Legislature(2005 - 2006)SENATE FINANCE 532
04/22/2006 09:00 AM Senate FINANCE
| Audio | Topic |
|---|---|
| Start | |
| SB305 | |
| HB357 | |
| HB394 | |
| HB400 | |
| HB408 | |
| SB305 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 305 | TELECONFERENCED | |
| + | HB 357 | TELECONFERENCED | |
| + | HB 394 | TELECONFERENCED | |
| + | HB 400 | TELECONFERENCED | |
| + | HB 408 | TELECONFERENCED | |
| + | TELECONFERENCED |
MINUTES
SENATE FINANCE COMMITTEE
April 22, 2006
9:15 a.m.
CALL TO ORDER
Co-Chair Lyda Green convened the meeting at approximately
9:15:46 AM.
PRESENT
Senator Lyda Green, Co-Chair
Senator Gary Wilken, Co-Chair
Senator Con Bunde, Vice Chair
Senator Fred Dyson
Senator Bert Stedman
Senator Lyman Hoffman
Senator Donny Olson
Also Attending: SENATOR BEN STEVENS, SENATOR TOM WAGONER,
SENATOR GARY STEVENS; SENATOR GENE THERRIAULT, SENATOR KIM
ELTON; REPRESENTATIVE PEGGY WILSON; REPRESENTATIVE KEVIN MEYER;
ROBYNN WILSON, Director, Tax Division, Department of Revenue;
AARON DANIELSON, Staff to Representative Peggy Wilson; KEVIN
GADSEY, Southeast Alaska Independent Living; PAULA SCAVERA,
Special Assistant, Office of the Commissioner, Department of
Labor and Workforce Development; MIKE PAWLOWSKI, Staff to
Representative Kevin Meyer; JEFFREY TROUT, Deputy Director,
Division of Insurance, Department of Commerce, Community and
Economic Development; SHELDON WINTERS, representative, State
Farm Insurance; KAREN LIDSTER, Staff to Representative John
Coghill; RYNNIEVA MOSS, Staff to Representative John Coghill;
BEVERLY SMITH, Christian Science Committee on Publication for
Alaska; TAMMY SANDOVAL, Acting Deputy Commissioner, Office of
Children's Services, Department of Health and Social Services
Attending via Teleconference: From an Offnet Location: ROBERT
MINTZ, Attorney with Preston Gates Ellis law firm, former
Assistant Attorney General, Oil, Gas & Mining Section,
Department of Law, secured as a consultant by the Department of
Law
SUMMARY INFORMATION
SB 305-OIL AND GAS PRODUCTION TAX
The Committee heard from the Department of Law and the
Department of Revenue. Five of the eight amendments proposed
were adopted, and the bill was reported from Committee.
HB 357-STATUTORY REFERENCES TO DISABILITIES
The Committee heard from the sponsor, an independent living
organization, and the Department of Labor and Workforce
Development. The bill was reported from Committee.
HB 394-INSURANCE POLICIES IN FOREIGN LANGUAGES
The Committee heard from the sponsor, the Department of
Commerce, Community and Economic Development, and an insurance
agency. The bill was reported from Committee.
HB 400-CONFISCATION OF FIREARMS
The Committee heard from the sponsor. The bill was reported from
Committee.
HB 408-DEFINITION OF CHILD ABUSE AND NEGLECT
The Committee heard from the sponsor, the Department of Health
and Social Services and a religious organization. The bill was
held in Committee.
CS FOR SENATE BILL NO. 305(RES)
"An Act providing for a production tax on oil and gas;
repealing the oil and gas production (severance) tax;
relating to the calculation of the gross value at the point
of production of oil or 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 tax for
certain expenditures and losses; 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 or
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."
This was the sixteenth hearing for this bill in the Senate
Finance Committee. Committee substitute, CSSB 305, Version 24-
GS2053\P was the working draft before the Committee.
9:17:21 AM
Amendment #7: This amendment inserts "or explorer" following
"producer" where it appears in subsection (i) of Sec. 43.55.024.
Tax credits for certain losses and expenditures., added in
Section 12 on page 9 line 26 through page 10, line 21.
This amendment also inserts a new subsection to Sec. 43.55.024
on page 10, following line 21 to read as follows.
(j) A producer or explorer that does not produce an
amount of oil and gas in a taxable year under AS 43.20 that
is more than 50,000 barrels of oil equivalent may apply
against the producer's or explorer's tax due for that
taxable year under AS 43.20 a tax credit under this section
that would otherwise be applicable against a tax due under
AS 43.55.011(e) but for the limitation set out in (e) of
this section. An amount of a tax credit may not be applied
against both a tax due under AS 43.20 and a tax due under
AS 43.55.011(e). For purposes of this subsection, a barrel
of oil equivalent is
(1) one barrel of oil, in the case of oil;
(2) 6,000 cubic feet of gas, in the case of gas.
This amendment also inserts ", or in lieu of," to the language
of subsection (d)(1)(B) of Sec. 43.55.160. Determination of
production tax value of oil and gas., added by Section 26 on
page 20, line 17. The amended language reads as follows.
(d) For purposes of (c) of this section, "direct costs"
(1) includes
…
(B) payments of, or in lieu of, property
taxes, sales and use taxes, motor taxes, motor fuel
taxes, and excise taxes;
This amendment also inserts ", other than tax credits under this
chapter," following "credits" in subsection (e) Sec. 43.55.160.
Determination of production tax value of oil and gas., added by
Section 26 on page 22, line 1. The amended language reads as
follows.
(e) … The payments or credits that a producer shall
subtract from the producer's lease expenditures, or from
zero, under this subsection are payments or credits, other
than tax credits under this chapter, received by the
producer for
This amendment also deletes "number of barrels of oil
equivalent" and inserts "amount of oil and gas" following
"average"; inserts "barrels of oil equivalent following "5,000"
and again following "more"; and deletes "number of" and inserts
"amount of oil and gas, expressed as" following "average" in
subsection (a) of Sec. 43.55.170. Additional nontransferable tax
credit., added in Section 26 on page 23, line 26 through page 24
line 6. The amended language reads as follows
(a) For a month that ends before July 1, 2016, and for
which a producer's tax liability under AS 43.55.011(e)
exceeds zero before application of any credits under this
chapter, a producer that qualifies under (c) of this
section may take a credit under this section. If the
average amount of oil and gas produced a day during that
month and taxable under AS 43.55.011(e) is
(1) not more than 5,000 barrels of oil
equivalent, the amount of the credit is 22.5 percent of the
producer's production tax value for that month under AS
43.55.160(a);
(2) 5,000 or more barrels of oil equivalent, the
amount of the credit is 22.5 percent of the producer's
production tax value for that month under AS 43.55.160(a)
multiplied by the quotient of 5,000 divided by the average
amount of oil and gas, expressed as barrels of oil
equivalent, produced a day during that month and taxable.
This amendment also deletes "under AS 43.55.024(d)" from Sec.
43.55.170 (b)(3), on page 24, line 10. The amended language
reads as follows.
(3) is not transferable and may not be carried
forward or used in a different month;
This amendment also inserts a new section to AS 43.55 article 1
in Section 26, on page 24, following line 26 to read as follows.
Sec. 43.55.185. Tax credits for gas treatment
facilities. (a) a producer that incurs a gas treatment
investment expenditure on or after July 1, 2006, may take a
tax credit in the amount of 35 percent of that expenditure.
A credit under this section may be applied against a tax
due under AS 43.20 or against a tax due under AS
43.55.011(e). an amount of a tax credit may not be applied
against both a tax due under AS 43.20 and a tax due under
AS 43.55.011(e).
(b) For a calendar year for which the producer makes
an election under AS 43.55.160(f), instead of taking a tax
credit at a rate authorized by (a) of this section as to a
gas treatment investment expenditure after it has been
incurred, a producer that incurs a gas treatment investment
expenditure during that year and wished to apply a credit
based on that expenditure against a tax due under AS
43.55.011(e) shall calculate and apply every month an
annualized tax credit in an amount equal to 2 11/12 percent
of that expenditure.
(c) A credit or portion of a credit under this section
may not be used to reduce a producer's tax liability under
AS 43.20 for any taxable year below zero or a producer's
tax liability under AS 43.55.011(e) for any month below
zero. Any unused credit or portion of a credit not used
under this subsection may be applied in a later year, under
AS 43.20, or a later month, under AS 43.55.011(e).
(d) A tax credit under this section is not
transferable.
