Legislature(2005 - 2006)CAPITOL 124
03/16/2006 12:30 PM House RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| HB488 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 488 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
HOUSE RESOURCES STANDING COMMITTEE
March 16, 2006
12:39 p.m.
MEMBERS PRESENT
Representative Jay Ramras, Co-Chair
Representative Ralph Samuels, Co-Chair
Representative Jim Elkins
Representative Carl Gatto
Representative Gabrielle LeDoux (via teleconference)
Representative Kurt Olson
Representative Paul Seaton
Representative Harry Crawford
Representative Mary Kapsner
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
HOUSE BILL NO. 488
"An Act repealing the oil production tax and gas production tax
and providing for a production tax on the net value of oil and
gas; relating to the relationship of the production tax to other
taxes; relating to the dates tax payments and surcharges are due
under AS 43.55; relating to interest on overpayments under AS
43.55; relating to the treatment of oil and gas production tax
in a producer's settlement with the royalty owner; relating to
flared gas, and to oil and gas used in the operation of a lease
or property, under AS 43.55; relating to the prevailing value of
oil or gas under AS 43.55; providing for tax credits against the
tax due under AS 43.55 for certain expenditures, losses, and
surcharges; relating to statements or other information required
to be filed with or furnished to the Department of Revenue, and
relating to the penalty for failure to file certain reports,
under AS 43.55; relating to the powers of the Department of
Revenue, and to the disclosure of certain information required
to be furnished to the Department of Revenue, under AS 43.55;
relating to criminal penalties for violating conditions
governing access to and use of confidential information relating
to the oil and gas production tax; relating to the deposit of
money collected by the Department of Revenue under AS 43.55;
relating to the calculation of the gross value at the point of
production of oil or gas; relating to the determination of the
net value of taxable oil and gas for purposes of a production
tax on the net value of oil and gas; relating to the definitions
of 'gas,' 'oil,' and certain other terms for purposes of AS
43.55; making conforming amendments; and providing for an
effective date."
- HEARD AND HELD
PREVIOUS COMMITTEE ACTION
BILL: HB 488
SHORT TITLE: OIL AND GAS PRODUCTION TAX
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
02/21/06 (H) READ THE FIRST TIME - REFERRALS
02/21/06 (H) RES, FIN
02/22/06 (H) RES AT 12:30 AM HOUSE FINANCE 519
02/22/06 (H) Heard & Held
02/22/06 (H) MINUTE(RES)
02/23/06 (H) RES AT 12:30 AM HOUSE FINANCE 519
02/23/06 (H) Heard & Held
02/23/06 (H) MINUTE(RES)
02/24/06 (H) RES AT 12:30 AM HOUSE FINANCE 519
02/24/06 (H) Heard & Held
02/24/06 (H) MINUTE(RES)
02/25/06 (H) RES AT 10:00 AM SENATE FINANCE 532
02/25/06 (H) Joint with Senate Resources
02/27/06 (H) RES AT 12:30 AM CAPITOL 124
02/27/06 (H) Heard & Held
02/27/06 (H) MINUTE(RES)
02/28/06 (H) RES AT 12:30 AM CAPITOL 124
02/28/06 (H) Heard & Held
02/28/06 (H) MINUTE(RES)
03/01/06 (H) RES AT 12:30 AM CAPITOL 124
03/01/06 (H) Heard & Held
03/01/06 (H) MINUTE(RES)
03/02/06 (H) RES AT 12:00 AM CAPITOL 124
03/02/06 (H) Heard & Held
03/02/06 (H) MINUTE(RES)
03/03/06 (H) RES AT 12:30 AM CAPITOL 124
03/03/06 (H) Heard & Held
03/03/06 (H) MINUTE(RES)
03/04/06 (H) RES AT 2:00 PM HOUSE FINANCE 519
03/04/06 (H) Heard & Held
03/04/06 (H) MINUTE(RES)
03/06/06 (H) FIN AT 12:30 AM HOUSE FINANCE 519
03/06/06 (H) Presentation by Legislative Consultant
03/06/06 (H) RES AT 12:30 AM HOUSE FINANCE 519
03/06/06 (H) Testimony by legislative consultant
03/07/06 (H) RES AT 12:30 AM CAPITOL 124
03/07/06 (H) Heard & Held
03/07/06 (H) MINUTE(RES)
03/08/06 (H) RES AT 12:30 AM CAPITOL 106
03/08/06 (H) -- Meeting Canceled --
03/09/06 (H) RES AT 12:30 AM CAPITOL 106
03/09/06 (H) -- Meeting Canceled --
03/10/06 (H) RES AT 12:30 AM CAPITOL 106
03/10/06 (H) Heard & Held
03/10/06 (H) MINUTE(RES)
03/11/06 (H) RES AT 10:00 AM CAPITOL 106
03/11/06 (H) -- Meeting Canceled --
03/13/06 (H) RES AT 10:00 AM CAPITOL 124
03/13/06 (H) Heard & Held
03/13/06 (H) MINUTE(RES)
03/14/06 (H) RES AT 12:30 AM CAPITOL 124
03/14/06 (H) Heard & Held
03/14/06 (H) MINUTE(RES)
03/15/06 (H) RES AT 1:15 PM CAPITOL 124
03/15/06 (H) Heard & Held
03/15/06 (H) MINUTE(RES)
03/16/06 (H) RES AT 12:30 AM CAPITOL 124
WITNESS REGISTER
ROBERT MINTZ, Assistant Attorney General
Oil, Gas & Mining Section
Civil Division
Department of Law
Anchorage, Alaska
POSITION STATEMENT: Answered questions on HB 488.
DAN DICKINSON, Consultant
to the Office of the Governor
Anchorage, Alaska
POSITION STATEMENT: Answered questions on HB 488.
ROBYNN WILSON, Director
Tax Division
Department of Revenue
Anchorage, Alaska
POSITION STATEMENT: Answered questions on HB 488.
ACTION NARRATIVE
CO-CHAIR RALPH SAMUELS called the House Resources Standing
Committee meeting to order at 12:39 PM. Representatives Ramras,
Samuels, Elkins, Crawford, Kapsner, Gatto, Seaton, and Olson
were present at the call to order. Representative LeDoux was on
teleconference.
12:40:42 PM
The committee took an at-ease from 12:41:35 PM to 12:51:04 PM.
