Legislature(2015 - 2016)BILL RAY CENTER 208
05/04/2016 10:30 AM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| HB253 | |
| Recessed to a Call of the Chair | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HB 253 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE FINANCE COMMITTEE
May 4, 2016
10:38 a.m.
10:38:09 AM
CALL TO ORDER
Co-Chair Thompson called the House Finance Committee
meeting to order at 10:38 a.m.
MEMBERS PRESENT
Representative Mark Neuman, Co-Chair
Representative Steve Thompson, Co-Chair
Representative Dan Saddler, Vice-Chair
Representative Bryce Edgmon
Representative Les Gara
Representative Lynn Gattis
Representative David Guttenberg
Representative Scott Kawasaki
Representative Cathy Munoz
Representative Lance Pruitt
Representative Tammie Wilson
MEMBERS ABSENT
None
ALSO PRESENT
Jerry Burnett, Deputy Commissioner, Treasury Division,
Department of Revenue; Ken Alper, Director, Tax Division,
Department of Revenue; Representative Sam Kito;
Representative Louise Stutes.
PRESENT VIA TELECONFERENCE
Brandon S. Spanos, Deputy Director, Tax Division,
Department of Revenue; Ed Fogels, Deputy Commissioner,
Department of Natural Resources.
SUMMARY
HB 253 ELCTRNC TAX RETURN;MINING LIC. TAX & FEES
HB 253 was HEARD and HELD in committee for
further consideration.
Co-Chair Thompson discussed the meeting agenda.
HOUSE BILL NO. 253
"An Act requiring the electronic filing of a tax
return or report with the Department of Revenue;
establishing a civil penalty for failure to
electronically file a return or report; relating to
exemptions from the mining license tax; relating to
the mining license tax rate; relating to mining
license application, renewal, and fees; and providing
for an effective date."
10:39:11 AM
Co-Chair Neuman MOVED to ADOPT the proposed committee
substitute for HB 253, Work Draft 29-GH2924\I (Nauman,
4/28/16). There being NO OBJECTION, it was so ordered.
JERRY BURNETT, DEPUTY COMMISSIONER, TREASURY DIVISION,
DEPARTMENT OF REVENUE, provided a PowerPoint presentation
titled "New Sustainable Alaska Plan: Pulling Together to
Build Our Future: Mining Tax, HB 253" dated May 4, 2016
(copy on file). Slide 2 contained the new bill version's
title as follows:
Mining License Tax Increase
"An Act relating to an exemption from the mining
license tax; relating to the mining license tax rate;
relating to mining license application, renewal, and
fees; relating to the exploration incentive credit;
establishing a legislative working group to study the
tax structure for mining; and providing for an
effective date."
Mr. Burnett reminded the committee that the electronic
filing provisions were placed in a separate bill. He moved
to slide 3 and provided a history on the mining tax.
Began in 1913; restructured several times
· Original mining license tax was 0.5% tax on
mining net income over $5,000
· Collected on both net income from mining
operations and from mining-related royalties
· Primarily from businesses engaged in coal and
hard-rock mining
Mr. Burnett moved to slide 4:
Mining Tax History (Continued)
•Numerous changes between 1915 and 1953 to the tax
rates and the tax-free net income base
•In 1951, adopted 3 ½ year exemption for new mining
operations
•Current tax structure since 1955:
Mining Net Income Tax Rate
$0 - $40,000 No Tax
$40,000 - $50,000 $1,200 plus 3% over $40,000
$50,001 - $100,000 $1,500 plus 5% over $50,000
Over $100,000 $4,000 plus 7% over $100,000
Representative Gattis wondered what the thought process was
for structuring the tax at the time the mining tax was
originally implemented. Mr. Burnett answered that he did
not know the reason or what the economic analysis at the
time was. He related that the brackets had been based on
the income at the time however, currently many mines were
in the lower tax brackets and few were in the higher tax
brackets. Representative Gattis noted that from zero to $40
thousand tax was not assessed on net income. She believed
that knowing the reasons how and why the tax was originally
structured helped her determine how to restructure them.
She asked why the administration was restructuring the tax
in the manner chosen. Mr. Burnett answered that a blanketed
graduated income tax was very common and recognized the
fact that small operations with less income were not able
to pay much tax. He reminded the committee that mines
located on state land were required to pay a royalty and
the taxes applied to mines on federal or non-state lands.
