Legislature(2005 - 2006)
08/02/2006 07:28 PM House FIN
| Audio | Topic |
|---|---|
| Start | |
| HB3001 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE FINANCE COMMITTEE
August 2, 2006
7:28 p.m.
CALL TO ORDER
Co-Chair Chenault called the House Finance Committee meeting
to order at 7:28:32 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
Representative Bruce Weyhrauch
MEMBERS ABSENT
Representative Carl Moses
ALSO PRESENT
Robynn Wilson, Director, Division of Tax, Department of
Revenue; William Corbus, Commissioner, Department of
Revenue; Dan Dickinson, Consultant, Tax Division, Department
of Revenue; Representative Paul Seaton; Representative Mark
Neuman; Representative Carl Gatto; Representative Ethan
Berkowitz; Representative Ralph Samuels; Representative Norm
Rokeberg; Representative Les Gara; Representative Charlie
Guttenberg; Representative Vic Kohring; Representative Harry
Crawford; Representative Peggy Wilson; Representative Kurt
Olson;
PRESENT VIA TELECONFERENCE
None
SUMMARY
HB 3001 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.
HB 3001 was heard and HELD in Committee for
further consideration.
7:28:44 PM
HOUSE BILL NO. 3001
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.
Co-Chair Chenault stated his intent to consider amendments
to CSHB 3001 (FIN), 24-GH2096\I Bullock 8/1/06 (adopted by
the Committee on 8/1). He noted that the bill would be held
in Committee to allow members to review any changes.
Co-Chair Chenault MOVED to adopt Amendment 1, 24-
GH2096\I.11, Bullock, 8/1/06 (copy on file.) Representative
Stoltze OBJECTED.
Co-Chair Chenault explained that Amendment 1 makes
grammatical and sentence structure corrections suggested by
Legislative Legal Services.
7:31:40 PM
ROBYN WILSON, DIRECTOR, DIVISION OF TAX, DEPARTMENT OF
REVENUE, reviewed grammatical and sentence structure
corrections in Amendment 1. She observed that language
changes were made to be consistent with regulations.
7:34:16 PM
Ms. Wilson gave an explanation of the changes proposed in
Amendment 1:
· As 43.55.020(A), lines 29 removes "under" and replaces
"in the manner provided in". AS 43.55.160 is not
exactly on point but it provides the manner in which
that will be calculated, hence the language changes.
· Page 9, the amendment deletes Line 6 & 7 completely and
also deletes the items "IP=" on Line 4. With adoption
of the amendment it would read "12 x (MP-1/12 x BP)"
7:35:51 PM
Ms. Wilson went on to describe deletion of duplicative
language. Other changes outline were:
· The change of later to "latest".
· "Certificate" deleted - doesn't change anything, just
corrects language. There is no such thing as a "cash
refund certificate".
· "That ends" was deleted for clarity.
7:37:52 PM
Ms. Wilson reviewed Section 13, which amends 43.55.024; the
new area development credit is the only credit remaining in
this section.
She explained other changes made in order to clarify
language:
· "South" is deleted and replaced with "no part of which
is north".
· Deletes "month" and inserts "calendar year" where
appropriate. This is a language clarification to
reflect the change to calendar year payments.
Ms. Wilson explained the clarification on page 24, line 19-
26:
· "Oil and gas leased or property" would be replaced with
"leases or properties to the state".
· "Includes" would become "include"
· Instead of "that lease or property" it would say "those
leases or properties" as it would on line 25. The way
the language is presently suggests that the production
tax value had to be calculated lease by lease rather
than on a slope-wide basis.
7:43:06 PM
Ms. Wilson explained that subsections (c) and (d), which
refer to Cook Inlet oil and gas were not changed; because
the tax ceiling is an ELF based system it is calculated
lease by lease.
7:45:22 PM
Ms. Wilson reviewed the definition of heating value on Page
37, line 27. The drafter suggested "evolved" be deleted and
be replaced with "released" for general clarity.
Representative Stoltze WITHDREW his OBJECTION to adopting
Amendment 1.
AT EASE: 7:46:19 PM
RECONVENED: 7:48:41 PM
Co-Chair Meyer OBJECTED in order to disclose a potential
conflict of interest. He noted that he is an employee of
ConocoPhillips, which would be affected by the legislation
and asked to be excused from voting.
Representative Stoltze OBJECTED. Co-Chair Chenault noted the
objection and observed that Vice-Chair Meyer would be
required to vote.
7:50:19 PM
Representative Hawker declared the existence of a potential
conflict of interest because a member of his family is
employed in the oil industry. He asked to be excused from
the proceedings.
Representative Stoltze OBJECTED. He opined that he it would
be unfair to preclude district 32 from representation.
Co-Chair Chenault noted the objection and observed that
Representative Hawker would be required to vote.
.
7:51:26 PM
Co-Chair Chenault also declared a potential conflict of
interest.
Representative Stoltze OBJECTED.
Co-Chair Chenault noted that he would be required to vote.
7:53:11 PM
Co-Chair Meyer WITHDREW his OBJECTION. There being no
further objections, Amendment 1 was adopted.
Co-Chair Chenault MOVED to ADOPT Conceptual Amendment 2A
(copy on file.) Representative Stoltze OBJECTED.