HB 488-OIL AND GAS PRODUCTION TAX
CO-CHAIR SAMUELS announced that the only order of business would
be HOUSE BILL NO. 488, "An Act repealing the oil production tax
and gas production tax and providing for a production tax on the
net value of oil and gas; relating to the relationship of the
production tax to other taxes; relating to the dates tax
payments and surcharges are due under AS 43.55; relating to
interest on overpayments under AS 43.55; relating to the
treatment of oil and gas production tax in a producer's
settlement with the royalty owner; relating to flared gas, and
to oil and gas used in the operation of a lease or property,
under AS 43.55; relating to the prevailing value of oil or gas
under AS 43.55; providing for tax credits against the tax due
under AS 43.55 for certain expenditures, losses, and surcharges;
relating to statements or other information required to be filed
with or furnished to the Department of Revenue, and relating to
the penalty for failure to file certain reports, under AS 43.55;
relating to the powers of the Department of Revenue, and to the
disclosure of certain information required to be furnished to
the Department of Revenue, under AS 43.55; relating to criminal
penalties for violating conditions governing access to and use
of confidential information relating to the oil and gas
production tax; relating to the deposit of money collected by
the Department of Revenue under AS 43.55; relating to the
calculation of the gross value at the point of production of oil
or gas; relating to the determination of the net value of
taxable oil and gas for purposes of a production tax on the net
value of oil and gas; relating to the definitions of 'gas,'
'oil,' and certain other terms for purposes of AS 43.55; making
conforming amendments; and providing for an effective date."
12:51:25 PM
CO-CHAIR SAMUELS said the committee had the draft committee
substitute (CS) for HB 488 last night, and he has been working
with Robert Mintz, the original drafter of the bill for the
administration, and John Chenoweth, the drafter for the
legislature, to make sure "the rough patches were smoothed
over." He said some of the rough patches were not yet fixed, so
he would like to adopt the CS and then amend it. There are five
amendments that the two drafters agree on, he stated.
REPRESENTATIVE SEATON moved to adopt the committee substitute
(CS) for HB 488, labeled 24-GH2052\Y, Chenoweth, 3/15/06, as a
working document. Hearing no objections, version Y was before
the committee.
ROBERT MINTZ, Assistant Attorney General, Oil, Gas & Mining
Section, Civil Division, Department of Law, said he has the
package of amendments.
CO-CHAIR RAMRAS moved to adopt Amendment 1, labeled 24-
GH2052\Y.4, Chenoweth, 3/16/06, as follows [original punctuation
provided]:
Page 21, lines 3 - 4:
Delete "any payment or credit"
Insert "certain payments or credits received by
the producer, as provided in this subsection. If,
during a month or, under (f) of this section, during a
calendar year, a producer receives one or more
payments or credits subject to this subsection and if
either the total amount of the payments or credits
exceeds the amount of the producer's lease
expenditures or the producer does not have any lease
expenditures, the producer shall nevertheless subtract
the payments or credits from the lease expenditures or
from zero, respectively, and the producer's adjusted
lease expenditures for that month or calendar year are
a negative number. The producer shall apply that
negative number to the calculation made under (a) of
this section. The payments or credits that a producer
must subtract from the producer's lease expenditures,
or from zero, under this subsection are payments or
credits that"
CO-CHAIR SAMUELS objected.
MR. MINTZ said Amendment 1 applies to page 21, lines 3-4 of the
CS, and it relates to the important aspect of the production tax
value of oil and gas. He said that the proposed profit-based
petroleum production tax (PPT) involves subtracting lease
expenditures from the gross value of oil at the point of
production. "In order to carry through the concept of net
expenditures and to avoid windfalls, there's a requirement in
subsection (e) of AS 43.55.160 that lease expenditures be
adjusted by subtracting certain payments that the producer gets-
reimbursements, for example, or if you have a lease expenditure
that resulted in acquiring an asset, and then you sell the
asset, what you receive for that sale would also have to be
deducted as an adjustment."
MR. MINTZ said Amendment 1 addresses a timing problem in the CS.
He said it is partially addressed at the bottom of page 17 and
the top of page 18 in the CS. There could be a situation with
negative lease expenditures that would give rise to a tax, but
the Department of Law determined that an additional explanation
is necessary, he said. The amendment explains how it could be
possible to have a negative lease expenditure. He gave a
hypothetical example of a company doing exploration work in 2007
and said that:
It cost $10 million in lease expenditures, that would
be deducted, but that causes a net loss which under
Section 024 can be converted into a carry-forward
credit of $2 million--that's 20 percent. Then that
can be sold, yielding up to $2 million in receipts.
But let's say the next year, 2008, an asset that was
generated as a result of those exploration
expenditures, such as seismic data or other valuable
data, let's say that was sold for $1 million. Under
subsection (e) of 160, that's required to be
subtracted from the explorer's lease expenditures as
an adjustment, as I was just describing; however, it
may be that there are no lease expenditures in 2008 to
deduct them against. That would basically cause a
windfall. So what this amendment does, is even if you
have no lease expenditures in a particular time period
or if your lease expenditures are too small to offset
the adjustment, you still have to subtract that
payment that you get as an adjustment. And if you get
a negative number, so be it. The negative number will
be entered into the tax calculation.
12:57:11 PM
REPRESENTATIVE SEATON asked if that means it is carried forward
as an expense or generates a loss that could be taken as a
credit.
12:57:32 PM
MR. MINTZ said it is the opposite of that. "What it's saying
is, if you get a reimbursement or a payment that would reduce
your expenses, it could reduce it below zero if your expenses
are not great enough, and basically that becomes a taxable value
under subsection (a) of 160. So it would actually generate a
tax."
12:58:05 PM
CO-CHAIR SAMUELS removed his objection. Hearing no further
objections, Amendment 1 carried.
CO-CHAIR RAMRAS moved Amendment 2, labeled 24-GH2052\Y.5,
Chenoweth, 3/16/06, as follows [original punctuation provided]:
Page 24, lines 3 - 4:
Delete "may apply a tax credit against that
liability under this section."
Insert "and, during the calendar year, has
incurred a qualified capital expenditure, as that term
is defined in AS 43.55.024, may apply a tax credit, in
an amount that does not exceed the amount of that
expenditure, against that liability under this
section. An unused portion of a tax credit may be
applied to the extent otherwise allowed under this
section for one or more months during the same
calendar year."
Page 24, lines 6 - 7:
Delete "before applications for any credits under
this chapter"
Insert "for any month"
Page 24, line 23, following "qualified":
Insert "capital"
CO-CHAIR SAMUELS objected.
MR. MINTZ said Amendment 2 is a fix to a provision that was
added by the committee. Referring to page 24, he said the
committee's intention was to replace the $73 million allowance
with a new credit limited to $10 million per year. He noted
that the credit was meant to be triggered by a qualified capital
expenditure, but, in the drafting that fundamental aspect got
left out. The first part of Amendment 2 makes that correction,
he said. In order to take that tax credit there has to be a
qualified capital expenditure during the calendar year, and it
cannot exceed the amount of the expenditure. The second part of
Amendment 2 corrects a phrase "that didn't really work," and
states "the same thing that is true for all the other credits in
the bill, which is you can never use a credit to reduce your
actual tax due below zero." He said the third part of the
amendment inserts "capital" to correct a terminology omission.
1:00:33 PM
REPRESENTATIVE SEATON asked about the capital expenditure and if
the change was to differentiate reinvestment capital
expenditures from operational expenditures.