Representative Gattis surmised that the tax was progressive
and the reason was not known.
10:46:55 AM
Vice-Chair Saddler asked whether the Department of Revenue
(DOR) considered changing the brackets instead of the rate
of taxation. He noted that the original tax was currently
on net income. He asked how onerous the net income
calculation was for the department and industry. Mr.
Burnett answered that companies had to determine net income
tax for the federal government; therefore it was not
terribly onerous. He reported that mining taxes applied to
500 tax filers, many paid no taxes and many were below the
$40 thousand limit and did not pay taxes. The department
had considered the bracket sizes, but it had elected to
leave the brackets alone. He revealed that the top bracket
of earners consisted of between 13 to 17 tax payers that
earned over $500 million in total net income in a recent
year - as the rest of the tax payers had net income in the
neighborhood of $3 million. Moving the brackets into higher
ranges would have very little effect on the taxes.
Representative Kawasaki stated that he was distributing a
document to members from DOR (copy on file) and noted that
the mining tax was already based on a profits based system.
The document contained data regarding mining tax filers per
bracket. He related that the under $0 and the $0 to $40
thousand filers were comprised of small business that lived
off of mining income exclusively and totaled 193 and 239
tax filers respectively. The next bracket that included tax
payers in the $50 thousand to $100 thousand bracket
averaged over $51 thousand and contained 25 tax payers in
tax year 2014. He wondered whether the department discussed
creating a bracket for income over $1 million. Mr. Burnett
answered that the average income for miners in the over
$100,000 was approximately $43.9 million. He noted that
very few companies existed in the highest tax bracket. The
department wanted to keep the change as "simple as
possible" and elected to maintain the brackets but raise
taxes on companies that actually paid taxes. He pointed out
that very little tax was paid at the lower levels.
10:52:33 AM
Representative Kawasaki stated that he had done an analysis
based on the 13 highest earners and reported that five
companies made over $1 million in profit and the remaining
made substantially less. He reiterated his question
regarding whether the issue was addressed by the
department. Mr. Burnett answered that he did not believe
Representative Kawasaki's assumption about the data was
correct. He explained that within the five mines existed
multiple owners, operators and royalties paid to the mine
owners, which was complex, and resulted in the others in
the top category being part of the five largest mines. He
was not able to provide details due to confidentiality
laws.
Co-Chair Neuman asked whether the tax information provided
by mining companies was proprietary. Mr. Burnett answered
in the affirmative. He elaborated that the 13 tax payers
may represent multiple mines. Co-Chair Neuman believed Mr.
Burnett had stated that the department had checked against
federal tax returns to ensure the "checks and balances"
within the tax system. Mr. Burnett answered that because
the companies paid federal income tax the department had
the ability to cross check between federal taxes filed and
information provided to the state. He remarked that the
larger miners were also state corporate tax payers and paid
between zero and $80 million per year in corporate income
taxes. The companies reported their total nationwide
corporate income tax and "apportion a portion" of that
amount to the state.
Co-Chair Neuman asked whether there were any other
deductions when determining net amounts besides the usual
deductions. Mr. Burnett answered that the current system
was like a typical income tax situation that included
depreciation or depletion and typical business expenses. He
elaborated that oil and gas was a cash flow type tax where
capital expenditures were deducted in the same year the
money was being spent.
Co-Chair Thompson noted that Representative Pruitt had
joined the meeting.
BRANDON S. SPANOS, DEPUTY DIRECTOR, TAX DIVISION,
DEPARTMENT OF REVENUE (via teleconference), elaborated on
Mr. Burnett's answer. He explained that the costs were
similar to what was allowable on a federal tax return and
included direct, indirect, and specific allowances. Some
direct costs such as salaries, equipment costs, and fuel
were permitted to be netted against income. Some examples
of indirect costs were insurance, overhead, and depletion
allowance as well as indirect costs. He added that the
education credit and the exploration credits were specific
allowances and were not expenses but were specific credits.
Co-Chair Neuman asked what the exploration credit "carve
out" was for mining. He wondered whether the department
differentiated between types of mines. Mr. Burnett replied
that the tax did not depend on the mineral type.