7:54:25 PM
DAN DICKINSON, CONSULTANT, TAX DIVISION, DEPARTMENT OF
REVENUE, provided members with a handout containing a number
of tables [L1](copy on file.) He explained that the
amendment utilizes a variable tax rate rather than a fixed
tax rate. The tax rate would vary between 20 - 25%. He
pointed out that it would not affect progressivity.
7:56:19 PM
Mr. Dickinson drew attention to the first table, "Dollar Per
barrel investment", which calculated the tax rate on the per
barrel investment. He explained that if investment is less
than a dollar per barrel, the tax rate is 25 percent. A $7
per barrel investment shows a tax rate of 20 percent. This
illustrates the ability of a company to drive down the tax
rate by investing.
7:59:09 PM
Mr. Dickinson referred to page 2 of the handout: "Capital
Spending on the North Slope, 2002-2006". He focused on the
bottom box, which showed the average dollar per barrel,
investment, and volume. He noted that the volume metric is
taken from the Department of Revenue. The actual investment
figures are taken from a handout provided by ConocoPhillips.
He pointed out that the highest investments are in the $4
range.
8:01:42 PM
Mr. Dickinson went on to explain Subsections 1, 2 & 3 [L2]of
Amendment 2.A. He reviewed the table: "Millions of Dollars
of Annual Investment" and noted that it provides a sense of
ranges and a mechanical set of operations[L3]. He explained
that, generally, as volumes decline, investment also
declines. [L4]The purpose of the variable tax rate is to
reverse this trend and encourage investment, through the
lowering of the tax rate. The higher levels of investment
generally occur at prices above $6 per barrel. At the $6 per
barrel investment the tax rate would be at its lowest point
of 20%; the tax rate would not drop below this point.
Subsection (2) calculates investments across the state into
a single BTU.
In response to earlier comments regarding gold-plating, Mr.
Dickinson explained the formula contained in Subsection (3):
A producer's tax rate for a calendar year shall be the
higher of the rate determined in (1) and the rate
represented by "R" in the following formula, except
that the rate may not be greater than 25 percent or
less than 20 percent:
[{(R x QC) + (.2 x QC) + [(.25 - R) x PT]} x (1 - IR)]
+ (QC x IR) = .75 x QC where:
QC = the producer's qualified capital
expenditures incurred during the calendar year;
PT = the total annual production tax value
calculated under AS 43.55.160(a)(1) of taxable oil
and gas produced by the producer from leases or
properties in the state during the calendar year;
and
IR = the highest percentage tax rate imposed
on the taxable income of a corporation by 26
U.S.C. 11 (Internal Revenue Code), as amended,
without regard to any additional amount of tax
provided under that section in form of the lesser
of a dollar amount or a percentage of income in
excess of a stated minimum.
Mr. Dickinson went on to say, investments must be rational
investments that lead to production. He noted that the
result of the formula used in the conceptual amendment 2.A.
is that tax benefits are capped at 75%.
8:10:25 PM
Representative Joule asked about page 2 of Mr. Dickinson's
handout. He asked if the investments are a reflection of
investments for oil. He also noted that if this is the
case, the increase in gas investments would put the industry
tax rate at 20%. Mr. Dickinson agreed. Representative Joule
concluded that investment dollars would be related to gas in
the future and that would result in industry getting the 20%
tax rate.
Mr. Dickinson observed that the investments depicted are
only related to production. He made two points: that much of
the investments related to gas would not qualify as
investment dollars; and only upstream investments would
qualify as investment dollars. He gave specific examples of
investment that would and would not qualify.
8:14:05 PM
Representative Kerttula asked if the upstream expenditures
set the rate. Mr. Dickinson affirmed. Representative
Kerttula noted that would take care of decline. Mr.
Dickinson agreed that a big part of arresting decline would
be upstream investment. Representative Kerttula asked what
it would cost to keep up with the decline. Mr. Dickinson
reported that there had not been specific calculations to
determine the cost to halt decline.
8:16:45 PM
Representative Kerttula thought it would be difficult to
determine the amount companies would be spending. She
further questioned if what the companies needed to spend
could be determined theoretically. Mr. Dickinson felt it
would be difficult due to all the variables involved when
making investment decisions. Representative Kerttula asked
how often the tax rate would be determined. Mr. Dickinson
replied that it would be calculated on a yearly basis.
8:20:00 PM
Ms. Wilson continued to explain Conceptual Amendment 2.A:
Where there were blanks in the bill with regards to
progressivity the following changes were made:
· Insert ".25" (denotes the slope of the progressivity
curve); "25" (represents the maximum rate of
progressivity) and "40" (the trigger point),
respectively.
8:21:07 PM
Ms. Wilson went on to say the next part of the amendment
deals with the base allowance credit. Wording changes made
are simply conforming language. She explained that "2005 or"
was deleted since it was irrelevant under the investment tax
scenario.
8:23:51 PM
Ms. Wilson further specified changes representing conforming
language adjusting from a production scheme to an investment
scheme, which allows the producer to know what the rate is.
The drafter took out Section 43.55.024 and reinserted it,
without change. She summarized that the remaining changes
were technical, grammatical or conforming language
accommodating the investment approach.
8:26:02 PM
Co-Chair Chenault said it was not his intent to not move
Amendment 2 tonight.
8:27:55 PM
The meeting was RECESSED TO THE CALL OF THE CHAIR until
10:00 am, August 3, 2006.
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