MR. MINTZ said that is correct; a qualified capital expenditure
is actually defined in Section 024 as a subset of lease
expenditures, and the subset consists of things of a capital
nature. He said the only exception is the cost of geological
and geophysical exploration.
1:01:33 PM
REPRESENTATIVE SEATON asked if it is correct to say that
purchasing an additional lease could not be used as "part of
this."
MR. MINTZ said that is correct, because the direct cost excludes
acquisition costs of leases or other properties.
1:02:10 PM
CO-CHAIR SAMUELS removed his objection.
REPRESENTATIVE SEATON objected and asked the intent of not
allowing this to be used for lease acquisitions. He said the
committee was trying to stimulate exploration and activity in
Alaska, and asked the consequences of allowing the inclusion of
lease acquisition costs.
CO-CHAIR SAMUELS suggested voting on the amendment and adding
that later.
REPRESENTATIVE SEATON removed his objection. Hearing no further
objections, Amendment 2 carried.
CO-CHAIR RAMRAS moved Amendment 3, labeled 24-GH2052\Y.6,
Chenoweth, 3/16/06, as follows [original punctuation provided]:
Page 29, line 31, following "REGULATIONS":
Delete "."
Insert "AND RETROACTIVITY OF REGULATIONS. (a)"
Page 30, following line 3:
Insert a new subsection to read:
"(b) Notwithstanding any contrary provision of
AS 44.62.240, a regulation adopted by the Department
of Revenue to implement, interpret, make specific, or
otherwise carry out the provisions of secs. 5, 6, 8 -
11, 13 - 15, 17 - 20, 22, and 25 - 41 of this Act may
apply retroactively as of April 1, 2006, if the
Department of Revenue expressly designates in the
regulation that the regulation applies retroactively
to that date."
CO-CHAIR SAMUELS objected.
MR. MINTZ said Amendment 3 is a very important technical change.
[The CS] would begin the new PPT on April 1, 2006. It may or
may not have a retroactive effect, but the language needs to
have authorization for the Department of Revenue to allow
retroactivity. The PPT would apply to oil and gas produced on
or after that date, but it takes months for complex regulations
to be developed, he stated. Under the Emergency Procedure Act,
there is a general restriction on making regulations
retroactive, so in order to make sure that the PPT is applicable
at the right time, this amendment's authorization language is
required.
1:05:10 PM
CO-CHAIR SAMUELS said there will be an amendment to move the
effective date of the PPT to January 1, 2006. He asked how the
amendment should reflect that.
MR. MINTZ said it would need to be changed by the legislature.
1:05:47 PM
CO-CHAIR SAMUELS removed his objection. Hearing no further
objections, Amendment 3 carried.
CO-CHAIR RAMRAS moved Amendment 4, labeled 24-GH2052\Y.7,
Chenoweth, 3/16/06, as follows [original punctuation provided]:
Page 29, lines 5 - 6:
Delete "the sections of this Act that are not
effective April 1, 2006"
Insert "secs. 8 and 13 of this Act"
Page 29, lines 14 - 15:
Delete "the sections of this Act that are not
effective April 1, 2006"
Insert "secs. 5 and 6 of this Act"
Page 29, line 17, following "Act,":
Insert "or AS 43.55.030(e), added by sec. 22 of
this Act,"
Page 29, lines 18 - 19:
Delete "the sections of this Act that are not
effective April 1, 2006"
Insert "secs. 20 and 22 of this Act"
CO-CHAIR SAMUELS objected.
1:06:31 PM
MR. MINTZ said these are fairly technical changes regarding the
transition provisions of HB 488. He explained that there are
two sets of transition provisions. The original bill provided
that the new provisions would start on July 1, and some of the
provisions were calendar year numbers. He said the transition
provision said that for the first six months of implementation,
"those things" will be divided in half to prorate them for six
months. "Some of these changes do the same thing, but because
the CS would start the new tax provisions in effect on April 1,
we're talking about 9 months out of 12, rather than 6 months out
of 12."
MR. MINTZ said the other transition provisions are about how
taxpayers will initially file, because it will take time for
producers to respond to the new law. It would be unfair to
penalize a producer for underpaying in April if the law didn't
take effect until May. "Even if it [passed by April], it would
be hard to respond that quickly," he noted. For the first six
months after the production tax changes, the producer can file
returns required under federal law, and later the producer will
have to pay the additional tax and file a true-up statement.
These provisions were in the CS, but the references to the
effective dates were not clear, he said.
1:09:48 PM
CO-CHAIR SAMUELS removed his objection. Hearing no further
objections, Amendment 4 carried.
CO-CHAIR RAMRAS moved Amendment 7, labeled 24-GH2052\Y.9,
Chenoweth, 3/16/06, as follows [original punctuation provided]:
Page 4, line 9, following "for":
Insert "all"
Page 5, line 31:
Delete "AS 43.55.011"
Insert "AS 43.55.011(a)"
Page 30, line 22:
Delete "24,"
The committee took an at-ease from 1:10:58 PM to 1:12:59 PM.
CO-CHAIR SAMUELS objected.
MR. MINTZ said the basic language that has always been in the
production tax statute refers to levying a tax for all oil and
gas produced. He added that that is still in section 011 (a),
which was in the original HB 488. The CS has new elements of
the production tax, and one subsection has the correct phrase,
"all oil and gas," but the second subsection does not have the
word "all".
1:14:17 PM
MR. MINTZ said the provisions go on to say "except for the tax-
exempt oil and gas," which is the state or federal royalty
share, "but it starts off with the general statement of taxing
all oil and gas." He said the second part relates to the
taxation of private royalty oil and gas. "This relates to the
fact that the CS now has three different elements of production
tax, whereas the original bill only had a single element, which
used to be called the 'net value tax'." The CS calls it the
'production tax value tax'. He said Section 10, Page 5,
provides a default methodology for calculating a private royalty
share of the tax. He noted that when the two elements of the
tax were added, the reference to 43.55.011 became too broad. So
line 31, page 5, is intended to be the tax only under 011 (a),
which is the tax on production tax value or what was previously
called net value. The change on page 30, line 22, relates to
which provisions of the act would take effect immediately and
which would take effect on April 1. He said the amendment
removes Section 24 from what would take effect immediately
because it conforms the production tax statute to the
requirements of the constitutional budget reserve fund
amendment. "There is a reference in that provision to AS
43.55.011 through 43.55.170, which is basically the production
tax statute. Well, 170 is a new provision, which won't take
effect until April 1, and therefore, this section of the bill,
which refers to 170, it wouldn't make sense for it to take
effect before April 1.
1:17:27 PM
REPRESENTATIVE SEATON referred to inserting "all". He asked if
the definition of "produce" still omits resources utilized in
the operations of the industry.
MR. MINTZ said that was correct.
CO-CHAIR SAMUELS removed his objection. Hearing no further
objections, Amendment 7 carried.
