Legislature(2005 - 2006)

05/05/2006 09:53 AM FIN


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                  HOUSE FINANCE COMMITTEE                                                                                       
                        May 5, 2006                                                                                             
                         9:53 A.M.                                                                                              
                                                                                                                                
CALL TO ORDER                                                                                                                 
                                                                                                                                
Co-Chair Meyer called the House  Finance Committee meeting to                                                                   
order at 9:53:06 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                                                                                                  
                                                                                                                                
                                                                                                                                
ALSO PRESENT                                                                                                                  
                                                                                                                                
Representative Ethan  Berkowitz; Representative  Paul Seaton;                                                                   
Representative  Les  Gara;  Representative  Norman  Rokeberg;                                                                   
Representative  Ralph  Samuels;  Representative  Carl  Gatto;                                                                   
Robynn  Wilson,  Director,  Division of  Tax,  Department  of                                                                   
Revenue; Dan Dickinson, Consultant,  Tax Division, Department                                                                   
of Revenue; Heather Brakes, Staff, Senator Gene Therriault;                                                                     
Paul Lisankie, Director, Division of Workers' Compensation;                                                                     
Robert  Mintz, Attorney  contracting with  the Department  of                                                                   
Law                                                                                                                             
                                                                                                                                
                                                                                                                                
SUMMARY                                                                                                                       
                                                                                                                                
CS SB 169(JUD)                                                                                                                  
          An  Act  relating  to  release  of  information  in                                                                   
          individual   workers'  compensation   records;  and                                                                   
          providing for an effective date.                                                                                      
                                                                                                                                
          HCS CS  SB 169(FIN)  was reported out  of Committee                                                                   
          with a "do pass" recommendation  and with zero note                                                                   
          #2   by  the  Department   of  Labor   &  Workforce                                                                   
          Development.                                                                                                          
                                                                                                                                
CS SB 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.                                                                                                       
                                                                                                                                
          CS  SB 305(FIN) am  was HEARD  & HELD in  Committee                                                                   
          for further consideration.                                                                                            
                                                                                                                                
CS FOR SENATE BILL NO. 169(JUD)                                                                                               
                                                                                                                                
     An Act relating to release of information in individual                                                                    
     workers' compensation records; and providing for an                                                                        
     effective date.                                                                                                            
                                                                                                                                
9:53:49 AM                                                                                                                    
                                                                                                                                
HEATHER BRAKES,  STAFF, SENATOR  GENE THERRIAULT,  summarized                                                                   
the intent  of SB  169, which  stipulates that an  employee's                                                                   
name, address,  social security  number and telephone  number                                                                   
contained in their Medical or  Rehabilitation records on file                                                                   
with the  Division of Worker's  Compensation, are  not public                                                                   
records subject to public inspection.                                                                                           
                                                                                                                                
The bill  allows an employee  to authorize the  disclosure of                                                                   
such personal information by signing  a declaration on a form                                                                   
provided by  the division.  It  would protect the  privacy of                                                                   
individuals  who  have  filed  a  claim  under  the  Workers'                                                                   
Compensation Act.                                                                                                               
                                                                                                                              
Ms. Brakes noted  that the bill had been introduced  in 2005,                                                                   
to  prohibit  the  Division  of  Workers'  Compensation  from                                                                   
assembling  or providing information  relating to  individual                                                                   
records outside  the scope of the Workers'  Compensation Act.                                                                   
The section  was incorporated  into another bill  and enacted                                                                   
through Chapter  10, FSSLA 2005.   In a recent  case, Kuebler                                                                   
v. Lisankie,  the Alaska  Superior Court  found that  statute                                                                   
ambiguous.    It  was  found  that  public  right  to  access                                                                   
information  outweighed  an individual's  right  to  privacy,                                                                   
absent  was  a   solid  argument  from  the   State  in  that                                                                   
litigation.    The  Court  found   that  the  State  had  not                                                                   
submitted solid legislative intent  or history on the matter.                                                                   
                                                                                                                                
Ms. Brakes  summarized that SB  169 is an attempt  to clarify                                                                   
the Legislature's intent.                                                                                                       
                                                                                                                                
9:56:06 AM                                                                                                                    
                                                                                                                                
PAUL LISANKIE,  DIRECTOR, DIVISION OF WORKERS'  COMPENSATION,                                                                   
offered to answer questions of the Committee.                                                                                   
                                                                                                                                