(e) In this section,
(1) "gas treatment facility" means a facility or
portion of a facility in the state devoted exclusively to
gas treatment;
(2) "gas treatment investment expenditure" means
an expenditure that is
(A) a direct, ordinary, and necessary cost
of acquiring or constructing a new gas treatment
facility or of improving a gas treatment facility;
(B) treated as a capitalized expenditure
under 26 U.S.C. (Internal Revenue Code), as amended;
and
(C) treated as a capitalized expenditure for
federal income tax reporting purposes by the person
incurring the expenditure;
(3) "ordinary and necessary" has the meaning
given to "ordinary and necessary" in 26 U.S.C. 162
(Internal Revenue Code), as amended, and regulations
adopted under that section.
This amendment also inserts new language to subparagraph (19) of
AS 43.55.900 amended in Section 34, on page 27, following line
29 to read as follows.
(C) does not include gas liquefaction;
This amendment also makes grammatical changes and conforming
changes.
Co-Chair Green stated that this amendment was developed in
response to the issues raised by Senator Dyson during the
previous day's hearing. The amendment also addressed the manner
in which remote gas treatment facilities would be treated under
this Petroleum Profits Tax (PPT) legislation.
9:18:07 AM
ROBYNN WILSON, Director, Tax Division, Department of Revenue,
was available to answer questions.
Co-Chair Wilken moved for adoption of Amendment #7 and objected
for discussion.
9:18:34 AM
ROBERT MINTZ, Attorney with Preston Gates Ellis law firm, former
Assistant Attorney General, Oil, Gas & Mining Section,
Department of Law, secured as a consultant by the Department of
Law, testified from an offnet location to explain the amendment.
He noted that in addition to substantive changes, the amendment
made grammatical changes such as the addition of commas for
clarity purposes.
Mr. Mintz stated that the inclusion of the term "or explorer" in
Sec.12 subsection (i)(1) page 9 lines 27, 28, and 30 and page 10
lines 1 and 2 would further clarify the transitional investment
expenditure credit provision. Both a producer and an explorer
could "take advantage" of the qualified capital expenditure
credits and the net loss carry forward credits, also addressed
in Sec. 12, because those credits could be transferred through a
transferable tax credit certificate.
Mr. Mintz pointed out that currently the non-transferable
transitional investment expenditure credit provisions in Sec. 12
only specified that a producer could utilize that particular
credit, as "a producer is the only type of entity that could
benefit from that credit. However", the addition of subsection
(j) as proposed in the amendment, allow the transitional
investment expenditure credit to be applied against either the
production tax or the State corporate income tax. This expansion
would then avail the benefits of the transitional investment
expenditure provision to either a small explorer or producer.
The term "or explorer" would also be added following "producer"
to language in Sec. 12 page ten lines 5, 7, 8, 10, 12, 13, and
19 for the same reason.
9:25:32 AM
Mr. Mintz expressed that subsection (j) would also allow a small
producer or an explorer producing less than 50,000 barrels of
oil equivalent (BOE) on an annual basis to apply their
transitional investment expenditure tax credit against their PPT
tax or their income tax. He noted that 6,000 cubic feet of gas
would be equivalent to one barrel of oil.
9:26:52 AM
Senator Stedman noted that the Senate Resources Committee
eliminated the ability of a producer or explorer to apply the
credits specified in Sec. 12 against their corporate income tax.
Continuing, he questioned whether the addition of this language
would affect the lookback provisions pertaining to major
producers.
9:27:27 AM
Mr. Mintz stated that this would be a policy call. His
understood that the reason that previous versions of the bill
only allowed the credits to be applied to the PPT tax was "to
protect State revenues against unduly large hits". The thought
was that were the State to experience a dramatic decrease in
revenue under the PPT, then the corporate income tax would
assist in supporting the State's budget. However, this amendment
would not affect the income tax revenues to a great degree
because it was limited to small producers or explorers with
"very small production". Subsection (j) was intended to provide
"the benefits of the tax credits to small producers without
opening up the income tax to large hits".
9:28:41 AM
Senator Stedman continued to be puzzled about the intent of
subsection (j). The bill already contained transitional look-
back provisions geared to benefit larger producers and the 5,000
barrel per day exclusion for smaller producers. He asked whether
the 50,000 barrel provision proposed in subsection (j) was an
annual limit.
9:29:16 AM
Mr. Mintz affirmed it was. The original thought was that this
provision would apply to "someone who was not producing at all".
While the transition investment expenditure lookback provisions
contained in the bill would benefit "large producers who have
already made a lot of investment in the State", there was at
least one company, which while making significant investments in
the State during the last few years, had not yet experienced
production or a significant level of production to benefit from
the transitional investment expenditure credits. Subsection (j)
would ensure they could benefit from their investment.
9:30:18 AM
Ms. Wilson agreed that that was the rational for adding
subsection (j). A 50,000 BOE would equate to approximately 150
barrels a day. Small producers might have "credits that are
unused in the production tax area but are paying State income
tax". A producer might be paying a State income tax because of
production they experienced in other areas of the country as
Alaska "taxes a piece" of a company's worldwide business. Thus a
company might have "a corporate income tax liability while
having these credits unused on the production tax side".
9:31:26 AM
Senator Stedman recalled that an extensive analysis had been
conducted regarding the affect of the look back provision on
State revenue. He asked whether the cost of this proposal had
been analyzed.
9:31:43 AM
Ms. Wilson stated that if the question was "how much of assumed
capital expenditures over the last five years had to do with the
small companies", then the answer was approximately $250
million. That was a "small amount compared to the expenditures
of the major producers".
9:32:31 AM
Mr. Mintz stated that the inclusion of the word "and" following
the word "transportation;" in Sec. 24 subsection (a)(2) page 17
line 6 "would clarify" rather than "change existing law" as the
intent was that all three of the criteria specified in Sec. 24
subsection (a)(1),(2) and (3) must be present in order for the
Department of Revenue to exclude a cost from being considered an
actual cost of transporting oil or gas.
9:33:49 AM
Mr. Mintz stated that the next component of the amendment would
address language in Sec. 26 subsection (d) beginning on page 20
line 11 through page 21 line 20; specifically that the term ",or
in lieu of," would be inserted following "payments of" in
(d)(1)(B) page 20, line 17 in the listing of "examples of what
costs are considered 'direct costs'". The revised language would
read as follows.
(B) payments of, or in lieu of, property taxes,
sales and use taxes, motor fuel taxes, and excise taxes;
Mr. Mintz stated that this language would be more appropriate as
there "are situations where a producer makes a payment in lieu
of taxes. It does the same function it's just not literally a
tax". This practice has occurred in relation to the North Slope
Borough. It was not the intent of the bill to exclude payments
in lieu of taxes from being considered a direct cost.
9:35:09 AM
Senator Hoffman asked for examples of this occurrence.
Mr. Mintz stated that producers have made payments to the North
Slope Borough "in lieu of taxes for certain services". Upon
further questioning from Senator Hoffman, he could not recall
specifics.
Senator Hoffman stated that the addition of this language would
"leave a pretty wide open field" as the question was "who would
be determining this".
9:36:11 AM
Ms. Wilson understood that a tax was "paid to the North Slope
Borough in lieu of property tax". The amendment specifically
identified payments in lieu of property tax, as did language in
the original PPT bill, SB 305. Version "P" did not make that
distinction. Thus, this language would clarify that intent.
Ms. Wilson stated that the direct costs listed in Sec. 23
subsection (d) should not be considered "inclusive". They simply
addressed "specific areas where there might be confusion". For
instance the question might arise as to whether "a tax direct to
a lease" would be considered deductible. "This list includes a
clarification that payments for property taxes are in fact
deductible direct expenses and this amendment simply clarifies
that a payment made in lieu of that tax will be treated the same
as an actual property tax".
Senator Hoffman acknowledged but reiterated his concern as to
who "would be making this determination of this tax".
9:37:39 AM
Mr. Mintz corrected his remarks. Rather than the payment in lieu
of specifically applying to property taxes, it would apply to
each of the elements listed in subsection (d)(1)(B).
Mr. Mintz expressed that the concept of payments in lieu of
taxes was not a "novel" idea. The concept has been utilized by
"tax exempt institutions that are not obligated to pay taxes but
do anyway" such as universities and churches.
Mr. Mintz stated that in this instance, a producer might agree
to pay something that would substitute "for a tax, but it's not
literally a tax". However, "since it serves the same function
economically it seems appropriate to make clear that it should
get the same treatment for purposes of lease expenditures".
9:38:52 AM
Senator Olson asked whether Mr. Mintz "was retracting" his
statement that producers had made payments "to the North Slope
Borough for services".
9:39:14 AM
Mr. Mintz apologized for being unfamiliar with this situation.
He had heard Dan Dickinson, the PPT consultant to the Office of
the Governor, mention this. To that point, however, he was
unsure whether it was "tied to specific services" or was "a
substitute for a general tax".
Senator Olson could not determine whether the payment being
discussed would be paid to the State or to the Borough. This
should be clarified.