Representative Gara asked whether the mining tax was
deductible against state corporate tax if the corporation
was a C corporation. He wondered whether the taxes stacked.
Mr. Spanos replied that normally state net income taxes
were deductible from federal taxes. Representative Gara
clarified that he was referring to state corporate income
tax being stackable. Mr. Spanos answered that the taxes do
not stack. Representative Gara spoke to a corporation's
Alaska operations only and the Alaska corporate tax. He
asked whether a company deducted its mining taxes from the
C Corporation tax or paid both on top of each other. Mr.
Spanos answered that the company was prohibited from
deducting the mining tax from the C corporation tax.
11:02:50 AM
Representative Munoz stated that Alaska had a "relatively
high net proceeds tax" at 7 percent compared to other metal
mining states and "a very high corporate income tax" at 9.4
percent. She asked whether analysis was performed to
determine whether a tax increase was appropriate for the
industry. Mr. Burnett answered that the internal working
group, which included commissioners of the Department of
Natural Resources (DNR), Department of Commerce, Community
and Economic Development (DCCED), and DOR and the
economists from DOR performed analysis and comparisons with
other states and Canada. He agreed that the state had a
fairly high corporate tax rate at the highest bracket, but
a number of companies were organized in a way to avoid
paying any tax. The group engaged in discussions with the
mining industry prior to the bill's introduction.
Representative Munoz asked what was the "total take" was
for the largest mining companies in corporate income tax
including mining license fees. Mr. Burnett answered that it
was different for each mine and would be significantly
different on a year to year basis. He offered to provide
the answer. Representative Munoz asked what the state
brought in in total mining revenue. Mr. Burnett answered
that the information was in a future slide. He added that
nearly all of the revenue was from the five large mines and
several placer mines. Representative Munoz asked whether
the impact had been considered on developing mines. Mr.
Burnett answered in the affirmative. The original bill had
included the removal of the 3.5 year tax holiday for new
mines. The industry had relayed that the holiday was
important. The Committee Substitute (CS) included a 3 year
tax holiday for new mines. He acknowledged that there were
some potential new large mines on the horizon. The
administration did not believe the rate increase would be
enough to negatively impact development of the new mines.
11:07:32 AM
Representative Edgmon asked how gravel pits fit into the
tax picture. Mr. Burnett answered that a few years ago the
legislature exempted gravel pits from the mining tax.
Representative Kawasaki wondered when the 3.5 year tax
exemption began. Mr. Spanos replied that the exemption
began when production started. The department was the body
that determined whether it was a new mine or not and
whether the mining was sufficiently different or new.
Mr. Burnett moved to slide 5 titled "Large mining projects
in Alaska" that contained a map of the state depicting the
locations of the mines.
ED FOGELS, DEPUTY COMMISSIONER, DEPARTMENT OF NATURAL
RESOURCES (via teleconference), addressed slide 5 that also
included the location of mines in development. {The
teleconference connection was lost.]
Mr. Burnett turned to slide 6:
Mines in Alaska
•Alaska has five large hard rock mines and one coal
mine
•200 small placer mines who, combined, have an
economic impact that is similar to one large mine
Representative Wilson pondered the impact of all of the
licensing and permitting fees for placer mines coupled with
the proposed increase on the mining tax. Mr. Burnett
answered that almost no placer mines would be impacted by
the legislation. In a typical year, were very few mines
netted $100 thousand and therefore were not impacted by the
proposal. Representative Wilson asked whether the
administration considered how all taxes combined, such as
municipal and state, affected a mine like Pogo. Mr. Burnett
affirmed that state taxes were separate from borough
taxation and all mines pay municipal taxes in addition to
state. He returned to slide 5 and asked Mr. Fogels to
address the slide.
Co-Chair Thompson noted Fort Knox was located in Fairbanks.