Co-Chair Meyer MOVED  to ADOPT Amendment #1, Page  2, Line 6,                                                                   
following,  "address",  inserting "social  security  number".                                                                   
Vice Chair Stoltze OBJECTED.                                                                                                    
                                                                                                                                
Ms.  Brakes  explained that  had  been  an oversight  in  the                                                                   
previous version  and the Department  of Law recommends  that                                                                   
language be included.                                                                                                           
                                                                                                                                
Vice Chair  Stoltze WITHDREW his  OBJECTION.  There  being NO                                                                   
further OBJECTION, Amendment #1 was adopted.                                                                                    
                                                                                                                                
9:57:42 AM                                                                                                                    
                                                                                                                                
Vice Chair  Stoltze MOVED to REPORT  HCS CS SB 169  (FIN) out                                                                   
of Committee  with  individual recommendations  and with  the                                                                   
zero note.  There being NO OBJECTION, it was so ordered.                                                                        
                                                                                                                                
HCS CS SB 169 (FIN) was reported  out of Committee with a "do                                                                   
pass" recommendation and with  zero note #2 by the Department                                                                   
of Labor & Workforce Development.                                                                                               
                                                                                                                                
9:58:37 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.                                                                           
                                                                                                                                
Representative  Hawker   MOVED  to  ADOPT  work   draft  #24-                                                                   
GS2052\N,  Chenoweth,  5/4/06, as  the  version  of the  bill                                                                   
before the Committee.   Representative Kerttula  OBJECTED for                                                                   
discussion purposes.                                                                                                            
                                                                                                                                
10:00:06 AM                                                                                                                   
                                                                                                                                
ROBYNN  WILSON,  DIRECTOR,  DIVISION OF  TAX,  DEPARTMENT  OF                                                                   
REVENUE,   highlighted  the  comparative   revenues   of  the                                                                   
Petroleum Production  Tax (PPT) bill as received  through the                                                                   
Governor and the Department of Revenue.  (Copy on File).                                                                        
                                                                                                                                
Ms. Wilson explained  the key points, which provides  a tax &                                                                   
credit  rate of 20%  and a  progressivity tax  based on  net.                                                                   
The base  allowance credit  provision  was retained from  the                                                                   
House Resources Committee (HRC)  version.  The Cook Inlet oil                                                                   
& gas is treated differently.                                                                                                   
                                                                                                                                
10:04:40 AM                                                                                                                   
                                                                                                                                
Ms. Wilson  pointed out the  general tax  rate of 20%  with ¾                                                                   
revenue exclusion  in Cook Inlet oil.  In the  Senate Finance                                                                   
Committee  (SFC)  version,  value exclusion  on  gas  revenue                                                                   
(GRE) had  been included.   The  Senate addressed Cook  Inlet                                                                   
oil  by providing  a  special  tax rate  of  5%  on the  net;                                                                   
however,  technical  concerns  were  voiced,  which  left  no                                                                   
provision for cost allocations.   The House Finance Committee                                                                   
(HFC) version  removes the  5% net  and uses  the GRE  with ¾                                                                   
exclusion, providing a 5% effective tax rate.                                                                                   
                                                                                                                                
10:06:30 AM                                                                                                                   
                                                                                                                                
DAN  DICKINSON,  CONSULTANT,   TAX  DIVISION,  DEPARTMENT  OF                                                                   
REVENUE,  observed  that because  of  net versus  gross,  the                                                                   
effect lowers the  tax rate on Cook Inlet oil  and would make                                                                   
less than 5%.                                                                                                                   
                                                                                                                                
10:07:04 AM                                                                                                                   
                                                                                                                                
Ms.  Wilson  pointed  out  that   in  the  draft  before  the                                                                   
Committee, Cook  Inlet gas was  treated differently,  using a                                                                   
tax ceiling  of 19 cents.   The credit  rate remains  at 20%;                                                                   
the private royalty  rate is 5% on oil and 1.67%  on gas, and                                                                   
includes a provision  for receiving a commissioner's  report.                                                                   
The gas revenue  value exclusion (GRE) in the  Senate version                                                                   
was incorporated,  providing 2/3 of the gross  value excluded                                                                   
on gas.                                                                                                                         
                                                                                                                                