9:40:00 AM
Mr. Mintz stated that the taxes listed in (d) "would be
considered direct costs, regardless of what jurisdiction they're
paid to, whether it's local or State".
9:40:23 AM
Co-Chair Wilken understood therefore that the payment made by a
producer to the North Slope Borough in lieu of taxes, would be
"deducted from the exposure to the PPT. Therefore the people of
Alaska participate in that".
9:40:53 AM
Mr. Mintz stated that "the short answer would be yes". The
intent of subsection (d) would be to specify what would or would
not be considered direct costs. In order to be deductible,
"costs must be direct ordinary and necessary". Thus, in theory,
a cost "would not automatically be deductible" solely because it
was direct. He would "expect that taxes that are directly tied
to oil and gas exploration, production or development activities
would be deductible". The 22.5 percent tax rate proposed in
Version "P" "would be shared 22.5 percent by the State".
9:41:49 AM
Co-Chair Wilken asked which State entity had the listing of any
such "payments that were made from the producers to the North
Slope Borough" over the past five years.
Mr. Mintz did not know, but thought the most logical entity
would be the Department of Revenue.
9:42:21 AM
Ms. Wilson was unaware of whether the Property Tax section in
the Department of Revenue "formally" kept those records.
Co-Chair Wilken asked that the Department research this. He
would appreciate having a five year history of the payments made
by the producers to the North Slope Borough; specifically "the
amounts and the purpose" of those payments. If the State did not
have this information, he requested he be provided the contact
information of the entity that would.
9:43:19 AM
Mr. Mintz next addressed the insertion of the language ", other
than tax credits under this chapter," following the word
"credits" in Sec. 26 subsection (e) page 22 line 1 as specified
in Amendment #7. Subsection (e) addressed provisions pertaining
to adjustments to lease expenditures. "In order to implement the
idea of only allowing net costs to be deducted, producers are
required to make adjustments to their lease expenditures once
they get reimbursements and when they sell assets and so forth."
This calculation would include subtracting "payments or credits
received by the producer". The industry's concern was to
"whether the term credits could be interpreted as including the
tax credits that are provided for under the bill" as that would
eliminate "part of the benefit of the credit".
Mr. Mintz opined that the insertion of this clarifying language
was made in "an abundance of caution because" he did not deem
the industry's concern "a reasonable interpretation" of the
language.
9:44:50 AM
Mr. Mintz stated that to address the concern raised during the
previous day's hearing regarding Sec. 43.55.170. Additional non-
transferable tax credit. in Sec. 26 page 23 and 24 of the bill.
The insertion of the "amount of oil and gas" and "barrels of oil
equivalent" language specified in the amendment would prohibit
the language in those sections from being interpreted as
allowing a separate credit for up to 5,000 barrels each of oil
or 5,000 BOE of gas as the credit would be for a combined total
of oil and gas.
Co-Chair Green stated that the language in Sec. 26 subsection
(c)(2) page 24 line 3 had been amended during the previous
hearing. She questioned whether further revisions might be
required.
Mr. Mintz affirmed that the language had been changed.
Co-Chair Green concluded that the intent was for subsection
(c)(2) to read "more than 5,000 barrels of oil equivalent". The
bill drafters would make the appropriate changes.
9:47:12 AM
Mr. Mintz then addressed the deletion of the words "under AS
43.55.024(d)" in Sec. 26 subsection (b)(3) page 24 line 10. When
he was drafting another portion of the amendment dealing with
gas treatment credits, he determined that the language in this
subsection must be altered as otherwise, it could imply that
those credits might be transferable under another provision.
Thus, removal of this language would clarify that gas treatment
credits could not be transferable at all.
9:48:10 AM
Mr. Mintz next addressed the amendment's proposal to replace
language in Sec. 26 subsection (c) page 24 line 26 with new
language. This "slight rearranging" of the definition would
further clarify the term BOE to ensure there would be "only a
single credit for oil and gas".
9:48:43 AM
Mr. Mintz viewed the section that would be added to Sec. 26
following line 26 on page 24 to be "a very substantive change".
Mr. Mintz reminded the Committee that "under the revised
definitions of gross value at the point of production in the
bill the point of production for gas would be further downstream
than it is under current law". Currently, "gas processing, which
is the extraction of hydrocarbon liquids from gas, is downstream
of the point of production, but, under the bill, it would be
upstream, and therefore, investments in gas processing would be
eligible for the usual capital credit".
Mr. Mintz noted that "gas treatment, which is basically getting
gas in a condition to be shipped in a pipeline" would continue
to be a downstream process and, while being ineligible for
upstream credits, would receive "deductions for transportation
costs as under current law".
Mr. Mintz stated that subsection (a) of Sec. 43.55.185 reflected
"a policy judgment that there should be a credit to encourage or
incentivize the building of gas treatment facilities" by
providing a 35 percent credit for future investment in gas
treatment. This credit could be applied either against the
income tax or the production tax.
Mr. Mintz continued that subsection (b) of Sec. 43.55.185 would
allow the gas treatment facility investment credit to be
annualized and divided by 12. The resulting amount could be
applied each month in lieu of the actual month to month expense.
This would be similar to existing practice that allowed a
producer to annualize lease expenditures in the calculation of
their production tax. This credit would be subject to certain
restrictions, including being non-transferable. It could be
carried forward and used in later periods "if that would be
necessary to avoid reducing the tax below zero".
Mr. Mintz detailed the types of expenditures that would qualify
for the credit: it must be an expense related to acquiring or
constructing a new gas treatment facility or to improve an
existing one; it must meet the existing definition of a
capitalized expenditure as specified in Internal Revenue code
rules; and it must adhere to the concept of direct ordinary and
necessary as specified under lease expenditure in Sec. 160.
9:52:30 AM
Mr. Mintz identified a gas treatment definition change that
would also be made by Sec. 43.55.185. Language in Sec. 34
subsection (19) page 27 lines 24 though 29 of Version "P" would
be altered to clarify that gas treatment does not include "gas
liquefaction". It would be limited "to conditioning gas in a
gaseous state for transportation through a pipeline".
9:52:57 AM
Mr. Mintz informed the Committee that an amendment relating to
this section would also be required to address "the fact that
the first year of implementation would be less than a full
calendar year, so the percentages that are referred to in
subsection (b)" must be adjusted; specifically those regarding
the annualizing of the gas treatment expenditure.
Mr. Mintz stated that this consideration had already been
addressed in other areas of the bill. An amendment specific to
this section was being developed.
Co-Chair Green acknowledged. She noted that the bill drafter
could be directed "to fractionalize" the first year.
9:53:50 AM
Senator Bunde, noting that since the effective date of the bill
had previously been amended, the July 1, 2006 effective date in
Sec. 43.55.185 would also require changing.
Mr. Mintz expressed that the language in Amendment #7 had been
made to the existing committee substitute and would be changed
to conform to other amendment changes, such as the effective
date amendment.
9:54:18 AM
Senator Bunde asked regarding the decision to provide a 35
percent credit for gas treatment investment expenditures.
Mr. Mintz stated that the percent level would be a policy call.
He was "asked to draft it this way" and was unaware of how that
decision was made. This issue could be addressed with Dan
Dickinson, a consultant to the Office of the Governor.
9:55:00 AM
Co-Chair Wilken asked regarding the fiscal impact of the
amendment.
9:55:28 AM
Ms. Wilson advised that this information would be provided.
9:55:37 AM
Senator Stedman declared this amendment to be "a large policy
call"; particularly as he thought "the potential impact of the
credits in the potential stimulation of the North Slope and the
desirability to producers of that particular benefit" had been
"understated". The credit would "make it more expensive for them
to take their capital and leave the State. It's going to be more
advantageous for them to reinvest it into the State". The
credits provided in this bill were intended to "stimulate our
production that's been in decline".
Senator Stedman noted however that the credits would "impact the
PPT tax to an unknown amount" depending on the industry's
expenditures. Thus he was "rather reluctant to allow them to"
apply that credit against their corporate income tax without
more thoroughly understanding "the potential impacts" it might
have on State revenue.
Senator Stedman suggested that consideration instead to given to
allowing a "35 percent credit on the gas treatment". The credits
should be limited to the PPT tax and "restricted from being
applied to the corporate income tax, just in case this piece of
economic stimulus that we're putting together in this tax bill
works better than some of us anticipate …"
9:57:31 AM
In response to a question from Co-Chair Green, Senator Stedman
stated that his concern was to the section in the amendment that
would allow a 35 percent tax credit pertinent to a producer's
expenditures relating to "the construction and upgrades" of a
gas treatment facility. Allowing this expenditure to affect both
the PPT tax and the corporate income tax could "potentially have
a detrimental impact" on State revenues.
9:58:33 AM
Ms. Wilson advised that the gas treatment facility investment
credit would be "inconsistent with rest of bill as far as
application". The potential impact of that provision on the
corporate income tax was as of yet undetermined.