1:18:14 PM
REPRESENTATIVE OLSON moved Amendment 5, as follows [original
punctuation provided]:
Page 4, line 9:
delete "or gas" "and gas"
Page 4, line 10
delete "and gas"
Page 4, line 12
delete "and gas"
CO-CHAIR SAMUELS objected.
REPRESENTATIVE OLSON said the amendment removes gas from the
progressive portion of HB 488.
CO-CHAIR SAMUELS said there was testimony yesterday that pointed
out that a spike in oil prices doesn't necessarily mean gas will
follow, "but you'd be raising the tax on gas because of an event
that triggered a spike in oil prices. There were some concerns
about that. So the gas portion of this bill, right now, if this
amendment passes, will not be progressive." He said the
surcharge will not apply to gas.
1:19:23 PM
REPRESENTATIVE CRAWFORD said the bill treats gas at 6,000 cubic
feet to one barrel of oil, and it is a disparity of about nine
to one. "Wouldn't it be better to just go ahead and take gas
completely out of this?" He read a rationale to that idea:
Not enough information has been provided as to the
impact of this new tax structure on current and future
gas production in Cook Inlet and on the North Slope,
as well as how this will relate to, or be impacted by,
the gas pipeline. Gas has historically been taxed
differently, at different rates and no information has
been provided as to why it should now be taxed in the
same way or at the same level. Also, no information
has been provided that would explain the implications
of allowing the amalgamation of both oil and gas
expenditures on a statewide basis and across deduction
and credit of oil expenditures against the gas tax and
gas expenditures against the oil tax. Once the
information has been provided on all these fronts,
appropriate changes can be made in the gas production
tax.
REPRESENTATIVE CRAWFORD said the state could be opening a can of
worms and end up subsidizing production facilities for gas
fields that the state had no intention of doing, and writing it
off of profits against oil. He said it is a scary proposition,
and he thinks there should be an amendment to take gas out of
the bill.
CO-CHAIR SAMUELS asked Representative Crawford if he intends to
do that.
1:22:14 PM
REPRESENTATIVE CRAWFORD said he has been trying to write that
amendment, but it is difficult. "But it can be done. We have
taxed gas and oil separately in the past. It is just going to
take some work."
1:22:45 PM
CO-CHAIR SAMUELS suggested having the debate tomorrow when the
amendment is ready. He noted that Amendment 5 is a very small
bite out of that apple.
REPRESENTATIVE CRAWFORD said he wished he knew what was right.
He said he appreciates the work Co-Chair Samuels has done, and
he is not equipped to go forward with the bill as it is,
especially with gas included in it. "I would prefer to just say
no." He said he is still not convinced that a net profit tax is
appropriate. There is weight behind the progressivity but it
doesn't go far enough. Taxing the gas at 6 to 1 with oil is a
mistake, he stated.
1:25:39 PM
CO-CHAIR SAMUELS said he has no problems with dealing with it
later.
CO-CHAIR RAMRAS said he is in favor of progressivity for both
oil and gas, but he will support Amendment 5 because of what
happened during Hurricane Katrina when gas spiked and oil went
up more slowly. He suggested that the legislature create a
cleaner product for progressivity for gas tied to the Henry Hub
measurement. If progressivity is developed for gas, it must be
tied to the appropriate indicator, he stated.
1:27:22 PM
REPRESENTATIVE GATTO said he agrees. He never thought oil and
gas should be in the same bill, just as coal shouldn't be in the
bill. This bill is already complicated, and another bill could
be written for gas using HB 488 as a framework.
CO-CHAIR SAMUELS said there are a plethora of problems with
taking gas out of the bill. "The entire point of the bill was
to go take the royalty away and go to cost recovery. And how
are you going to determine the cost recovery factions of two
products coming out of the same hole in the ground?" he asked.
"I can guarantee, whichever one was a tax advantage of the
person who drilled the hole in the ground is where they would
shovel the cost recovery." It would take another two months to
write a gas bill, and it would be hugely problematic to try to
account for it. He said he agrees with the amendment because of
what [Mark] Hanley said. Some other indicator is a better way
to go, he said.
1:29:59 PM
REPRESENTATIVE SEATON said he wants consultants to provide an
analysis on progressivity for gas. He said he will support the
amendment--not to remove progressivity for gas but to get out of
tying gas to oil until there is an appropriate method for gas.
1:30:52 PM
REPRESENTATIVE GATTO asked about proportioning gas and oil cost
recovery. He suggested using BTUs, and said there will be ways
to deal with the cost recovery question.
REPRESENTATIVE CRAWFORD said the price of BTUs are different for
oil and gas, so that would not solve the problem.
CO-CHAIR SAMUELS removed his objection. Hearing no further
objections, Amendment 5 carried.
REPRESENTATIVE KAPSNER moved Amendment 6, labeled 24-GH2052\F.1,
Chenoweth, 3/15/06, as follows [original punctuation provided]:
Page 9, line 24:
Delete "April 1, 2006"
Insert "January 1, 2006"
Page 16, lines 2 - 3:
Delete "April 1, 2006"
Insert "January 1, 2006"
Page 18, line 15:
Delete "April 1, 2006"
Insert "January 1, 2006"
Page 18, lines 26 - 27:
Delete "April 1, 2006"
Insert "January 1, 2006"
Page 18, line 28:
Delete "April 1, 2006"
Insert "January 1, 2006"
Page 18, line 29:
Delete "April 1, 2006"
Insert "January 1, 2006"
Page 19, line 1:
Delete "April 1, 2006"
Insert "January 1, 2006"
Page 19, line 2:
Delete "April 1, 2006"
Insert "January 1, 2006"
Page 19, line 8:
Delete "April 1, 2006"
Insert "January 1, 2006"
Page 21, line 23:
Delete "March 31, 2016"
Insert "December 31, 2015"
Page 25, line 1:
Delete "April 1, 2006"
Insert "January 1, 2006"
Page 25, lines 6 - 24:
Delete all material and insert:
"TRANSITIONAL PROVISIONS. (a) For oil and gas
produced before January 1, 2006, the provisions of
AS 43.55, and regulations adopted under AS 43.55, that
were in effect before January 1, 2006, and that were
applicable to the oil and gas continue to apply to
that oil and gas.
(b) Notwithstanding any provision in this Act to
the contrary,
(1) a report and payment of production tax
on oil and gas due under AS 43.55, as enacted by this
Act, for any period before the effective date of this
Act is due on the last day of the month following the
month in which the effective date of this Act occurs;
and
(2) penalty provisions of AS 43.55.020(h),
added by sec. 13 of this Act, and of AS 43.55.030(d),
amended by sec. 17 of this Act, apply to taxes that
are due and unpaid and reports that are not filed by
the date described in (1) of this subsection."
Page 26, lines 13 - 20:
Delete all material and insert:
"* Sec. 42. The uncodified law of the State of
Alaska is amended by adding a new section to read:
RETROACTIVITY. Sections 5, 6, 8 - 11, 13, 14, 16
- 18, and 22 - 37 are retroactive to January 1, 2006,
and apply to oil and gas produced on and after that
date.