10:08:17 AM                                                                                                                   
                                                                                                                                
Representative Kerttula  asked if that  meant 1/3 of  the 20%                                                                   
tax.   Ms. Wilson referenced  Section 160, which  divides the                                                                   
net value,  indicating  that 2/3  of the net  value would  be                                                                   
excluded and  the remaining 1/3  taxed at the 20%,  except in                                                                   
Cook Inlet.                                                                                                                     
                                                                                                                                
Representative Kerttula  asked about the Cook  Inlet credits.                                                                   
Ms. Wilson  explained that it  is a statewide tax  system and                                                                   
the credits can be used anywhere within the State.                                                                              
                                                                                                                                
10:09:09 AM                                                                                                                   
                                                                                                                                
Ms. Wilson discussed  progressivity, based on the  net and in                                                                   
contrast  to the HRC  version,  where it is  based on  gross.                                                                   
The trigger point & slope were increased.                                                                                       
                                                                                                                                
10:09:48 AM                                                                                                                   
                                                                                                                                
Representative Hawker  asked if the trigger  point would move                                                                   
up or down "dollar-wise".  Ms.  Wilson said the trigger point                                                                   
was brought down from $45 to $35 dollars net.                                                                                   
                                                                                                                                
Co-Chair Meyer  asked at current  oil prices, what  would the                                                                   
effective  tax  rate be  if  it  were  imposed.   Ms.  Wilson                                                                   
replied at $70 dollars, it would be calculated at 25%.                                                                          
                                                                                                                                
Representative   Kerttula    questioned   the    reason   for                                                                   
determining the progressivity  on the net rather  than on the                                                                   
gross.  Ms. Wilson  replied it was clearly a policy  call.  A                                                                   
progressivity based  on net recognizes  costs better  than on                                                                   
the gross; however, if placed  on gross, it could accommodate                                                                   
better the differences  between oil and gas.  If  there was a                                                                   
windfall  profit  piece dependant  on  the  price of  oil,  a                                                                   
progressivity based on gross could be a better plan.                                                                            
                                                                                                                                
Mr.  Dickinson  agreed and  pointed  out several  effects  as                                                                   
costs increase  and on  the gross, there  could be  a smaller                                                                   
margin at the $20 dollar price.                                                                                                 
                                                                                                                                
Representative  Kerttula reiterated that  net value  had been                                                                   
used to  calculate everything else.   She suggested  it would                                                                   
be simpler  to use  the same  value for  progressivity.   Mr.                                                                   
Dickinson argued  that in terms  of simplicity,  the proposed                                                                   
concept results  in the same tax  base for the 20%  & for the                                                                   
increase.                                                                                                                       
                                                                                                                                
10:13:41 AM                                                                                                                   
                                                                                                                                
Ms. Wilson continued,  the progressivity is based  on the net                                                                   
and that valuable  oil and gas in the State  means that there                                                                   
would be no special gas progressivity.                                                                                          
                                                                                                                                
Representative  Joule   identified  certain  costs   and  the                                                                   
inclusion of  the progressivity  twice.  Ms. Wilson  informed                                                                   
that had been  a different measure and would  not be deducted                                                                   
twice.   The  bill  before  the  Committee provides  for  two                                                                   
different measures - the Petroleum  Production Tax (PPT) rate                                                                   
and progressivity, both taken against the same net value.                                                                       
                                                                                                                                
10:15:39 AM                                                                                                                   
                                                                                                                                
Ms. Wilson identified the deductibility  of the progressivity                                                                   
tax.   Under all the bills,  progressivity is a  separate tax                                                                   
and cannot  be deducted for net  value.  This  transition was                                                                   
originally  called  the  "claw  back",  evolving  during  the                                                                   
legislative  process.    The  version  before  the  Committee                                                                   
adopts the Senate  language, providing a five-year  look back                                                                   
for capital  expenditures and  a 2-for-1 recouping,  equaling                                                                   
20% credit.                                                                                                                     
                                                                                                                                
The version before the Committee  adopts a seven-year rolling                                                                   
sunset,  which  means   that  if  a  company   were  not  yet                                                                   
commercially  producing, their  seven years  would not  start                                                                   
until the beginning of their commercial production.                                                                             
                                                                                                                                
She addressed  the allowance based  on barrels.   The version                                                                   
before  the Committee  retains a $12  million dollar  credit,                                                                   
based on  current investment.   The credit is  only available                                                                   
for up to ½ of the current investment.                                                                                          
                                                                                                                                