9:58:53 AM
Senator Stedman stressed that the operations of the State depend
on revenue generated on the North Slope. The State's royalty tax
would continue to generate revenue "regardless of the amount of
credits that are applied against construction of facilities on
the North Slope". The State would also receive property tax
revenue, and efforts should be made "to ensure the collection of
income tax".
Senator Stedman stressed that risk would be associated with the
PPT tax, depending on "market conditions, not only in price and
volume but the amount of credits being generated by the
industry". The situation could be "very volatile". It would be
"in the best interests of the State to compartmentize that" by
allowing credits to be applied solely in the PPT arena.
10:00:01 AM
Senator Olson interpreted Senator Stedman's remarks to imply
that the adoption of this section would allow the industry to
"double dip against the PPT as well as the corporate income
tax". However, he thought the language specified that the
credits could not be applied to both.
10:00:26 AM
Senator Stedman agreed that the amendment specified that the
credit could not be used twice. However, "once they've
eradicated and/or they're better off to apply it against their
corporate income tax, they'll do that". He would prefer that
these credits "be compartmentalized" so that were the amount of
credits not completely utilized, they could be carried forward
and used the following year, "knowing that we have the corporate
income tax protected from any type of development credit
generation on the North Slope, 'cause we have no idea what kind
of stimulus this package is going to generate". He reiterated
his belief that "the impact of those credits … has been
underestimated".
Senator Hoffman agreed with Senator Stedman.
AT EASE 10:01:21 AM / 10:04:41 AM
Co-Chair Wilken offered a motion to amend the amendment to
delete the insertion of ", or in lieu of," following "payments
of" on page 20, line 17, and to delete the insertion of a new
Sec. 43.55.182., Tax credits for gas treatment facilities., on
page 24, following line 26.
Without objection, the amendment was AMENDED.
Co-Chair Green noted that the language being deleted from
Amendment #7 would be reworked.
Co-Chair Wilken asked Ms. Wilson to alert him were the
Department of Revenue to determine that the remaining language
in the amendment would have "significant fiscal impact".
Co-Chair Wilken removed his objection to the adoption of the
amendment, as amended.
Senator Stedman also requested the Department of Revenue to
determine the impact to the State's corporate income tax revenue
that might be incurred by the addition of subsection (j) into
Sec. 12. This provision applied to producers or explorers
producing less than 50,000 barrels BOE annually.
Ms. Wilson concurred.
There being no further objection, the amended amendment was
ADOPTED.
AT EASE 10:06:58 AM / 10:08:07 AM
Amendment #8: This amendment deletes the language of
subparagraphs (g) and (h) of AS 43.55.011 amended by Section 5
on page 4, lines 7 through 21 and inserts new language to read
as follows.
(g) In addition to the taxes levied under (e) and (f)
of this section, if the average ANS West Coast price per
barrel of oil during the month exceeds $50, there is levied
on the producer of oil a tax for oil produced during that
month from each least or property in the state, less any
oil the ownership or right to which is exempt from
taxation. The tax levied under this subsection is equal to
[((ANS West Coast price - $50) x .002) x [ANS wellhead
price x (1 - PPT rate)]] x (total taxable barrels of oil at
the point of production)
where
(1) "ANS wellhead price" means the prevailing
value for oil produced in the Alaska North Slope area; and
(2) the PPT, or production profit tax, rate is
the tax rate described in (e) of this section.
(h) For purposes of (g) of this section, the
department may calculate the average price or may, by
regulation, specify the method by which the average price
shall be calculated with reference to one or more published
sources of price information on Alaska North Slope crude
oil cease, or appear likely to soon cease, to be available,
or if, in the department's judgment, the price of Alaska
North Slope crude oil ceases, or appears likely to soon
cease, to be a reliable indicator of the general price
level of crude oils, the department shall, by regulation,
specify a substitute formula for computing the oil price
index. The substitute formula specified by the department
under this subsection must bear, as nearly as is reasonable
possible, the same relationship to the general price level
of crude oil as did the price of Alaska North Slope crude
oil.
Senator Hoffman moved for adoption. This amendment would change
the Progressivity provision to that proposed in CSSB 305(Res) in
that the Progressivity multiplier would revert from the .01
percent multiplier specified in Version "P" to the .02
multiplier. Progressivity would be triggered at an Alaska North
Slope (ANS) West Coast $50 barrel price.
Co-Chair Green objected.
10:08:52 AM
Senator Bunde asked the Department of Revenue to provide the
fiscal impact of that change.
Ms. Wilson stated that the information would be forthcoming.
Co-Chair Green interjected to note that that information had
previously been provided to the Committee. It was included on
the chart titled "Per Barrel Progressivity Surcharge 2010" on
page 3 of the "PPT Revenue Studies" presentation of April 20,
2006 [copy on file].
AT EASE 10:09:37 AM / 10:12:21 AM
Co-Chair Green spoke to her objection. She reminded the
Committee that the effort in the development of the Finance
committee substitute was to provide "an in between" bill; one
that would offer a person something to like and something to
feel uncomfortable about". The decision to specify a $70 trigger
point for Progressivity, rather than a lower price, was made in
consideration of the current price of a barrel of oil.
Co-Chair Green stated that, at this point in time, a $40 or $50
trigger point would "essentially add on six or eight dollars to
our tax rate". She considered this "disingenuous" for it could
be seen as masking the effort to impose the equivalent of a 30
percent tax rate. The State should present the mechanics of the
PPT in "a factual" manner.
Co-Chair Green pointed out that the implementation of the PPT
bill had already been delayed three months. She "very
uncomfortable" at the effort "to continually hack away" and
increase the tax rate to a point that might be regrettable.
10:14:02 AM
Senator Stedman asked Senator Hoffman to provide further
information about the amendment.
10:14:13 AM
Senator Hoffman considered the provisions of Amendment #8 to be
"in the middle" of the numerous Progressivity discussions that
have occurred in both the House and the Senate. Basing the tax
on gross dollars would result in fewer legal challenges. Too
many calculations would be involved in arriving at net dollars.
This would result in a bill that would be must simpler to
calculate.
Senator Hoffman stated that this amendment would support a PPT
tax rate of 22.5 percent and increase the credit provisions to
25 percent. This would provide the State its "fair share" as oil
prices increase.
Senator Hoffman stated that the price of oil was currently $75
per barrel. Exxon Oil Company, on a worldwide basis, had made in
excess of $34 billion and British Petroleum had earned more than
$20 billion this year. They would continue to earn money. Under
his proposal the total government take would be approximately 60
percent at a $60 barrel price.
Senator Bunde asked Ms. Wilson what the Department of Revenue
Spring 2006 forecast was for oil prices.
10:17:19 AM
Ms. Wilson did not readily have that information.
Co-Chair Green recalled the short term forecast for oil to be
slightly less than $60 a barrel.
Senator Bunde and Co-Chair Wilken thought that the forecast was
for oil to be approximately $58 a barrel.
Senator Bunde thought that the long term forecast was
approximately $40 per barrel. Were that the case, Progressivity
would not be triggered.
10:18:40 AM
Co-Chair Wilken spoke in support of the amendment. The effort
"to seek a middle ground" in the bill by decreasing the PPT tax
rate from 25 to 22.5 percent and increasing the credit rate
would serve to reduce the government share. After reviewing the
Progressivity modeling charts that had been provided during the
hearings on this bill, he was comfortable that the language in
this amendment would support a government share goal of 60
percent. "That's where we want to be." While he was in support
of the amendment, he would like to have the Progressivity
modeling charts updated to reflect the affects of the amendment.
10:19:39 AM
Senator Stedman recounted that the Senate Resources Committee
had spent a great deal of time discussing the Progressivity
issue. Originally Progressivity was based on gross dollars.
Subsequently it evolved to West Texas Intermediary prices to ANS
West Coast Los Angeles prices and then to ANS wellhead prices.
The discussion also addressed whether the price should be after
or before tax. The equation in both the Senate Resources
committee substitute and this amendment had the affect of an
after tax rate.
Senator Stedman continued that after the development of the
Senate Resources committee substitute Progressivity element, the
testimony from the industry was that the impact of rising costs
on them was not considered in the equation. Thus, the
Progressivity feature was changed to a net basis rather than a
gross basis. That approach was included in Version "P".
Senator Stedman stated that "the pros and cons of using the net"
have been widely discussed by this Committee. "Clearly the net
would move forward in time with the cost of production and the
cost of doing business in the State of Alaska." A fairly flat or
slight decline in government take would occur absent
Progressivity. The language in Version "P" without this
amendment would "neutralize the leverage the industry may have
over the State on advancing prices". Therefore, he did not
support this amendment.
