adopted.
Co-Chair Chenault MOVED to ADOPT Amendment 7. Representative
Hawker OBJECTED for the purpose of discussion.
5:28:33 PM
Mr. Mintz explained Amendment 7, which would fix some gaps
in the current legislation. The amendment addresses the
progressivity tax on page 4 of the legislation: AS 43.55.011
(g) and (h). He observed that these provisions could open up
a potential for manipulation of timing by allowing costs to
be moved between months. The amendment requires that
annualized costs be used for the year (one-twelfth of the
annual cost each month). The same timing problem cost
pertains to both the upstream lease expenditure costs and
downstream transportation costs. The amendment requires that
when the gross value of oil and gas at the point of
production is calculated, the gross value is calculation for
the transportation costs are done with the monthly average
of the transportation costs.
Mr. Mintz referred to page 27, which requires the department
to adopt regulations to provide for the monthly averaging of
transportation costs.
5:31:08 PM
Mr. Mintz observed that the amendment also addresses a
mathematical error on page 13, transitional investment
expenditure credits. The 2-for-l principle was adopted for
credits for transitional investments (look back provision),
which allows for credit over time for capital investments in
oil and gas that were made during the five years before the
new tax region goes into effect. The 2-for-l look-back
provision would require a producer to make $2 dollars of new
investment for every $1 credit. The current language would
have allowed five times the credit rate intended by the 2-
for-l look-back principle. He explained the mechanism that
would allow the $2 for $1 provision on line 10, page 13.
5:33:42 PM
Mr. Mintz observed that amendment addresses the tax return
filing requirement and fixes an ambiguity in how the statute
of limitations for tax assessments would work under the new
tax regime. The ambiguity arrises because every month oil
and gas is produced gives rise to an obligation to file two
tax returns: the monthly tax return triggered by the
obligation to pay at least 95 percent of the tax levied by
the PPT provision and "true up" provision required March
st
31, which is triggered by the obligation to pay the
remaining 5 percent of the tax.
5:35:18 PM
Mr. Mintz explained that there would be two tax filings
required. The statute of limitations states that the
Department of Revenue has three years from a date a tax
return is filed to issue an assessment of the tax
st
deficiency. The amendment clarifications that the March 31
date triggers the three year statute of limitation.
5:35:54 PM
Mr. Mintz referred to page 22, line 11, which provides for a
complete parallel construction of the language. He explained
that when "ordinary and necessary" was moved to the
definition of lease expenditures, it highlighted the fact
that there are two types of situations being addressed. The
first is exploration, developing or production oil or gas
lease or properties. The second is when exploration is
occurring on un-leased land. The intent is to have totally
parallel construction to clarify that all of the key
elements of "lease expenditures" apply to both situations.
5:36:52 PM
Mr. Mintz explained that the final portion requires that
year annualized transportation costs be used in calculating
production tax value when the progressivity tax is
triggered.
5:37:26 PM
Representative Hawker WITHDREW his OBJECTION. There being NO
OBJECTION, Amendment 7 was adopted.
Representative Foster MOVED to report HCS CSSB 2001 (FIN)
out of Committee with the accompanying fiscal notes. HCS
CSSB 2001 (FIN) was REPORTED out of Committee with a "do
pass" recommendation and with a new fiscal impact note by
the Department of Revenue and previously published zero
fiscal note: #1 REV.
ADJOURNMENT
The meeting was adjourned at 5:40 PM
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