10:18:46 AM                                                                                                                   
                                                                                                                                
Representative  Hawker suggested that  a fixed credit  amount                                                                   
would  be a  better  solution as  the  other option  punishes                                                                   
small  producers.    Co-Chair  Chenault  explained  that  the                                                                   
intent was  to look at "gold  plating" without  affecting the                                                                   
smaller producers.  The HFC version looks to adjust that.                                                                       
                                                                                                                                
10:19:46 AM                                                                                                                   
                                                                                                                                
Ms. Wilson commented  that the base allowance  provides for a                                                                   
10-year sunset, creating  a rolling sunset.   The safe harbor                                                                   
language  was adopted  from  the Senate  version  with a  95%                                                                   
required, annual true up; if paid  monthly, there would be no                                                                   
interest on  that amount.  If  a company pays less,  there is                                                                   
interest on the unpaid balance.   If the company does not pay                                                                   
the full amount, there would be interest but no penalty.                                                                        
                                                                                                                                
Co-Chair  Meyer asked  why there  would be  no penalty.   Ms.                                                                   
Wilson  responded,  there  are   penalty  provisions  in  the                                                                   
general  administration section  and that  interest would  be                                                                   
sufficient.                                                                                                                     
                                                                                                                                
10:21:26 AM                                                                                                                   
                                                                                                                                
Ms. Wilson  pointed out  an effective date  of July  1, 2006.                                                                   
Also,  during  the first  six  months,  the company  has  the                                                                   
option  to pay  under  the old  Economic  Limit Factor  (ELF)                                                                   
system.                                                                                                                         
                                                                                                                                
Representative Hawker worried  that it would provide only six                                                                   
months to  the Department  to get regulations  in place.   He                                                                   
asked assurance if  that was possible.  Ms.  Wilson could not                                                                   
provide 100%  certainty, however,  noted that the  Department                                                                   
expects to hire extra regulation writing staff.                                                                                 
                                                                                                                                
10:23:01 AM                                                                                                                   
                                                                                                                                
Representative  Joule  asked  if the  Department  of  Revenue                                                                   
would be  the only Department  providing audits.   Ms. Wilson                                                                   
responded  that in  the transitional  provision, the  primary                                                                   
'push'  would be  writing regulations  by  the Department  of                                                                   
Revenue.   She acknowledged  that the  Department of  Natural                                                                   
Resources has employees for auditing the values.                                                                                
                                                                                                                                
Mr. Dickinson added that the Department  of Natural Resources                                                                   
will use the standard in current  law to look at gross value.                                                                   
The  change  in  net  moves  it  to  up-stream  costs.    Any                                                                   
additional  obligations resulting  from the legislation  will                                                                   
be addressed by the Department of Revenue.                                                                                      
                                                                                                                                
10:24:53 AM                                                                                                                   
                                                                                                                                
Ms. Wilson  noted that  the spill  surcharge, referred  to as                                                                   
"split-nickel"  results  in  two cents  suspended  and  three                                                                   
cents collected.   In  the version  before the Committee,  it                                                                   
maintains the amount  of five cents, but decreases  it to one                                                                   
cent suspended and collects four cents.                                                                                         
                                                                                                                                
Representative   Kerttula   asked   if  the   Department   of                                                                   
Environmental  Conservation  had  seen  the provision.    Mr.                                                                   
Dickinson  replied,  there  had  been  no  analysis  on  that                                                                   
portion of the bill.                                                                                                            
                                                                                                                                
10:26:28 AM                                                                                                                   
                                                                                                                                
Ms. Wilson  pointed out  that the  surcharge treatment  would                                                                   
not be  creditable or deductible  and is  the same as  in the                                                                   
Senate version.                                                                                                                 
                                                                                                                                
The  version   before  the  Committee  extends   the  SB  185                                                                   
exploration  credit for  ten  years.   It  fixes language  in                                                                   
current statute  regarding the $20 million dollar  Cook Inlet                                                                   
limit.  Under the  bill, there is no deduction  or credit for                                                                   
abandonment of old facilities.                                                                                                  
                                                                                                                                
Representative Kerttula  interjected that "old"  would not be                                                                   
allowed but the new production  would be.  Ms. Wilson agreed.                                                                   
                                                                                                                                
Representative Kerttula questioned  if abandonment issues had                                                                   
been addressed more  than twice.  Ms. Wilson  stated that the                                                                   
language had  been improved from  the Senate version  but not                                                                   
expanded to that extent.                                                                                                        
                                                                                                                                