* Sec. 43. This Act takes effect immediately under
AS 01.10.070(c)."
CO-CHAIR SAMUELS objected.
REPRESENTATIVE KAPSNER said Amendment 6 retroactively implements
the PPT to January 1, and she quoted consultant Pedro van Meurs,
who said: "Whether you start the date on January 1 or July 1,
really has no impact on the competitiveness of the system
because new investors would look at new investments and would
not even have to pay tax for now for awhile." Mr. van Meurs
said the two dates are equally attractive to investors. The
only difference would be six months more of revenues, adding
$250 million to state coffers.
1:33:45 PM
CO-CHAIR SAMUELS maintained his objection because he would not
want the Internal Revenue Service to tax him retroactively. He
said he hates to go back and change the rules because the
investors didn't plan on it.
REPRESENTATIVE GATTO said the bill will be in effect for 20-30
years, and the $250 million is a small piece of it.
A roll call vote was taken. Representatives Elkins, Crawford
and Kapsner voted in favor of Amendment 6. Representatives
Gatto, Olson, Ramras, Samuels, Seaton, and LeDoux voted against
it. Therefore, Amendment 6 failed by a vote of 3-6.
REPRESENTATIVE KAPSNER offered Amendment 8 as follows:
Delete sections relating to transitional investment
expenditures.
CO-CHAIR SAMUELS objected.
REPRESENTATIVE KAPSNER said in keeping with the philosophy of
not wanting to retroactively implement any laws, Amendment 8
deletes all sections of transitional investment expenditures.
She said if the committee's philosophy on retroactivity is
negative with regard to the effective date, it should maintain
that philosophy across the board.
1:37:46 PM
CO-CHAIR SAMUELS said it is "a little bit of an apple and orange
argument." He said he did not believe in using investments made
five years ago; an investment five years ago was not based on
the high oil prices. "Should we penalize them because of high
oil prices? And in effect that is what we did in the CS." He
said the state will be the beneficiary. He said he talked to
all the members and spread out the payment from six years to
seven years. "We cut back quite a bit of the expenditures." He
said the state can't say it is taxing the oil at a higher rate
but it has more oil to tax because of those investments.
1:39:20 PM
CO-CHAIR RAMRAS said he is against Amendment 8. The transition
credits amounted to $5 billion, and 20 percent "was going to
come back against the state as a credit to be used by the oil
companies worth about $1 billion." He said the CS reduced the
credit to $3-400 million spread over seven years. Some of the
oil companies have testified that it takes ten years to bring
the oil to market, so he said it is reasonable to apply a five-
year yardstick. He said because of the price of oil, the oil
companies are enjoying a significantly greater return than
forecasted. He noted that oil price projections were about $30
per barrel five years ago. He believes that those capital
expenditures have borne fruit, and many will enjoy a reasonable
horizon of high oil prices. He opposes Amendment 8, because he
has "stewarded a fair program recognizing a lot of the
transition credits for which they have enjoyed some benefit and
those capital costs that are still at risk in the market place."
1:41:49 PM
REPRESENTATIVE CRAWFORD said he represents House District 21,
the people of South Muldoon, and they have not been treated
properly. He said the legislature dallied when it should have
been redoing the severance tax years ago. It was evident at
least two years ago that oil taxes should have been fixed. The
industry collected $3 billion in profits, some of which should
have gone to people of Alaska, he stated. It seems that if this
tax bill can't even be retroactive to January 1, "we're not
going back to get their profits that I don't believe they should
have gotten." He said it is up to the legislature to stay in
the midrange around the world of total government take after
discounting for transportation and production costs. He said
the oil companies got far more than they should have. "This has
been a hugely rewarding deal for the oil companies."
Representative Kapsner is right, he noted.
1:44:07 PM
REPRESENTATIVE SEATON said this is a troubling issue. He said,
"those investments were there and yet we were under-collecting.
ELF was not aggregated for a good portion of that time. There
were a significant amount of taxes left on the table." He said
he doesn't think that future capital expenditures will be made
based on past capital credit. Representative Olson mentioned
that investors are going into Libya in spite of nationalized
capitalization.
1:46:02 PM
REPRESENTATIVE GATTO said this bill already has retroactivity in
that today is March 16 and the bill won't be signed by April 1.
"It is a matter of saying how retroactive. But since we've
already picked a date, I think it's fair to just leave that date
there."
REPRESENTATIVE LEDOUX said she struggled with Representative
Kapsner's first amendment regarding the start date, and she
couldn't swallow that amendment because of the retroactivity.
She said that if there will not be a look-back for the effective
date, she will support this amendment.
1:47:27 PM
A roll call vote was taken. Representatives Seaton, LeDoux,
Elkins, Crawford and Kapsner voted in favor of Amendment 8.
Representatives Gatto, Olson, Ramras and Samuels voted against
it. Therefore, Amendment 8 passed by a vote of 5-4.
1:48:24 PM
CO-CHAIR SAMUELS asked that Amendment 9 be held pending research
of its ramifications.
1:49:18 PM
REPRESENTATIVE KAPSNER introduced Amendment 10 as follows
[original punctuation provided]:
Page 31, line 1
Add the following:
"Sec. 49. AS 43.55. is amended to read:
Sec.43.55.400. High energy cost offset fund.
(a) The high energy cost offset fund is
established as a separate fund in the general fund.
The fund consists of all money appropriated to it.
(b) The high energy cost offset fund shall be
invested by the Department of Revenue so as to yield
competitive market rates, as provided in AS 37.10.071.
Money in the fund may be appropriated to provide cost
offsets for high energy costs of consumers.
(c) Nothing in this section creates a dedication
of funds
CO-CHAIR SAMUELS objected.
REPRESENTATIVE KAPSNER said the committee recognizes that the
consumers of Alaska are suffering under high oil prices while
the industry and the state enjoys the benefits. Amendment 10
would establish a high energy cost offset fund, funded when the
price of crude gets to a certain amount. "The more you pay for
stove oil, the more benefit you would receive." It doesn't set
a price trigger, she explained.
1:50:48 PM
REPRESENTATIVE SEATON said he will not support the amendment
because it is unrelated to the tax bill before the committee.
He noted that the legislature is establishing similar funds, and
they should be separate pieces of legislation.
1:51:24 PM
CO-CHAIR SAMUELS said he agrees that the state benefits, and it
is an easier job to sit here with high oil prices. He said it
is tough to pay $6 per gallon for aviation fuel in Cold Bay to
get people to a village where they pay $6-7 per gallon for
heating fuel. He said he whole-heartedly understands the
problem, but he thinks HB 488 is the wrong vehicle. The bill is
already complicated. He said the resources committee could work
on separate legislation that wouldn't be so politically
treacherous.