Mr. Fogels addressed slide 5. He discussed the mines on the
map. He highlighted that the Red Dog Mine was an open pit
lead and zinc mine located on Nana Corporation land. The
mine was one of the largest in the world. Red Dog employed
610 employees, was operated by Tech Alaska, and was the
only tax payer in the North West Arctic Borough. He related
that the Fort Knox mine was an open pit gold mine and was
located on private and Alaska Mental Health Trust Authority
(AMHTA) lands. Fort Knox was operated by Fairbanks Gold
Mining and employed roughly 650 people and was the largest
tax payer in the Fairbanks North Star Borough. He
identified the Pogo underground gold mine located near
Delta Junction and noted the mine was operating exclusively
on state land. The mine was operated by Kinross Gold and
employed 320 people. He reported that the family owned,
Usibelli coal mine was located on state land and employed
140 people. He indicated that the Kensington Mine, near
Juneau was an underground gold mine operated by Coeur
Alaska and employed approximately 320 people. The mine was
located on United States (US) Forest Service and private
lands. He remarked that the Greens Creek Mine was also
located near Juneau and mined lead, zinc, silver, and gold
and was operating on US Forest Service and private lands.
The mine was operated by Hecla Greens Creek Mining Company
and employed approximately 415 workers. He noted that the
Nixon Fork mine was in temporary cessation and was located
on BLM (Bureau of Land Management) lands. The following
three mines were currently in permitting. The Wishbone Hill
Mine was a coal strip mine located near Sutton in the Mat-
Su valley and was owned by Usibelli. He mentioned that the
Chuitna Coal and Donlin Gold mines were midway through
their environmental impact statements and the National
Environmental Policy Act (NEPA) process. He reported that
the map included the location of pre-permitting projects
around the state. The operators had not yet applied for
permits and he could not predict the outcomes of the sites.
He added that the state roughly had 570 smaller placer and
suction dredge operations in 2015 and about 34 thousand
active state mining claims on state lands.
11:17:47 AM
Co-Chair Neuman asked about the general discussions in the
mining industry regarding the proposed taxes. Mr. Fogels
responded that he had had discussions with many individuals
in the industry and shared that miners were concerned about
additional tax burdens under the current low metal price
climate. However, industry understood the state's fiscal
situation. He acknowledged that significant concern was
expressed over the proposed elimination of the 3.5 year tax
holiday. Co-Chair Neuman asked whether the Division of
Mining, Land, and Water's mining regulatory costs were
covered by fees. Mr. Fogels replied that part of the
division's costs was covered. He explained that permitting
costs were covered through a memorandum of understanding
(MOU) between the mines and the state whereby the mines
reimburse the state for employee costs associated with
permitting, oversight monitoring, and permit
administration. The MOU produced a fairly significant
monetary stream coming from the projects. He commented that
"all state agencies participated in permitting and
oversight of the projects." In addition some of the royalty
payments were allocated back to DNR.
Co-Chair Neuman asked for more information regarding what
it took to run the division.
Representative Wilson wanted to better understand the
cumulative impact of increased state taxes coupled with
municipal taxes had on the mines and requested any
information the department could provide. She requested
information defining severance tax versus other state
taxes. She asked how much state land was available for
mining. She wondered what the state was doing to attract
new development.
11:23:09 AM
Representative Gara asked what the mining royalty was. Mr.
Fogels replied that the royalty was from mineral production
on state lands and was 3 percent. He added that the state
collected $7 million last year from the gold production
royalty on state lands. He elaborated that the bulk of the
royalty was from Pogo. Representative Gara asked for
verification that the royalty was profits based and whether
it was based off of the gross. Mr. Fogels replied that the
royalty was based on net proceeds and affirmed it was
profits based. Representative Gara asked for a comparison
between what the department collected in mining taxes and
royalties and "permitting and other related work through
Department of Environmental Conservation (DEC), Department
of Fish and Game (DFG), and DNR." Mr. Fogels answered that
a report was recently done by the University that performed
a comparison study. He did not currently have exact
figures. He reiterated that the state collected more from
the mines than the actual administration costs.
Vice-Chair Saddler asked what a profits based royalty was.
Mr. Fogels answered that a profits based royalty was based
off the same criteria that the mining license tax was based
on and was set in statute. Vice-Chair Saddler asked for the
statute reference AS 35.05.212. Vice-Chair Saddler wondered
how "welcoming" Alaska was to the mineral industry and new
mines.