Representative Kerttula  asked if abandonment costs  had been                                                                   
figured  into exploration  costs.   Mr.  Dickinson said  yes;                                                                   
yet,  commented   that  mediation   costs  created   a  large                                                                   
uncertainty and are costs included in the full cycle.                                                                           
                                                                                                                                
Representative Kerttula did not  understand how they could be                                                                   
determined and requested back  up.  Mr. Dickinson noted there                                                                   
had  been   past  estimates  and   that  the   difficulty  in                                                                   
estimation   does   not   mean   it  would   be   left   out.                                                                   
Representative Kerttula voiced her concern.                                                                                     
                                                                                                                                
10:30:30 AM                                                                                                                   
                                                                                                                                
Representative  Kelly  asked  about  the  185  credit  &  the                                                                   
extension  of the sunset.   Ms.  Wilson explained that  under                                                                   
the PPT, foreign  exploration expenditures could  be claimed.                                                                   
Under  SB 185,  a producer  would  be allowed  a 40%  credit,                                                                   
based on  mileage-distance  from current  wells.  Any  dollar                                                                   
for  exploration  costs could  not  be  claimed twice.    Mr.                                                                   
Dickinson  referenced Page  7, Line 30,  which clarifies  the                                                                   
four  programs.    Ms.  Wilson   noted  that  was  additional                                                                   
language  and  a change  from  the House  Resource  Committee                                                                   
(HRC) version.                                                                                                                  
                                                                                                                                
10:32:51 AM                                                                                                                   
                                                                                                                                
Ms. Wilson  discussed the extent  the credits could  be used.                                                                   
They cannot be  used to offset the progressivity  tax, rather                                                                   
against  the PPT tax.   The  version of  the bill before  the                                                                   
Committee  allows credits to  be transferable.   Only  20% of                                                                   
the purchaser's liability can be offset.                                                                                        
                                                                                                                                
The HRC  version provides  for up to  $10 million  dollars of                                                                   
refundable  credits; the  version before  the Committee  does                                                                   
not  provide  for refundable  credits.    A credit  would  be                                                                   
available at  the end of the  year for any annual  loss based                                                                   
on the tax rate.                                                                                                                
                                                                                                                                
10:34:19 AM                                                                                                                   
                                                                                                                                
Representative  Kerttula  inquired how  many  times a  single                                                                   
expenditure  could  be deducted.    Ms. Wilson  replied  that                                                                   
under the PPT  bill, a capital expenditure could  be deducted                                                                   
and receives a  20% credit.  She added, it also  comes off in                                                                   
the federal taxation.                                                                                                           
                                                                                                                                
Representative  Kerttula inquired  what the total  deductible                                                                   
percentages  would be.   Ms. Wilson  replied, a top  marginal                                                                   
rate of  35% was used  for federal tax  and in the  worldwide                                                                   
arena, the deduction could be  a portion based on business in                                                                   
Alaska compared to everywhere else.                                                                                             
                                                                                                                                
Representative Kerttula requested  more information regarding                                                                   
those numbers.                                                                                                                  
                                                                                                                                
Representative  Hawker  pointed  out  different  tax  systems                                                                   
applied to the same taxpayers  and did not believe they could                                                                   
receive  compounded  deductions.    He refuted  the  idea  of                                                                   
"double dipping".                                                                                                               
                                                                                                                                
Mr. Dickinson  pointed out that  a deduction could  lower the                                                                   
tax.   The  company is  allowed  to take  the deduction,  but                                                                   
those costs can be used only one time.                                                                                          
                                                                                                                                
10:38:19 AM                                                                                                                   
                                                                                                                                
Representative  Kerttula asked  about the carry-forward  time                                                                   
limit and how  the State could protect against  using that in                                                                   
low oil  years.  Mr. Dickinson  explained that at the  end of                                                                   
the tax, there would be a point  when the costs overwhelm the                                                                   
ability to  produce.   He acknowledged  that if prices  fall,                                                                   
PPT revenues could be reduced  to zero, but when prices rise,                                                                   
the State again would be collecting revenues.                                                                                   
                                                                                                                                
Representative  Kerttula   advised  there  was   no  language                                                                   
inclusion to  protect against  that scenario.   Mr. Dickinson                                                                   
noted that there  is no guarantee for receiving  revenue when                                                                   
investments  are not profitable.   The  proposed system  is a                                                                   
profit-based tax.                                                                                                               
                                                                                                                                