1:52:42 PM
REPRESENTATIVE CRAWFORD said he agrees that the amendment is
politically treacherous, but it is a statement the legislature
could make. He said it doesn't say what the cost will be but a
statement of intent. With high oil prices, the state is
benefiting and people are suffering. "Now would be the proper
time to make this statement."
1:53:30 PM
CO-CHAIR RAMRAS said he will oppose the amendment but will go on
record of supporting the issue. He said he was amused by
Anadarko Petroleum Corporation's testimony bemoaning the
increasing cost of oil development by complaining of high-energy
costs. He said he has seen the decrease in discretionary
spending of Fairbanks citizens and the use of credit cards to
heat their homes. High oil prices will do great harm to
Alaskans, especially rural Alaskans. He said he will address
this in another vehicle.
A roll call vote was taken. Representatives LeDoux, Crawford
and Kapsner voted in favor of Amendment 10. Representatives
Gatto, Olson, Ramras, Elkins, Seaton and Samuels voted against
it. Therefore, Amendment 10 failed by a vote of 3-6.
1:55:58 PM
REPRESENTATIVE CRAWFORD moved conceptual Amendment 11, described
by him as follows [original punctuation provided]:
This amendment would prevent a deduction from taxable
income for the clean-up of oil spills, as in existing
law Sec. 43.55.150 (c)(1) on the severance tax.
The existing language reads "the amount of loss of or
damage to, or of expense incurred due to the loss of
or damage to, a vessel used to transport oil if the
loss, damage, or expense is incurred in connection
with a catastrophic oil discharge from the vessel into
the marine or inland waters of the state".
In addition, unless prohibited elsewhere in this bill,
a provision should be added preventing a taxpayer from
deducting the cost of any oil-spill related damage or
penalty payments to a governmental or private party.
CO-CHAIR RAMRAS objected.
REPRESENTATIVE CRAWFORD said the state should not pay for the
cost of clean up of a spill, like the Exxon Valdez spill, or
that it should allow a deduction against profits for the cost of
settlements. He said his amendment uses the same language of
existing statute.
1:58:02 PM
CO-CHAIR SAMUELS asked if the amendment technically fit into the
law.
DAN DICKINSON, Consultant to the Office of the Governor, said he
is confused. He said that after the Exxon Valdez oil spill of
1989, the following language "stepped in." "In determining the
gross value of oil under (a), the department may not allow, as a
reasonable cost of transportation." He said, "Our current
statute prohibits...we may not allow these as a deduction
currently. So I'm concerned. I guess I am simply confused as
to what this conceptual amendment is showing."
CO-CHAIR SAMUELS asked Mr. Dickinson if he meant that what
Representative Crawford wants is already in law; spill expenses
are not deductible.
MR. DICKINSON said, "Unless the question is, if we cannot do it
for purposes of gross and...this conceptual amendment will mean
we cannot either do it for purposes of net."
1:59:26 PM
REPRESENTATIVE CRAWFORD said he doesn't want spill costs to be
written off against profits.
MR. DICKINSON stated, "I think to clarify your question is, we
already, those are already not allowed in the calculation of the
gross. And...so the question would be if we would transfer and
make sure this is also not allowed for purposes of the net. It
would be a conceptual issue."
2:00:00 PM
REPRESENTATIVE SEATON asked about the CS. "Are we amending or
deleting this previous language and, therefore, do we need to
have this in?"
MR. DICKINSON said, "No, this section would not be altered by
either the bill that the administration submitted or the CS.
Currently this language stands unchanged in both."
CO-CHAIR SAMUELS said he still wants to know if it is already a
law that companies can't deduct [the costs of oil spills] "in
any way, shape or form?"
2:00:53 PM
MR. DICKINSON said, "That is correct. You cannot use it in
calculating the gross value, and then, what we have done, is we
said you start with the gross value, you subtract a bunch more
things to come to net. I suppose it is possible that an
argument could be made that these costs, if they were lease
related, could be calculated as part of that net deduction.
Generally, I suppose, inland waters of the state might include a
spill to a river, upstream on the lease."
2:01:24 PM
REPRESENTATIVE GATTO asked if this is the Joe Hazelwood
amendment.
MR. DICKINSON said he believes this was introduced to deal with
the costs that were spent...
REPRESENTATIVE GATTO interjected and asked if any part of the
oil cleanup costs in 1989 applied to net profits for state or
federal taxes as a normal cost of doing business.
2:01:57 PM
MR. DICKINSON said the state was not calculating profit at that
time. "Because of the passage of this piece of legislation,
those costs were generally not considered a cost of
transportation."
ROBYNN WILSON, Director, Tax Division, Department of Revenue,
said those expenses for spill cleanup are a normal, ordinary and
necessary business expense and so would be deductible for
federal income taxes, "and, therefore, because we piggy-back off
of federal rules, would have been deducted then for state income
tax purposes."
2:02:55 PM
REPRESENTATIVE SEATON asked if the intent of the amendment is
that costs incurred in spill cleanup would not be a deductible
expense under the PPT.
REPRESENTATIVE CRAWFORD said that is right, as well as the cost
of any damages or settlement against the company. "I don't
believe we should be, in any way, allowing that as a deduction
for doing business against the profits."
2:03:44 PM
REPRESENTATIVE SEATON said he is confused with the addition of
the last sentence [of the amendment], and suggested splitting it
into two amendments. "One is that this would not be considered
an allowable deduction for the PPT, and the other...that it
wouldn't be able to be used for any other kind of deduction."
He noted that there may be some legal constraints in changing
income tax language.
2:04:28 PM
REPRESENTATIVE CRAWFORD said he would be happy with limiting the
amendment to the costs of oil spill cleanup and awarded damages
under the PPT.
CO-CHAIR SAMUELS said, "So we will go with calling the amendment
against the PPT for the costs of any oil spill related damage or
penalty payments to a governmental or private entity against the
PPT as Amendment 11a, which is on the table before us now."
REPRESENTATIVE GATTO said oil can be spilled without the fault
of the producer, including acts of terrorism and vandalism and
normal wear and tear. He said the recent spill came from an
undetectable pinhole. "Is it your intent, in this amendment, to
penalize the companies for conditions for which they have no
control?"
2:05:50 PM
REPRESENTATIVE CRAWFORD said the intent was to follow the law as
it is written now. There may be other passages that exempt acts
of god, but he knows this is a law he wants continued under the
PPT, "that they can't deduct it." There may be times that
things could happen, but maybe the pinhole could've been taken
care of through routine maintenance. He noted that there have
been cutbacks on corrosion control and x-raying the pipeline to
determine the fitness of the walls, "because they're trying to
reduce expenses." He said he has friends that worked on
corrosion control, and they have been laid off. He said he
doesn't know if that was part of the reason the recent oil spill
happened, but it could have been. He said he doesn't want to
speculate, but "a lot of this stuff is preventable."
2:08:05 PM
REPRESENTATIVE GATTO asked about piggyback arrangements. He
said he understands what happens on the federal income tax
regarding spill cleanup being an allowable expense, "but then
you said you were able to piggyback back to the state, and that
seems to be the reverse direction."