10:21:56 AM
Co-Chair Green asked the impact of subtracting "one minus the
PPT rate" in the Progressivity calculation; specifically since
the PPT rate had been adjusted.
Senator Stedman responded that the effect would be to decrease
the tax rate. "This would be in effect be an after tax"
situation.
10:22:43 AM
Senator Stedman recalled a previous Committee discussion it was
determined that including the language "one less the tax rate",
as proposed in this amendment as well as language allowing the
Progressivity tax to be deducted, would have the effect of a
double deduction. "That would not be in the best interest of the
State." Therefore, were the amendment adopted, efforts should be
taken to ensure that the language "that it can't not be directly
deducted" be included because "the effect of the deduction is
embedded in the formula".
Co-Chair Green asked whether additional language would be
required were the effect of this amendment to change the
Progressivity element "from a gross value to a net value"
system.
Senator Hoffman stated that he had discussed that issue with the
bill drafter. His understanding was that this language would
suffice.
Co-Chair Green thought that other changes would be required.
10:23:52 AM
Senator Bunde opined that the language might be sufficient since
it was specific to Progressivity.
Co-Chair Green remarked that "the whole reason for doing the net
value though was to build in with Progressivity" consistency
regarding the adjustments for costs among different producers.
That approach was preferred to a "one size fits all" approach.
Senator Stedman determined that this language would be all that
would be required to "revert the bill back" to the Progressivity
language included in CSSB 305(RES). A Progressivity factor based
on gross would be based on price and would ignore changes in
cost. The effect of Progressivity built on net would be to
adjust the trigger point upwards. The trigger point in a gross
formula would be "stationary". The $50 trigger point proposed in
this amendment would be "a point in time", and sometime in the
future "depending on costs" and field expansions, the industry
might request that that figure be revisited.
10:25:48 AM
Senator Bunde opined that several issues have been raised by
this amendment. One option would be "to go back to" a
Progressivity factor based on gross; the other would be to
address Progressivity "pegged at $50 and at .002" as proposed in
the amendment. The Progressivity language included in Version
"P" would peg the trigger point at $60 per barrel with a
multiplier of .001.
Senator Bunde understood that Senator Stedman supported the
Progressivity language in Version "P".
10:26:37 AM
Senator Stedman responded that he did not support the amendment
as presented.
Senator Bunde asked whether Senator Stedman' concern was to the
change in the Progressivity trigger or to the gross rather than
net approach or a combination thereof.
Senator Stedman identified his concern to be to the "net affect
of the entire package we're working with". The Progressivity
element was "one piece of the pie". All pieces must be
considered "when baking the cake".
10:27:40 AM
Senator Bunde asked whether Senator Hoffman would consider
dividing the amendment to address the Progressivity factor
separately from the change back to a gross rather than net
system.
Senator Hoffman would concur with dividing the amendment were
that the will of the Committee.
10:28:04 AM
Senator Olson remarked that the Progressivity component and the
bill in general were complicated. He asked whether the
Progressivity concept would be "simpler" "were the final bottom
number that the State gets" based on gross rather than net.
10:28:36 AM
Senator Stedman understood that "going to the gross would be
simpler and a system that would be less likely to be
manipulated"; however, "there's pros and cons of each one". The
net system appeared "to be more complex, but with the net, we've
got to remember the calculation of taking into account the
expenses are already done anyway to get to the PPT tax. The net
would be before the PPT tax is applied." Credits could not be
utilized "to dilute the dollar amount of the net".
Senator Olson reasoned therefore that "going to the gross would
make this complicated bill less complicated".
Senator Green pointed out that utilizing a net value would
"address the problem of the cost. Were costs to increase
exponentially beyond the price of a barrel, utilizing net value
would be a fairer assessment of what we should be taxing". That
consideration "would be built in without having to go back to
the drawing board" and readdressing the issue.
Senator Olson understood that Co-Chair Green was referring to
the production costs.
Co-Chair Green affirmed.
AT EASE 10:30:20 AM / 11:09:43 AM
Co-Chair Green asked Ms. Wilson to discuss the affect of this
amendment on Progressivity and regressivity as compared to that
of Version "P".
11:10:17 AM
Ms. Wilson first advised that a Progressivity element based on
net would be advantageous because it would account for the
expense of extracting oil, especially heavy oil. Progressivity
based on gross would not consider such "costs or increased
costs". The net approach included in Version "P" "is a better
plan … on its face"." Progressivity based on net would be
considered "progressive" and "that takes care of regressivity in
the long run".
Ms. Wilson defined Progressivity as a tax rate that would
increase "based on what is measured". The federal government's
tax, which is based on a person's net taxable income, was
designed with a "stair step" approach in that the tax would
increase as a person's net income increased. The net
Progressivity approach taken in Version "P" "honors that idea of
progressivity because … this overall bill measures tax based on
net value, that is, after costs".
Ms. Wilson stated that a Progressivity element that increased
based on the net would be "internally consistent" with the
overall PPT terms. Progressivity based on gross, as proposed in
the amendment, was deemed to have a "disconnect there" as, while
the PPT tax measured net, Progressivity would be measured on
gross.
11:12:28 AM
Ms. Wilson next addressed the argument that a net calculation
was "more difficult" to do. To that point, she stated that the
net calculation language crafted in Version "P" was "not
difficult". A determination would be made regarding the net
value that "would be taxed overall". That number would then be
divided by the number of barrels to achieve a net value per
barrel. Were that value to exceed the $45 Progressivity trigger
point specified in Version "P" then the amount over that trigger
would be subject to the Progressivity tax.
In summary, Ms. Wilson did not consider this to be a
"troublesome calculation". Furthermore, a net value per barrel
would not be subject to the PPT credit provisions.
Ms. Wilson reiterated that the net value per barrel calculation
could be likened to a person's net income which was determined
by subtracting deductions such as charitable contributions.
However, unlike a person's personal income tax to which
education and child care credits could be applied, credits would
not be allowed in the Progressivity calculation. This "was a
straightforward calculation and very readable and
understandable".
11:14:33 AM
Ms. Wilson respectfully stated that the Progressivity
"calculation in the amendment is a little awkward". While its
terms were technically "workable" in terms of "understandability
and … consistency with the idea of taxing on net, I would
suggest that what is in the current bill is preferable".
Senator Bunde agreed that a net calculation might be more
complex than one based on gross; however, "there was nothing
simple about this bill". While he was in support of "the notion
of the adjustment that the math makes for increased costs" that
might occur over time, he did not consider the PPT Progressivity
element to be similar to "a progressive income tax". He viewed
the Progressivity element in this bill to be a "windfall tax"
when prices were in the $70 and $80 per barrel range.
Amendment #8(a): This amendment deletes the language of
subparagraph (g) of AS 43.55.011 amended by Section 5 on page 4,
lines 7 through 21 and inserts new language to read as follows.
(g) In addition to the taxes levied under (e) and (f)
of this section, if the average ANS West Coast price per
barrel of oil during the month exceeds $50, there is levied
on the producer of oil a tax for oil produced during that
month from each least or property in the state, less any
oil the ownership or right to which is exempt from
taxation. The tax levied under this subsection is equal to
[((ANS West Coast price - $50) x .002) x [ANS wellhead
price x (1 - PPT rate)]] x (total taxable barrels of oil at
the point of production)
where
(1) "ANS wellhead price" means the prevailing
value for oil produced in the Alaska North Slope area; and
(2) the PPT, or production profit tax, rate is
the tax rate described in (e) of this section.
Amendment #8(b): This amendment deletes the language of
subparagraph (h) of AS 43.55.011 amended by Section 5 on page 4,
lines 7 through 21 and inserts new language to read as follows.
(h) For purposes of (g) of this section, the department may
calculate the average price or may, by regulation, specify
the method by which the average price shall be calculated
with reference to one or more published sources of price
information on Alaska North Slope crude oil cease, or
appear likely to soon cease, to be available, or if, in the
department's judgment, the price of Alaska North Slope
crude oil ceases, or appears likely to soon cease, to be a
reliable indicator of the general price level of crude
oils, the department shall, by regulation, specify a
substitute formula for computing the oil price index. The
substitute formula specified by the department under this
subsection must bear, as nearly as is reasonable possible,
the same relationship to the general price level of crude
oil as did the price of Alaska North Slope crude oil.
Senator Bunde moved to divide Amendment #8. One portion would
address whether to base Progressivity on a gross calculation and
the other would address whether to "change the Progressivity
factor" in Version "P" "to a level similar" as that proposed in
Amendment #8.
Senator Hoffman did not consider the amendment divisible. He
suggested that a vote be taken on Amendment #8 and in the event
it were to fail, Senator Bunde could offer an amendment.