Representative  Kerttula indicated the  problem with  a roll-                                                                   
forward.   Mr. Dickinson  reiterated that  profits are  not a                                                                   
year-by-year thing.   To determine the actual  investment, it                                                                   
is  important to  determine the  amount  made in  consecutive                                                                   
years.                                                                                                                          
                                                                                                                                
Representative  Kerttula reiterated  concern with the  carry-                                                                   
forward  protections  generating   revenue.    Mr.  Dickinson                                                                   
stated   that  the   Administration  has   been  careful   in                                                                   
addressing those  concerns by  including the property  taxes.                                                                   
The  proposal   offers   four  different   revenue-generating                                                                   
avenues.                                                                                                                        
                                                                                                                                
10:42:15 AM                                                                                                                   
                                                                                                                                
Ms.  Wilson  pointed  out  language   removed  from  the  HRC                                                                   
version,  regarding  the gross  value  by the  Department  of                                                                   
Natural Resources.   She anticipated an amendment  to restore                                                                   
that language, as it places responsibility  on the Department                                                                   
to determine excess lost tax.                                                                                                   
                                                                                                                                
Representative  Kerttula  asked how  the  point-of-production                                                                   
definition works.                                                                                                               
                                                                                                                                
ROBERT MINTZ,  ATTORNEY, CONTRACTING  WITH THE DEPARTMENT  OF                                                                   
LAW, explained that the main change  reflected in the version                                                                   
of the  bill before  the Committee is  the refinement  of the                                                                   
definition  of gas treatment.   There  was concern  raised by                                                                   
the industry  that gas treatment  was overly defined  because                                                                   
it  included field  dehydration.   The  version  of the  bill                                                                   
before the Committee, clarifies  that fuel dehydration is not                                                                   
a part of gas treatment.                                                                                                        
                                                                                                                                
10:45:10 AM                                                                                                                   
                                                                                                                                
Representative Kerttula asked  if that was the only reference                                                                   
to  gas treatment,  now upstream.    Mr. Mintz  said yes  and                                                                   
noted  other   refinements  in  the  language   such  as  the                                                                   
definition of the  gas-processing plan.  The  bill contains a                                                                   
definition of gross value at the point of production.                                                                           
                                                                                                                                
Ms.  Wilson   continued,  the  Senate  version   contained  a                                                                   
provision  allowing  the  Department   of  Revenue  to  write                                                                   
regulations incorporating provisions  of the Internal Revenue                                                                   
Code #482, which deals with the  transfer pricing issues.  In                                                                   
the  federal  arena,  it  could  come  up  with  transactions                                                                   
between a domestic company and their foreign affiliates.                                                                        
                                                                                                                                
10:47:34 AM                                                                                                                   
                                                                                                                                
Ms.  Wilson  mentioned  catastrophic oil  spills,  which  the                                                                   
Governor's  original bill  had  not addressed.    In the  HRC                                                                   
version, it was not deductible  and that language was removed                                                                   
from  the Senate  version.   The  proposed  version does  not                                                                   
include catastrophic oil spill  language, language defined in                                                                   
Statute.  The  language in the HRC version  addresses a spill                                                                   
in marine waters,  which is removed and would  be deductible.                                                                   
Oil spills could be deductible  if the occur on the lease and                                                                   
not through fraud or negligence.                                                                                                
                                                                                                                                
Mr. Mintz  noted it is important  to understand how  the bill                                                                   
is intended to  work.  The number of non-deductible  items is                                                                   
not an exhaustive  list.  They are only examples  of specific                                                                   
costs.  If not included, then  one returns to the fundamental                                                                   
definition, which  is "direct,  ordinary, necessary  costs of                                                                   
exploring or  producing oil and  gas".  Clean-up  costs would                                                                   
sometimes  be  deductible  and  would  not be  listed  as  an                                                                   
exclusion.                                                                                                                      
                                                                                                                                
10:50:54 AM                                                                                                                   
                                                                                                                                
Representative  Kerttula said that  the State would  continue                                                                   
to participate in the 470 Fund  to help clean up spills.  She                                                                   
urged further clarity on that section.                                                                                          
                                                                                                                                