MS. WILSON said the calculation of state corporate taxable
income begins with federal taxable income, and it follows with
certain state modifications. "That means that if something is
deducted on the federal tax return, that's sort of our starting
point. We adopt most of the Internal Revenue Code by
reference."
REPRESENTATIVE GATTO deduced that oil companies can take benefit
from the expenses of cleaning up oil.
MS. WILSON said, "That is correct, and we calculate corporate
income tax based on worldwide income apportioned to Alaska, so
not only, for example, oil spills in Alaska but oil spills in
Indonesia."
REPRESENTATIVE GATTO postulated that the federal government does
not consider whether it was the oil company's fault or not.
MS. WILSON said that is correct, but she noted that the third
paragraph has questions about penalties. "Penalties are
specifically not allowed as a deduction, federally, if it's a
penalty for breaking the law. It does not exclude penalties
that may contractual."
2:10:22 PM
REPRESENTATIVE GATTO noted that the $2 billion that the state
might get from Exxon Valdez oil spill would not be deductible.
"Is that a settlement or a penalty?"
MR. DICKINSON said that might depend, and he doesn't know the
legal call. He said judgments to individuals might be
different.
2:10:51 PM
MS. WILSON said it would depend on how damages would be split
up.
MR. DICKINSON said page 20, lines 21 and 22, of the CS "already
prohibits any costs arising from fraud, willful misconduct or
negligence...wouldn't cover all spill costs, but it could deal
with ones...in which negligence were a factor. And then the
next line in which we essentially repeat the federal notion
here: 'but the fines and penalties imposed by law'."
2:11:39 PM
CO-CHAIR SAMUELS said Amendment 11a is before the committee,
"which would conceptually state that you could not deduct the
cost of any oil spill related damage or penalty payments to any
government of private party. [It] would not allow that off of
the PPT."
MR. DICKINSON said that the language referred to by "the maker
of the amendment" is for a catastrophic oil spill, which is
defined in statute. He said he believed that the recent spill
would not be defined as catastrophic and would not qualify.
CO-CHAIR SAMUELS suggested getting the language and taking the
issue up tomorrow. He said he tends to agree with the amendment
and asked that the bill drafters be consulted.
2:12:42 PM
CO-CHAIR SAMUELS said the question is if throwing a rod in a
truck is considered an oil spill.
REPRESENTATIVE CRAWFORD said the amendment refers to a vessel,
so that could not include throwing a rod in a truck. "I think
this is a fairly clear statement."
CO-CHAIR SAMUELS said he understands, and he would like to see
it in writing.
REPRESENTATIVE CRAWFORD withdrew Amendment 11.
2:13:48 PM
REPRESENTATIVE GATTO suggested he find out if a pipeline is a
"vessel".
2:14:09 PM
REPRESENTATIVE SEATON moved Amendment 12, labeled 24-GH2052\Y.8,
Chenoweth, 3/16/06, as follows [original punctuation provided]:
Page 4, line 16:
Delete "50"
Insert "45"
Page 4, line 18:
Delete "$50"
Insert "$45"
Page 4, line 19:
Delete "$150"
Insert "$145"
CO-CHAIR SAMUELS objected.
REPRESENTATIVE SEATON said the starting point for the escalation
of the surcharge has been discussed, and Amendment 12 moves that
point to $45 per barrel. He said decisions are made at $40 per
barrel. "Within our bill, we've got West Texas Intermediate
[WTI]; we looked at a $2.00 charge on that. We also talked
about some way to work on inflation, and so if we look at that
$3.00 difference between the $42 and now is being $3.00-worth of
inflation over the course of time here. That would get us to
$45. This would mean that between the time we're at 20/20, and
the point at which we would reach 25 percent, which was...the
other range that we were looking at for a start throughout the
full range, we would be at $60. So this corresponds to $60
before we reach the 25 percent rate. So that's the intent of
the amendment--to move this down $5.00."
CO-CHAIR SAMUELS maintained his objection. He said he has a gut
feeling, and he doesn't believe all of the numbers that the
economists are providing. He asked about Alaska's economy over
the long run. He said numbers are being thrown around, and he
lies awake at night thinking about the $100 million here and the
$100 million there. He spoke of the lowest common denominator
for oil companies, and "if something on the bubble falls off, it
is a tremendous amount of money, which all of us-and I am
probably the worst offender at this-throwing a lot of big
numbers around that get spent in my community and in Fairbanks-
it gets spread in every community." He added that the $50
amount would end up with more than 20 percent tax at $60 per
barrel. He said the goal was to get past "this bell curve of
the decision making process, and nobody will tell us what the
number is." He fears a damage to the economy if investments
aren't made. He said the legislature could turn things around
by adjusting the tax rate, but "we tried to get as far away from
the decision making matrix...in the $30s and the $40s, and if we
shot a little bit high, you leave some money on the table, but
you don't damage the economy. And to me that's the trade off
and the balance and that is the crux of the entire bill." He
noted that Mr. Wenzel of ConocoPhillips Alaska, Inc. said the
company can't leave Alaska, but they can reduce projects, which
will cause a decline in productivity--a little at a time. He
said the number he came up with was a happy medium "to try to
get away from the decision-making, and we got into the mid-20s
at current oil prices." He said it is a tough call because the
decision matrix might be higher than he thinks it is. He said
his concern is if production and prices drop, "we've stuck it to
the Alaskan economy."
2:20:43 PM
REPRESENTATIVE SEATON said he agrees it is a balancing act. He
said economists have said 20 percent or 25 percent, and this CS
is at 20 percent, "and at some point we have to have that
escalator that gets us there, and this doesn't get us to 25
percent until we reach $60 a barrel." He added that all
testimony showed that investment decisions are based on
approximately $40 per barrel, with $30 per barrel being used as
"crunch time". "When we're looking at $45 to start a 0.3
percent increase, I don't think that that's going to be
influencing those decisions." He said the legislature hired an
[ex]-Arco chief economist for his expertise on the matter who
gave various scenarios from $35 to $50 per barrel.
Representative Seaton said he came up with $40 per barrel as a
good figure.
2:22:47 PM
CO-CHAIR RAMRAS spoke of charts comparing WTI with ANS. He
noted that HB 488 keys off of WTI at $50 per barrel, and
historically ANS has sold at $2.31 less. He said that range
goes up to $3 or $4.00, meaning that progressivity kicks in when
WTI hits $50 per barrel, which means that Alaskan crude is
generally priced at $47.70. He said the bill is about three
things. It is a tax bill, and he is happy it is based on net
profits, which he agrees with, and it is layered with
progressivity. It is time to catch up with the rest of the
globe. He said the bill is also about getting more oil in the
pipeline, and that is the most important thing for him. He said
it will include additional production in legacy fields, and he
was told that the partners in those fields have veto power, "and
that means that every investment has to meet the investment
profile for all three companies." He noted that a six-well
program might have oil in one out of those six wells. He said
there aren't any Prudhoe Bays left except for the natural gas
pipeline and the Arctic National Wildlife Refuge, and Mary
Cantwell and her friends are preventing drilling there. He said
what is left is an enormous amount of 25-500-million barrel
fields, and many are in the legacy fields, which are controlled
by the three large producers. He said it is important to set
the table for those three companies so they will invest in that
oil. He said he was interested in the BP charts showing 50 more
years in Alaska, beginning with 100 percent oil and phasing to
nearly 100 percent natural gas. He said he is interested in how
to get the last barrel of oil. His priority is getting more
oil, and the new tax is his third highest priority. He compared
HB 488 to the awards from the Olympics.