Senator Hoffman noted that a variety of Progressivity approaches
had been discussed. "Probably the best one that was discussed
hasn't been considered and that was looking at the Governor's
original 20/20 plan and have it stair step with dollars". The
discussion could include implementing a Progressivity factor at
barrel prices as low as $20. Increasing Progressivity as prices
increased might provide the State a "straighter line". All of
the previous committees that discussed Progressivity applied it
"on the gross and it wasn't until" Version "P" was developed
"that another option was considered".
Senator Hoffman stated that the effort "all along" was to
"simplify" the legislation, and basing Progressivity on gross
would further that effort.
11:18:36 AM
Without objection, Senator Bunde WITHDREW the motion to divide
Amendment #8.
Co-Chair Green maintained her objection to Amendment #8. She
repeated Ms. Wilson's remarks to the effect that the
Progressivity language in Version "P" was "workable" and that
reverting to a gross calculation as proposed in this amendment
"was not preferable".
11:19:22 AM
A roll call was taken on the motion to adopt Amendment #8.
IN FAVOR: Senator Hoffman, Senator Dyson, Senator Olson and Co-
Chair Wilken
OPPOSED: Senator Stedman, Senator Bunde and Co-Chair Green
The motion PASSED (4-3)
Amendment #8 was ADOPTED.
11:20:22 AM
Co-Chair Wilken distributed two graphs [copy on file] pertinent
to Version "P" that were developed by Econ One Research Inc, the
consulting firm secured by the Legislature. In addition, he
noted he would be offering one or two amendments. Those
amendments were currently being drafted.
Senator Dyson also had an amendment to offer.
Co-Chair Green would accept the amendments "out of respect" for
the sponsors; however, she was disappointed that the deadline
for amendments had not been adhered to.
Amendment #9: This amendment deletes "that ends before July 1,
2016, and" following "month" from subsection (a) of Sec.
43.55.170. Additional nontransferable tax credit., added by
Section 26 on page 23, lines 26 and 27. The amended language
reads as follows.
(a) For a month for which a producer's tax liability
under AS 43.55.011(e) exceeds zero before application of
any credits under this chapter, a producer that qualifies
under (c) of this section may take a credit under this
section. …
This amendment also deletes "5,000 or more" and inserts "more
than 5,000" in subparagraph (2) of Sec. 43.55.170(a) on page 24
line 3. The amended language reads as follows.
(2) more than 5,000, the amount of the credit is
22.5 percent of the producer's production tax value for
that month under AS 43.55.160(a) multiplied by the quotient
of 5,000 divided by the average number of barrels of oil
equivalent produced a day during that month and taxable
under AS 43.55.130(e).
This amendment also inserts language following "AS 43.55.011(e)"
in subparagraph (1) of Sec. 43.55.170(b) on line 8, to read as
follows.
(b) A tax credit under this section
(1) may by applied only against the tax levied
under AS 43.55.011(e), and may be applied only for a period
of 10 years from the date that the oil or gas is first
produced in paying quantities;
This amendment also deletes the language of subparagraph (5) of
Sec. 43.55.170(b) on lines 15 and 16 and inserts new language to
read as follows.
(5) may not be applied by a producer
(A) during the year in which the oil or gas
is first produced in paying quantities in an amount
that would cause the total of the tax credits applied
by the producer under this section to exceed
$1,666,667 for each month from the date that the oil
or gas is first produced in paying quantities until
the last day of that calendar year; or
(B) during the last year for which a credit
may be claimed under this section in an amount that
would cause the total of the tax credits applied by
the producer under this section to exceed
$140,000,000.
This amendment also deletes the language of subparagraph (e) of
TRANSITIONAL PROVISIONS., added to the uncodified law by Section
38, on page 29, lines 27 through 30, and inserts new language to
read as follows.
(e) For oil and gas being produced in paying
quantities from a lease or unit that is in effect on the
effective date of sec. 26 of this Act, the oil or gas
producer may apply the credit authorized by AS 43.55.170,
enacted by sec. 26 of this Act,
(1) for a period of 10 years from the effective
date of sec. 26 of this Act, notwithstanding the provisions
of AS 43.55.170(b)(1) that limit application of the credit
authorized by AS 43.55.170 to a period of 10 years from the
date the oil or gas is first produced in paying quantities;
and
(2) during the calendar year in which sec. 26 of
this Act takes effect, in an amount that would cause the
total of the tax credits applied by the producer under this
section to exceed $1,666,667 for each month from the
effective date of sec. 26 of this Act until the last day of
that calendar year, notwithstanding the provisions of AS
43.55.170(b)(5)(A) that limit application of the credit
during the year of the initial production of the oil or gas
in paying quantities.
This amendment was NOT OFFERED.
AT EASE 11:21:41 AM / 11:24:30 AM
Amendment #10: This amendment inserts language following "equal
to" and before "22.5 percent" in AS 43.55.011(e), added by
Section 5, on page 3, line 15. The amended language reads as
follows.
(e) There is levied on the producer of oil or gas a
tax for all oil and gas produced each month from each lease
or property in the state, less any oil and gas the
ownership or right to which is exempt from taxation or
constitutes a lessor's royalty interest under and oil and
gas lease. The tax is equal to
(1) for oil that is produced in the Cook Inlet
sedimentary basin, as that term is defined by regulations
adopted to implement AS 38.05.180(f)(4), five percent of
the production tax value of the taxable oil as calculated
under AS 43.55.160; and
(2) except as to oil described in (1) of this
subsection, 22.5 percent of the production tax value of the
taxable oil and gas as calculated under AS 43.55.160.
This amendment also inserts new language following "equal to" to
AS 43.55.011(f)(3)(A) added by Section 5, on page 4, following
line 3, to read as follows.
(A) notwithstanding (1) of this subsection,
the tax is equal to
(i) for oil that is produced in the
Cook Inlet sedimentary basin, as that term is
defined by regulations adopted to implement AS
38.05.180(f)(4), five percent of the gross value
at the production of the oil; and
(ii) for oil, except oil described in
(i) of this subparagraph, and gas 22.5 percent of
the gross value at the point of production of the
gas.
This amendment also deletes the language of subparagraphs (1)
and (2) of subsection (a) of Sec. 43.55.170. Additional
nontransferable tax credit., added by Section 26 on page 24,
lines 1 through 6, and inserts new language to read as follows.
(1) not more than 5,000, the amount of the credit
(A) for oil subject to tax under AS
43.55.011(e)(1) is five percent of the producer's
production tax value for that month under AS
43.55.160(a); and
(B) for oil and gas subject to tax under AS
43.55.011(e)(2) is 22.5 percent of the producer's
production tax value for that month under AS
43.55.160(a); and
(2) more than 5,000, the amount of the credit
(A) for oil subject to tax under AS
43.55.011(e)(1) is five percent of the producer's
production tax value for that month under AS
43.55.160(a) multiplied by the quotient of 5,000
divided by the average number of barrels of oil
equivalent produced a day during that month and
taxable under AS 43.55.011(e)(1); and
(B) for oil and gas subject to tax under AS
43.55.011(e)(2) is 22.5 percent of the producer's
production tax value for that month under AS
43.55.160(a) multiplied by the quotient of 5,000
divided by the average number of barrels of oil
equivalent produced a day during that month and
taxable under AS 43.55.011(e)(2).
Senator Dyson moved for adoption.
Co-Chair Green objected.
Senator Dyson explained that the "net effect" of this" amendment
would be "to reduce the tax rate on the oil portion on Cook
Inlet". The area is "very challenged" and "has a 90 percent
water cut". The vitality of the industry, particularly gas
production, in Cook Inlet is important to communities there.
Efforts should be made to maintain gas production in Cook Inlet
until a gas spur line to the area was available.
11:25:22 AM
Senator Stedman noted that Cook Inlet had been the focus of
numerous discussions. He asked that a royalty estimate for Cook
Inlet, in terms of percentages as opposed to dollars, be
provided.
Senator Stedman referencing Senator Dyson's comment that the
water cut in Cook Inlet was 90 percent, understood that the
platforms in Cook Inlet "were pumping a lot more water than
oil". A review of the "intricacies" of Cook Inlet would be
appreciated.
Co-Chair Green advised that information pertinent to Cook Inlet
had been included in a handout previously provided to the
Committee.
11:26:42 AM
Co-Chair Green informed the Committee that the total oil
production in Cook Inlet was less than 20,000 barrels BOE per
day.
11:26:56 AM
Senator Stedman stated that there were many moving parts to the
PPT bill. One of the parts that had been successfully resolved
was the 5,000 barrel per day exclusion. While most of the
production in Cook Inlet would qualify for that exclusion, some
of the producers operating there would not due to their
statewide volume.
Senator Stedman thought that a refresher on the barrel exclusion
and how it might apply to Cook Inlet would be timely. The
information could also address whether there was a need for
royalty reduction in Cook Inlet. "In the event that this
amendment" failed, it was his understanding that "this law would
be a general law of application in Cook Inlet" and therefore the
Legislature could revisit it "and respond to potential shutdown
in Cook Inlet". The desire would be for activities in Cook Inlet
to "expand" rather than collapse.