10:51:23 AM                                                                                                                   
                                                                                                                                
Ms. Wilson noted  additional language in the  Senate version,                                                                   
regarding exploration credits  that the Department of Natural                                                                   
Resources would provide.  The  language was incorporated into                                                                   
the version  of the  bill before  the Committee.   She  noted                                                                   
additional  clarifying language  regarding regulations  after                                                                   
industry practice.                                                                                                              
                                                                                                                                
10:52:43 AM                                                                                                                   
                                                                                                                                
Representative  Kerttula  requested a  comparison,  including                                                                   
the  Senate  Resources  Committee (SRC)  version.    Co-Chair                                                                   
Chenault recommended that be made available.                                                                                    
                                                                                                                                
                                                                                                                                
AT EASE:       10:53:52 AM                                                                                                    
RECONVENE:     10:54:00 AM                                                                                                    
                                                                                                                                
                                                                                                                                
10:54:05 AM                                                                                                                   
                                                                                                                                
Ms. Wilson proceeded with an overview of the bill.                                                                              
                                                                                                                                
Page 2, Lines 16-25, provides  intent language added from the                                                                   
Senate   version   clarifying    that   the   Department   of                                                                   
Environmental Conservation would reduce program costs.                                                                          
                                                                                                                                
Page 3, Line 29, highlights the general tax rate of 20%.                                                                        
                                                                                                                                
Page 4,  Lines 23-31,  clarifies the progressivity  language.                                                                   
Subsection  (G)  provides  the  slope  factor  percentage  of                                                                   
.256%.                                                                                                                          
                                                                                                                                
10:55:37 AM                                                                                                                   
                                                                                                                                
Page 6,  Line 2, illustrates  the trigger point;  $35 dollars                                                                   
is the  net value.  She  compared the resulting  price index.                                                                   
Ms. Wilson pointed out language  on the Cook Inlet gas, Lines                                                                   
9-13,  intended not  to exceed  19  cents.   That number  was                                                                   
taken from the March average gas ELF in Cook Inlet.                                                                             
                                                                                                                                
Mr. Dickinson added  that the (J-K) formula  at net, averages                                                                   
the tax  rate and that there  are value shifts in  making the                                                                   
calculation.                                                                                                                    
                                                                                                                                
10:58:06 AM                                                                                                                   
                                                                                                                                
Ms. Wilson continued Page 6, Section  7, Lines 6-18, provides                                                                   
language for the "safe harbor" true-up @ 95%.                                                                                   
                                                                                                                                
Page 8, Line  2, indicates a credit  rate of 20%.   Lines 12-                                                                   
29,  provides language  in which  the  Department of  Natural                                                                   
Resources provides exploration data.                                                                                            
                                                                                                                                
Page 10, Lines 30-31, highlights  the transitional provisions                                                                   
of the 2  for 1, carrying that  language onto Page  12.  Page                                                                   
11 indicates the  five-year look back; the 2 for  1 is listed                                                                   
on Lines 13-19.                                                                                                                 
                                                                                                                                
Ms.  Wilson  continued,  Lines  22-28  indicates  the  7-year                                                                   
sunset.    Mr. Dickinson  interjected  information  regarding                                                                   
sunset needs.  The companies would  be in a position to claim                                                                   
production  expense and  would  need a  window  to make  that                                                                   
claim.   The  intent  makes a  transitional  investment.   It                                                                   
places  a new  producer  on the  same  footing  as a  company                                                                   
producing before the bill became effective.                                                                                     
                                                                                                                                
11:01:04 AM                                                                                                                   
                                                                                                                                
Ms. Wilson  referenced  Page 12, Lines  4-17, language  taken                                                                   
from the  Senate version,  in which  the producer receives  a                                                                   
credit  on  a facility  subject  to  regulation.   Also,  the                                                                   
producer  would support  all  rate proceedings  for  tariffs.                                                                   
She pointed out that there was  a piece in the Senate version                                                                   
regarding  audits,  which was  not  included  in the  version                                                                   
before the Committee.                                                                                                           
                                                                                                                                
Representative Hawker recognized  that language came from the                                                                   
Senate and understood the need  for a regulated facility, but                                                                   
thought  that Section  2  was problematic.    He asked  about                                                                   
applying it  to all circumstances,  which makes  a definitive                                                                   
statement regarding discount service costs.                                                                                     
                                                                                                                                