11:27:13 AM
Mr. Fogels answered that DOR should have provided a
comparison between other jurisdictions. He guessed that the
state was in the "middle of the pack." He believed the
state was open to new explorers and had a favorable
jurisdiction in terms of state land. He delineated that 90
to 95 percent of the 100 million acres of state land was
open to mining and carried a lot of potential. The low
price environment was acting as a hindrance to new
investment. Vice-Chair Saddler asked what DNR's "policy or
orientation" was. He inquired whether the department
focused on incentivizing "new exploration and development
of basic geologic knowledge," help mines navigate the
permitting process, or maximize the operation of current
mines. Mr. Fogels responded that "on a number of levels"
DNR maintained "a strong effort" to obtain more information
on state lands. He related that DNR's "charge" was to
generate more revenue from state land holdings. Geologic
information was disseminated in order to incentivize new
exploration. The permitting process was made more efficient
while protecting other state resources. Vice-Chair Saddler
asked where most of the department's effort was placed. Mr.
Fogels answered that data collection was a large focus. He
added that recently DNR engaged in permitting reform.
Representative Munoz asked whether any "metal activity" was
occurring in the other states. Mr. Fogels answered that he
did not have any recent information. He deferred to DOR for
a possible answer.
11:32:24 AM
Representative Edgmon asked whether Mr. Fogels participated
in the working group that developed HB 253. Mr. Fogels
answered in the affirmative. Representative Edgmon asked
for a "chronology" of when the large mines were developed.
He recounted that most major mines in the state opened in
the 1980s and the state was "basically a placer mine
environment" in prior years. Mr. Fogels affirmed that the
mines on the map were "fairly recent." He stated that there
had not been much activity between the 1950s and 1980s. He
added that Usibelli was an exception and was in operation
for roughly 70 years.
Mr. Burnett moved to slide 7:
Mining Tax Proposal (Original)
•Increases tax rate on highest bracket (over $100,000)
from 7% to 9%
•Removes 3 ½ year exemption
•Requires electronic filing
•Provides exemption process
•Adds an application and renewal fee for tax license
•Tax license is in lieu of business license for miners
•Fee is set at the business license rate
Mr. Burnett turned to slide 8:
Relative Tax Rate
•Most other state mining taxes are based on volume,
not net income.
•Examples comparable to Alaska:
•South Dakota: 10% on profits or royalties; $4 per
ounce of gold
•Wisconsin: 3% to 15% progressive tax on net mining
proceeds
•Nevada: 2% to 5% of net proceed
Representative Munoz wondered whether Wisconsin had any
metal mining. Mr. Burnett was uncertain.
Co-Chair Thompson asked the department to follow up. Mr.
Burnett agreed to provide the information.
Representative Kawasaki asked why the slide contained
information from states that used a net income tax. Mr.
Burnett replied that the department wanted to compare
states that used net income tax because it was very
difficult to compare tax rates based on tonnage versus
rates based on profit in a presentation. Representative
Kawasaki asked whether the three states also paid
royalties. Mr. Burnett responded that he would be surprised
if the mining was done on state lands in most other states.
He indicated that most other states had a significant
amount of private land. Alaska was unique in its amount of
state land.
Mr. Burnett moved to slide 9:
Impacts of Tax Proposal
•Raises the effective tax rate of the top tax bracket
from 7% to 9%
•Only affects large and profitable mining operations
since most of their income falls above $100,000
•In 2015, 13 companies paid at this level
•For small mining operations:
•Little or no effect from tax rate change
•However, removing 3 ½ year exemption may deter some
future mines
Mr. Burnett advanced to slide 10:
Revenue Impact
•Dept. of Revenue estimated that increasing the top
mining tax rate to 9% would raise an additional $6
million per year starting in FY 2018
Dept. of Revenue estimates license fee and renewal fee
of $50 per year will raise an additional $25,000 per
year
•Does not account for any changes in mining activity
Mr. Burnett explained slide 11:
Implementation Costs
•Dept. of Revenue must update:
•Tax Revenue Management System (TRMS)
•Revenue Online (ROL) which allows a taxpayer to file
a return online
•Tax return forms
•One-time implementation cost of $50,000 to recreate
tax forms and reprogram and test the tax system to
accommodate the rate changes
•No additional costs to administer the tax program
11:39:15 AM
Mr. Burnett highlighted slide 12:
Mining Tax-Changes made in
Committee Substitute
•Highest bracket moves to 8% instead of 9%
•3 ½ year exemption is not removed, but reduced to 3
years
•Does not require electronic filing
•This is done in a separate bill
•Revenue impact is $3.5 million in FY 2018
•Revenue impact of original proposal is $7 million
(new estimate)
11:40:07 AM
Representative Gara asked whether the pre-development costs
were deductible from the mining tax. Mr. Spanos explained
that the exploration credit as part of the exploration
phase of a project was viable for 15 years and once
development of the mine began the development costs were
typically capitalized and could be depleted over the life
of the mine. The cost basis was able to be expensed in the
fourth year. Representative Gara asked why a mining company
received a 3.5 year tax holiday since the pre-development
costs were deductible. Mr. Spanos speculated that the tax
holiday was offered to incentivize new mines.