A roll call was taken on the motion.
IN FAVOR: Senator Hoffman, Senator Olson, Senator Dyson, Senator
Bunde and Co-Chair Wilken
OPPOSED: Senator Stedman and Co-Chair Green
The motion PASSED (5-2)
Amendment #10 was ADOPTED.
AT EASE 11:29:14 AM / 11:30:47 AM
Co-Chair Green ordered the bill HELD in Committee.
[NOTE: This legislation was brought before the Committee again
later in the hearing. See Time Stamp 2:37:11 PM]
11:31:06 AM
CS FOR HOUSE BILL NO. 357(FIN)
"An Act updating the terminology in statutes for persons
with disabilities; and providing for an effective date."
[NOTE: The introduction of this bill was not recorded due to an
audio malfunction. Recording resumed at 11:32:06 AM.]
This was the first hearing for this bill in the Senate Finance
Committee.
REPRESENTATIVE PEGGY WILSON, the bill's sponsor, informed the
Committee that her staff intern, Aaron Danielson, would be
explaining the bill.
11:32:17 AM
AARON DANIELSON, Staff to Representative Wilson, testified that
this legislation pertained to statutory references to
disabilities. Changes to these references are proposed at the
request of the Department of Labor and Workforce Development and
the Governor's Council on Disabilities and Special Education.
This bill would replace "handicapped" with "person or peoples
with disabilities" where it appears in Alaska statute.
Mr. Danielson told of the changes in terminology in recent years
resulting from the federal Americans with Disabilities Act of
1990. States have been making coinciding statutory changes to
comply with the Act.
Mr. Danielson defined a handicap as "an environmental
limitation". For example, a person confined to a wheelchair who
is confronted with a stair would be handicapped by the stair.
That person is not handicapped, but rather is a person with a
disability. The disabled persons' "community" has strong
feelings on this matter.
11:34:00 AM
Co-Chair Green asked if this bill contained language pertaining
to signage to indicate handicap facilities.
Mr. Danielson answered that it does not contain such language.
Representative Bill Stoltze had expressed concerns on this issue
when the bill was heard in the House Finance Committee.
Co-Chair Green had understood that statutory reference changes
had been made at the time she served on the Governor's Council
on Disabilities and Special Education. She concluded that this
legislation pertained to a different section of law than the
earlier effort.
11:34:39 AM
Senator Bunde, noting the zero fiscal note accompanying this
legislation, ascertained that language on signage would be
revised at the time normal replacements were made.
11:35:16 AM
KEVIN GADSEY, Southeast Alaska Independent Living, testified
that the organization participates in advocacy efforts for
persons with disabilities. "Handicapped" is a word considered as
an annoyance or a slur. This language change is important. He
told of changes underway to signage at private businesses.
11:37:10 AM
PAULA SCAVERA, Special Assistant, Office of the Commissioner,
Department of Labor and Workforce Development, testified that
this bill would change statutory language governing the
Department of Health and Social Services, the Department of
Transportation and Public Facilities, the Department of
Education and Early Development, the Department of Commerce,
Community and Economic Development, the Department of Law, the
Department of Administration and the Department of Labor and
Workforce Development.
Ms. Scavera gave a history of the word "handicap", which
originated in Great Britain and was used to reference war
veterans legally permitted to beg in public. Today, people with
disabilities are not treated as "beggars".
11:38:29 AM
Co-Chair Wilken offered a motion to report the bill from
Committee with individual recommendations, accompanying fiscal
notes and accompanying Letter of Intent.
Without objection CS HB 357(FIN) was MOVED from Committee with
zero fiscal notes #1 from the Department of Health and Social
Services and #2 from the Department of Labor and Workforce
Development, and a Letter of Intent by the House Finance
Committee.
11:39:21 AM
CS FOR HOUSE BILL NO. 394(L&C) am
"An Act relating to allowing insurance policy forms to be
filed and approved in languages other than English if an
official English language version is also filed, and
authorizing use of insurance policy forms and associated
materials in languages other than English."
This was the first hearing for this bill in the Senate Finance
Committee.
11:39:43 AM
REPRESENTATIVE KEVIN MEYER, the bill's sponsor, testified that
more than 80,000 Alaskans speak a language other than English.
Statute does not specify which version of an insurance policy or
information about a policy published in both English and another
language was the official version. State statute currently
prohibits information and advertisements concerning insurance
and insurance policies from being published in any language
besides English. Since there is never a "perfect" translation,
and any translation is easily challenged in Court, insurance
companies are reluctant to produce translated documents. This
law would allow insurance companies to publish materials and
advertise in a language other than English, provided the English
version was deemed the official document.
Representative Meyer claimed this bill would allow insurance
companies in the state to provide services to a growing portion
of Alaskans, while clarifying their responsibilities to protect
the consumer.
11:41:48 AM
Senator Bunde observed that insurance policies may already be
written in a foreign language.
Co-Chair Green declared a conflict of interest, as her husband
owns an insurance company. His company employs a person who
speaks Spanish as well as another foreign language, and the
office has greatly benefited from her ability to explain
policies and answer questions in a language more familiar to
their customers.
11:42:50 AM
Senator Stedman disclosed that he also owns part of an insurance
agency. He would support the bill, and felt it would help
explain some of the complications of insurance.
Co-Chair Green referenced the importance of the inclusion of
"associated material" as defined by subsection (d) of Sec.
21.42.175. Non-English translations. added by Section 1 of the
bill.
Co-Chair Wilken asked how this bill would affect an insurance
agent.
Representative Meyer replied that there was an insurance agent
in the room to testify who could answer specific questions. He
cited the primary impact of the bill would be to allow a policy
to be written in Spanish or another language. However, the
official version provided to Division of Insurance would be in
English.
11:44:47 AM
MICHAEL PAWLOWSKI, Staff to Representative Meyer, inferred that
the bill would not require an agent to do anything, but would
allow insurance information to be printed in a language other
than English.
Co-Chair Wilken understood that this legislation would remove a
prohibition currently in statute on printing insurance documents
in another language.
Mr. Pawlowski clarified that insurance companies are not barred
from providing translations, but are reluctant to do so because
there is no provision in statute to guarantee that the English
version would be the official version. This bill would allow
insurance companies to provide translations of the official
documents with the security that the English version would be
the official version.
Co-Chair Wilken surmised that the bill would allow an insurance
company to produce a policy in a foreign language, and that
policy would then become the official policy.
Mr. Pawlowski corrected that the foreign language policy would
be for informational purposes only, and the English version
would be official version.
Representative Meyer concurred.
11:46:28 AM
Senator Olson asked if a policy written in two languages could
be challenged in court based on an interpretation of the foreign
language version.
11:47:23 AM
Mr. Pawlowski responded that the English version would always be
the official version. The version in another language would be
for informational purposes only. The consumer protection portion
of the bill is contained in subsection (c) of the bill and
provides that an insurance company may not "misrepresent
information" in any of the foreign language information it
provides.
11:47:57 AM
JEFFREY TROUT, Deputy Director, Division of Insurance,
Department of Commerce, Community and Economic Development,
spoke in support of the bill. He concurred with the sponsor's
remarks. The Division viewed this legislation as a consumer
protection bill that would assist consumers. While some people
may argue that all Americans should speak English proficiently,
that is, in reality, unlikely for first generation immigrants.
Mr. Trout set forth that there are currently no laws or
regulations to address how the insurance industry handles
foreign language translations. In the past, the Division has
accepted foreign language policies, as long they were
accompanied by an English translation. He predicted the affect
on the average insurance agent would be "nominal". The proposed
legislation is directed at insurance companies, in clarifying
what information they can publish in other languages. Agents
could choose to opt in, or continue operating as they currently
do.
11:51:12 AM
SHELDON WINTERS, representative, State Farm Insurance, testified
that the insurance industry is in support of this legislation
and in support of providing information to consumers.
11:52:09 AM
Co-Chair Wilken offered a motion to report the bill from
Committee with individual recommendations and accompanying
fiscal note.
There being no objection, CS HB 394 (L&C) am, was REPORTED from
Committee with zero fiscal note #1 from the Department of
Commerce, Community and Economic Development.
11:52:41 AM
SENATE CS FOR CS FOR HOUSE BILL NO. 400(JUD)
"An Act relating to confiscation of firearms during
disaster emergencies."
This was the first hearing for this bill in the Senate Finance
Committee.
11:52:54 AM
KAREN LIDSTER, Staff to Representative John Coghill, informed
the Committee that this bill was prompted by the confiscation of
firearms in Louisiana after Hurricane Katrina. That event
prompted the State to review regulations in the Alaska Disaster
Act. This bill would add a new limitation that provides that
there is "no authority granted to confiscate lawfully owned,
possessed, or carried firearms by law-abiding citizens".