2:29:18 PM
CO-CHAIR RAMRAS said he opposes Amendment 12 because "this is
the bronze medal component of what we are trying to do, and I'm
interested in scoring the gold and silver first for the State of
Alaska, and the bronze is third for me."
2:29:43 PM
REPRESENTATIVE CRAWFORD said that was a beautiful speech, but he
disagrees. He said this net profit tax is putting all our eggs
in the one basket of high oil prices. He said he has been
burned before, with promises of blue skies. He said he is sure
there will be oil prices in the mid $20s or lower. In 1986 and
1989 battles, legislators were trying to get the state through
hard times, so they decided to give up money at the high end to
protect the state at the low end. "By going for more
progressivity at the high end and still not taking care of the
lower end, I'm not sure that that's the right way to go." He
asked what the state would have to give up on the high end [of
oil prices] if there was more protection at the low end. He
said he is inclined to support the amendment, but in light of a
future amendment to create protection at low oil prices, he is
not sure this amendment is appropriate. He opined that going to
a net profits tax rather than fixing the severance tax is the
problem. A severance tax would be more easily verifiable. He
said movies never make money, including blockbusters like "The
Titanic," and he found that it is because of a net profits tax.
He is afraid of going to a PPT, and some leases on the North
Slope are net profit leases where the state doesn't do nearly as
well as on severance tax leases. "I am not sure we are doing
the right thing by going for another $5 in price for
progressivity. I think that our foundation is rotten. I think
this whole concept really is a pig, and we're putting perfume on
the pig, and I think we're wrong."
2:34:34 PM
A roll call vote was taken. Representatives Seaton, Crawford
and Kapsner voted in favor of Amendment 12. Representatives
Gatto, Olson, Ramras, Elkins, LeDoux and Samuels voted against
it. Therefore, Amendment 12 failed by a vote of 3-6.
The committee took an at-ease from 2:35 p.m. to 2:44 p.m.
CO-CHAIR SAMUELS said he sought to ensure that all members were
aware of how the progressivity works in the CS, and he asked Mr.
Dickinson to discuss it.
MR. DICKINSON said he will refer to the CS, page 4, subsections
(f), (g), and (h), and describe what they do. He said the main
point is that the CS adds an extra tax on gross, unlike the
original HB 488. The PPT will be on the net after deducting all
costs. The surcharge in (f), (g), and (h) will be on the gross-
the same thing the ELF tax is levied on, which is the wellhead
value of oil. He said in subsection (f), the tax is equal to
0.3 percent of the gross value at the point of production
multiplied by the oil price index. "So we get gross value at
the point of production, and we multiply it times this number.
The number's going to be calculated, as set out in (g), as the
WTI, the price of WTI minus 50, times 0.3. So when oil prices
are $50 [per barrel], 50 - 50 equals zero, and this tax will not
kick in." He repeated that the tax will not kick in at any
price below $50 per barrel. If the price of oil is $51 per
barrel, there would be an index of 1, and multiplying 1 by 0.3
would equal a tax of 3/10 of a percent on all taxable barrels at
their gross value. He explained that taxable barrels will be
everything except the state and federal royalty share. He used
an example of $60 per barrel. He subtracted $50, got 10, and
then multiplied that by 0.003, which causes an additional 3
percent tax on the wellhead gross value.
MR. DICKINSON said that tax will be added to the PPT. "If we
get up into a situation where there's a crisis, and we get into
the $100 or $150 range, a tax on net and a tax on gross are
essentially going to be on the same base, because...let's say
the costs are $10 per barrel on the North Slope. So one of the
taxes will be based on $150 and the other one will be based on
$140 dollars, so the difference will not be huge. As the prices
fall, you will see a bigger difference between net and gross."
MR. DICKINSON said there are two effects. The surcharge will be
on a slightly higher value than the net tax, so if prices are at
$60 per barrel and there are $10 of costs, the net tax would be
on a $10 lower price than the gross tax. Also, this tax is
specifically made deductible for purposes of the PPT, he said.
It is almost like an overriding royalty, he explained. He said
it is stated on Page 17, line 24.
MR. DICKINSON noted that the tax in (f), (g) and (h) will be
based on wellhead value. One tax is deductible for the other,
and at a 20 percent tax rate, "you will only be receiving,
essentially, 80 percent of the amount indicated here." He said
the third point is that it is based on WTI, a marker that is
acknowledged worldwide. He said there is graph that plots WTI
versus ANS, and it captures all the swings; when one goes up,
the other goes up. He said that has been a useful measure.
2:52:23 PM
REPRESENTATIVE SEATON spoke of the gross versus the net when
there are high prices, "doesn't that mean that we have the
greatest impact at the lower prices? In other words, the
differential between gross and net is much more at the lower
price end." "Aren't we getting more impact at just marginally
higher prices?"
MR. DICKINSON said that if prices went to $150 per barrel, at
that point it caps out at 30 percent. So a company would be
paying 30 percent of the gross on the surcharge, and paying 20
percent of the net under the PPT. Someone might add them
together and say it would be a 50 percent tax, but at $150, it
would be fairly accurate to say it is approaching 50 percent
because "what you're taking a percentage of...let's say that WTI
is $150, the ANS wellhead was going to be $140, and then after
deducting all costs you might be down to $135. They're going to
be very close together."
REPRESENTATIVE SEATON said, "If we have a difference between
$140 and $150, so we go up a dollar. The impact of that dollar
is much less, between net and gross, than it is between $50 and
$51, because you've got...
The committee took an at-ease from 2:55 p.m. to 3:05 p.m.
CO-CHAIR SAMUELS listed items on the agenda for the following
day, March 17, 2006, including Amendment 9, the deletion of
certain portions of section 27; Amendment 13, raising the tax
from 20 to 25 [percent]; an amendment on a tax floor at low
ends; language on the deductibility of oil spills; and other
amendments that may surface.
3:06:29 PM
REPRESENTATIVE CRAWFORD noted that the idea of splitting gas and
oil in the bill will be considered.
[HB 488 was held over]
ADJOURNMENT
3:06:43 PM
There being no further business before the committee, the House
Resources Standing Committee meeting was adjourned at 3:06 p.m.
| Document Name | Date/Time | Subjects |
|---|