Representative Gara reiterated his question. Mr. Spanos
understood that the mines incurred heavy expenses in the
early years. Representative Gara stated that his point was
if expenses were so high in the early years of a mine that
a profit was not realized, no tax was paid. He wondered why
a mine was granted a tax holiday if all of the expenses
were deducted and a profit was gained. Mr. Spanos answered
that the administration wanted to eliminate the tax holiday
in the original bill.
Co-Chair Thompson added that the decision was a policy call
by the administration.
Representative Gara asked for clarification about the
credits that were received for exploration and how much it
was. Mr. Spanos stated that DNR had a good written
explanation and would provide it to the committee. He
delineated that the exploration credit included exploration
costs allowance as a credit for up to 15 years that was
calculated at half of the gross or net taxable income on
corporate tax, mining tax, and royalty. He was not sure
whether it was based on net or gross income.
11:45:14 AM
Representative Gara reiterated that a mining company could
receive the credit for 15 years. He asked what the
percentage of the credit was. Mr. Spanos was not familiar
with the calculations. Representative Gara requested the
information.
Mr. Burnett briefly addressed slide 13 and slide 14:
Closing the Budget Gap
FY16 Budget $5.2 (Millions)
AK Permanent Fund Protection Act (annual draw) $3.2
million
Revenue from existing taxes and fees $850 million
Earnings on Savings $135 million
Total $4,185 million
Spending Reductions (estimated amounts)
Continue Cuts (through FY19) $200 million
Reform O&G Tax Credits $400 million
Net Priority Investments ($ 44)
$ 556 million
(Continued)
New Revenue Components (estimated amounts) (Millions)
Mining (starting in FY 2018) $ 6
Fishing $ 18
Tourism $ 15
Motor Fuel $ 49
Alcohol $ 40
Tobacco $ 29
Oil and Gas $ 100
Individual Alaskans (Income Tax) $ 200
Total $ 457
Total Budget, Spend Rdctns, and New Rev $ 5,198
Mr. Burnett addressed the sectional analysis on slides 15
and 16:
Sectional Analysis (Committee Substitute)
Sec. 1. Changes the 3 ½-year exemption for new mining
operations to a to a 3-year exemption.
Sec. 2. Increases the highest tax rate from 7% to 8%
for net taxable income in excess of $100,000. The
other tax rates remain the same. For net income over
$100,000 the tax is $4,000 plus 8% of the amount in
excess of $100,000.
Sec. 3. Establishes a mining license fee of $50 per
year, a license renewal fee of $50 per year, and
changes the due date for applications and renewals
from May 1 to January 1.
Sec. 4. Applicability language to clarify that the
change in Sec. 3 applies to all new mining operations
in which production has begun on or after the
effective date.
Sec. 5. Transitional language allowing for
regulations.
Sec. 6. Section 5above takes effect immediately.
Sec. 7. Effective date of 7/1/16 for the rest of the
bill including the tax rate change.
Representative Kawasaki did not realize a mining royalty
was also related to profitability. He had questions
regarding the entire structure for mining and asked for
more information. Mr. Burnett agreed to provide the
information. He expounded that royalties on oil and gas
also existed in state statute and was not unique to mining.
Representative Gara referred to a report from the DOR tax
division (page 14) that described the minerals exploration
incentive as a full 100 percent credit capped at $20
million per mine. Mr. Spanos replied that the amount was
100 percent of the cost but was limited to 50 percent of
the mining license tax or the corporate income tax in the
year the credit was used, which was the reason the tax
lasted for up to 15 years. He answered a previous question
regarding what activities expenses were allowed under the
credit. He reported that geochemical and geophysical
surveys, exploration drilling, underground exploration,
surface trenching and bulk sampling, and other exploration
work including aerial photos, geographical and geophysical
logging, sample analysis, and metallurgical work.