11:04:09 AM                                                                                                                   
                                                                                                                                
Mr.    Dickinson   agreed    with   Representative    Hawker,                                                                   
acknowledged  the  uncertainties  involved  with  the  issue.                                                                   
Representative  Hawker  mentioned parties  receiving  credit.                                                                   
He  asked if  the  Department  of Revenue  would  have to  be                                                                   
included  in  each  transaction   with  the  industry.    Mr.                                                                   
Dickinson  replied   they  would   be  involved   with  every                                                                   
transaction  involving  physical   assets  receiving  credit.                                                                   
Representative   Hawker  worried   about  the  fiscal   costs                                                                   
associated with that.                                                                                                           
                                                                                                                                
11:06:22 AM                                                                                                                   
                                                                                                                                
Representative Weyhrauch interjected  that it appears to give                                                                   
the consumer a break.  Mr. Dickenson agreed.                                                                                    
                                                                                                                                
Representative Kerttula thought  companies could come forward                                                                   
and file evidence.  She maintained that it is not onerous.                                                                      
                                                                                                                                
Mr. Dickinson advised  that the State would  have to regulate                                                                   
the profits  and rate  of returns.   Representative  Kerttula                                                                   
countered  that situation  could  be unfair.   Mr.  Dickinson                                                                   
agreed that it might be a "good  goal", but the language does                                                                   
not identify that.                                                                                                              
                                                                                                                                
11:09:11 AM                                                                                                                   
                                                                                                                                
Ms.  Wilson continued,  Page  12,  Lines 30-31,  removes  old                                                                   
language  and is  consistent with  the Senate  version.   Mr.                                                                   
Dickinson explained the removed  language references a sunset                                                                   
provision.                                                                                                                      
                                                                                                                                
Ms. Wilson  pointed out that Page  13, Line 16,  provides the                                                                   
10-year extension in which SB 185 appears.                                                                                      
                                                                                                                                
Page 15, the amendments contained  on Lines 19-28, corrects a                                                                   
statutory   concern   regarding   the  Cook   Inlet   credit.                                                                   
Representative Hawker requested clarification.                                                                                  
                                                                                                                                
Ms. Wilson  explained that  the original  intent was  that no                                                                   
additional  credits would  be granted  if Cook Inlet  reached                                                                   
$20  million dollars.   The  statutory  language states  that                                                                   
credits would  not be granted,  implying that they  would not                                                                   
be granted anywhere.  That language  was adjusted.  The other                                                                   
concern dealt  with the October  date.  The amendment  sets a                                                                   
more fair approach and provides another year.                                                                                   
                                                                                                                                
11:12:16 AM                                                                                                                   
                                                                                                                                
Representative Hawker  pointed out the "no cap"  on the North                                                                   
Slope.   He questioned  if there  should be  a cap placed  on                                                                   
Cook Inlet exploration efforts.                                                                                                 
                                                                                                                                
11:12:54 AM                                                                                                                   
                                                                                                                                
Ms. Wilson  explained that  Page 19,  Section 25, allows  for                                                                   
the  Department  to  use  RSA values.    She  requested  that                                                                   
language be  amended to  include provisions determining  cost                                                                   
effectiveness.  Representative  Hawker noted support for that                                                                   
solution.  Mr. Dickinson offered  to work with Representative                                                                   
Hawker.                                                                                                                         
                                                                                                                                
Representative Kelly  pointed out that  there had been  a lot                                                                   
of  work  done on  the  RSA  and  wondered  how the  goal  of                                                                   
"acceptable  language"  would  be achieved.    Mr.  Dickinson                                                                   
replied  the  Administration   would  appreciate  making  the                                                                   
concept work for everyone.                                                                                                      
                                                                                                                                
11:15:56 AM                                                                                                                   
                                                                                                                                
Ms. Wilson referenced Page 20,  Lines 8-9, which provides the                                                                   
GRE,  language taken  from  the Senate  version.   Lines  6-8                                                                   
indicate a value exclusion for Cook Inlet oil.                                                                                  
                                                                                                                                
Representative  Kelly  realized it  would  be challenging  to                                                                   
satisfy needs for  all sized fields.  He  recommended further                                                                   
work  to determine  those  areas  as  well as  the  community                                                                   
subsidies.                                                                                                                      
                                                                                                                                
SB 305 was HELD in Committee for further consideration.                                                                         
                                                                                                                                
11:18:47 AM                                                                                                                   
                                                                                                                                
RECESSED:                                                                                                                     
                                                                                                                                
The meeting was RECESSED at 11:19 A.M.                                                                                          
                                                                                                                                
                                                                                                                                

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