Representative Gara referenced the tax report regarding the
minerals exploration incentive and read:
"…the credits may not exceed $20 million."
Representative Gara wondered whether the information was
accurate, and whether the $20 million applied per year or
total and if the credit was valid for multiple owners. Mr.
Spanos affirmed that the credit was a total of all of the
expenses up to $20 million over 15 years. He replied that
the $20 million was spread between multiple owners.
Vice-Chair Saddler asked about the orientation of DNR
regarding the mineral industry. He asked whether the
increased mining tax advanced the "policy goal" of DNR. Mr.
Burnett answered that it would be difficult to say that the
bill advanced the goal but deemed that the affect was
neutral because the tax was not large enough to have a
significant impact on mines. Vice-Chair Saddler asked
whether the administration had analysis regarding the
appropriate level of taxation to achieve DNR's goal. Mr.
Burnett replied that an internal analysis was done "largely
on judgement and economics." He determined that the rate
was different for each of the companies and for each year
due to widely divergent variables. He thought that the tax
rate in Alaska had an effect, but it was difficult to
estimate.
11:54:25 AM
Vice-Chair Saddler asked about the difference between an
internal analysis and a "swag." Mr. Burnett answered that
the tax was "a little bit more than a swag." Vice-Chair
Saddler asked for further information regarding the
analysis performed by DOR. Mr. Burnett answered that he had
been peripherally involved and could not respond further.
KEN ALPER, DIRECTOR, TAX DIVISION, DEPARTMENT OF REVENUE,
voiced that mining was an "incredibly volatile" industry
tied to commodity prices. The state's mining industry
corporate income tax ranged from $15 to $80 million over
the last 5 years. He indicated that it was difficult to
determine what an increase might do in any given year. He
reported that the mining tax was designed as an incremental
increase that would not "break anyone's bank" and also as
"part of a larger fiscal plan to balance the budget."
Vice-Chair Saddler asked whether there was any analysis
about the number that had been selected. Mr. Alper answered
that DOR picked a series of numbers, performed modeling,
and talked to industry. The administration then presented a
proposal in the bill before the committee. Vice-Chair
Saddler asked DOR to share the modeling results with the
committee. Mr. Alper replied that to the extent that the
information could be shared the department would provide
it.
Representative Wilson asked whether the department had
analyzed the effects between cutting $6 million more from
the budget versus increasing industry taxes by the same
amount. Mr. Burnett answered that all of the items were
considered at a policy level. He felt that the question was
more appropriate for the governor, Office of Management and
Budget (OMB), and the committee. Representative Wilson
thought that cutting $6 million from the budget might
produce "less negative impact on the economy" than taxing
industry. She believed that the issue "was not just about
revenue, but about making government the right size."
11:58:01 AM
Representative Gara asked for an estimate of what it cost
the state to grant a 3.5 year mining exemption from
taxation. Mr. Burnett responded that it was difficult to
calculate because it depended on the year and other
variables. He reported that the total take from the mining
tax was $30 million to $50 million. He delineated that one
large mine would pay one-third to one-quarter of the total
take. He surmised that the impact could be from zero to $30
million.
Mr. Alper elaborated on an earlier question by
Representative Gara. He stated that the exploration credit
was not a 100 percent credit against taxes. The credit was
a deduction from income that would be taxed. He detailed
that a company could offset up to 50 percent of its
earnings in a given year until the credit was used up or
within 15 years.
Mr. Spanos agreed with the statements.
Representative Gara asked for verification that the 3.5
year exemption could cost the state between zero to $30
million per year. Mr. Burnett answered in the negative. He
clarified that the figure was a possible total over three
years at the high end for one mine.
Mr. Alper clarified that the fiscal note impact of the
specific provision had been zero because there were no
mines expected to open in the six year period of the fiscal
note out years.
HB 253 was HEARD and HELD in committee for further
consideration.
Co-Chair Thompson recessed the meeting to a call of the
chair [Note: the meeting never reconvened].
^RECESSED TO A CALL OF THE CHAIR
12:02:49 PM
ADJOURNMENT
12:03:00 PM
The meeting was adjourned at 12:04 p.m.