Ms. Lidster informed that the bill originally provided for a
penalty of a Class A felony for anyone who unlawfully
confiscated firearms. The current version of the bill contained
"sidebars" that specify that a person must first be found guilty
of official misconduct under AS 11.56.850 or interference with
constitutional rights under AS 11.76.110 before a penalty is
incurred. Public safety personnel also deemed it appropriate to
specify that those in law enforcement fall under the
jurisdiction of this legislation. The intent of the bill was to
ensure that Alaskans retain the ability to protect themselves in
times of disaster when they are at their most vulnerable.
11:56:27 AM
Senator Olson inquired if there was any opposition to this bill.
Ms. Lidster had received no communications indicating
opposition, and noted the bill passed unanimously in the House
of Representatives.
AT EASE 11:56:56 AM / 11:57:40 AM
Co-Chair Green summarized that an individual in an official
capacity who attempts to confiscate a personal firearm could be
convicted, could forfeit any government appointed position, and
could be subject to impeachment.
Ms. Lidster affirmed.
11:58:19 AM
Senator Dyson remarked on the thoroughness of the bill. Sec.
26.23.200 represented a careful consideration of the limits on
the government when declaring a disaster, including the
prohibition on the government from interfering with the
settlement of labor disputes and freedom of speech. This bill
would also allow people to retain their own firearms in times of
disaster. He considered the bill "careful" and "appropriate".
Senator Bunde offered a motion to report the bill from Committee
with individual recommendations and accompanying fiscal note.
There being no objection, SCS CS HB 400 (JUD) was MOVED from
Committee with zero fiscal note #1 from the Department of
Military and Veterans Affairs.
12:00:01 PM
SENATE CS FOR CS FOR HOUSE BILL NO. 408(JUD)
"An Act relating to the standard of proof required to
terminate parental rights in child- in-need-of-aid
proceedings; relating to a healing arts practitioner's duty
to report a child adversely affected by or withdrawing from
exposure to a controlled substance or alcohol; relating to
disclosure of confidential or privileged information about
certain children by the Departments of Health and Social
Services and Administration; relating to permanent fund
dividends paid to foster children and adopted children;
relating to child abuse or neglect investigations and
training; amending Rule 18, Alaska Child in Need of Aid
Rules of Procedure; and providing for an effective date."
This was the first hearing for this bill in the Senate Finance
Committee.
AT EASE 12:00:23 PM / 12:01:30 PM
RYNNIEVA MOSS, Staff to Representative John Coghill, expressed
support for the language proposals of the Department of Health
and Social Services. The original bill, as introduced on behalf
of Governor Murkowski, has been revised. She read the sectional
analysis, titled "Family Rights Act of 2006, SCS CS HB 408(JUD),
Sectional for Senate Judiciary CS", into the record as follows.
Section 1. This section contains language that would
release OCS [Office of Children's Services] from providing
family support services when they can show the court, by
clear and convincing evidence, that the parent or guardian
poses substantial risk to a child, has committed a homicide
of a child, or parent has taken such actions as described
in Section 1. This raises the level of proof from "a
preponderance of the evidence". (Requested by Department of
Law)
Section 2. This section raises the standard for the
department showing they have complied with reasonable
efforts to provide family support services from a
"preponderance of evidence" to "clear and convincing
evidence". (Requested by OCS language; Rep. Coghill
legislation-HB 261, 2001)
Ms. Moss stated that evidence indicates that the existing
standards would not assist certain families.
Section 3. This section is language clean up to accommodate
Section 2 amendments. (Department of Law)
Section 4. When a public official or an employee requests
information from the department, they will now have five
working days to respond. (HB 327 - Rep. Chenault)
Ms. Moss explained this language would resolve a dispute between
the legislature and the Department of Law in that it would allow
OCS to release information regarding harm inflicted on a child
were the parent to make "public disclosure of the perpetrator
being charged with the crime or there has been a fatality or
near fatality of a child". She recalled an instance in which the
Department of Law prohibited release of such information.
Section 5. Clarifies the intent of HB 53 that once a report
of harm has resulted in a parent making public disclosure,
the alleged perpetrator being charged with a crime, or has
resulted in fatality or near fatality of a child, OCS is
able to disclose the nature and validity of any report of
harm about a child in a report of harm. (Representative
Coghill)
12:05:23 PM
Section 6. Broadens the department's ability to discuss a
report of harm pertaining to not only children in the
family or household, but also children who may be under the
care of a perpetrator in a report of harm. (Representative
Coghill)
Section 7. Last summer two teenagers were placed in a
foster home and the foster parents were appointed as legal
guardians. The State released the teens' permanent fund
dividends to the legal guardians. The placement did not
work and the children were removed from the home without
their dividends. Section 6 says the only way a child's past
dividend can be released is if the child is adopted and has
remained adopted for one year, the child turns eighteen and
the PFD's are released by OCS, the child is returned to the
parent(s), or the department is ordered to do so by the
court. The one-year provision is put in place because there
is a high rate of adoptions being disturbed. Subsection (c)
clarifies this applies to legal guardians of children who
have been in state custody, unless the guardianship was
established for an incapacitated person. (Representative
Coghill)
Section 8. This section requires practitioners of the
healing arts involved in the delivery or care of a child
who determines the child is adversely affected by a
controlled substance or alcohol to notify OCS. It clarifies
that a "controlled substance" does not include prescription
medication, but rather "a drug, substance, or immediate
precursor included in the schedules set in AS 11.71.140 -
11.71.190".
Ms. Moss noted an amendment was drafted to replace "child" with
"infant" in the language of Section 8.
Section 9. This provision consolidates HB 346 sponsored by
Representative Mark Neuman into HB 408. The provision
requires social worker training to include constitutional
and statutory rights of children and families, requires
cooperation by OCS with law enforcement to ensure the
possibility of criminal charges is not compromised in the
investigation, and that the alleged perpetrator be advised
of what the specific complaint or allegation is without
disclosing the identity of the accuser.
Section 10. Indirect Court Rule change dealing with
changing "preponderance of evidence" in Sections 1, 2, & 3
to "clear and convincing evidence". (Department of Law)
Section 11. Applicability language to clarify that pending
cases and non-pending cases still within the statute of
limitation will have "clear and convincing evidence"
standard applied to them. (Department of Law)
Section 12. Because Sections 1, 2, & 3 will result in an
Indirect Court Rule Amendment, those section[s] of the bill
will only take place if the vote on Section 9 receives a
two-thirds vote of each house of the legislature.
(Department of Law)
Section 13. Immediate effective date clause.
12:09:39 PM
Senator Stedman referenced Sec. 47.10.115. Permanent fund
dividend., added by Section 7 on page 5 of the bill. He
understood the Permanent Fund dividend (PFD) was the property of
the child, and asked whether the child would have some legal
recourse when he or she turned 18.
Ms. Moss responded that the issue had not yet been determined,
but was under investigation by the Attorney General's office in
Fairbanks.
12:10:38 PM
Senator Stedman realized that parents often use a child's PFD to
house, clothe, and fed the child. He considered it a different
situation when a parent used a child's PFD for unneeded items.
Co-Chair Green asked if Senator Stedman was referring to the
case of an adopted or foster child.
Senator Stedman affirmed, and clarified he was speaking of a
case where a child had been in foster care for a period of time
that allowed the foster care provider access to the child's
PFDs.
Co-Chair Green inquired if a natural parent would be held to the
same standard.
Senator Stedman affirmed.
Co-Chair Green stated that natural parents are not currently
held to that standard.
Senator Stedman opined that all legal guardians should be able
to use a child's PFD only to meet basic needs, and expected a
court opinion on that issue. He supported the language in the
bill.
Co-Chair Green voiced intent to conclude testimony on the bill
and address amendments at a later date.
Ms. Moss clarified that there were no amendments forthcoming.
12:13:13 PM
BEVERLY SMITH, Christian Science Committee on Publication for
Alaska, referred to a memorandum from the organization dated
April 22, 2006 [copy on file], and requested that consideration
be given to the addition of language to Section 8. This proposed
amendment would insert a new subsection to AS 47.17.024. Duties
of practitioners of the healing arts., amended by Section 8 on
page 6, following line 15 to read as follows.
(c) Nothing in this chapter shall compel a religious
healing practitioner to disclose information learned
through sacred communications with a person seeking his or
her spiritual help and enjoined to be kept confidential
under the discipline of his or her church or religious
organization.
Ms. Smith stated that this language would allow Christian
Science practitioners to maintain their religious customs.
Certain communications between parishioners should be kept
confidential. This provision would also assure that a
practitioner would report crimes committed against a child. She
additionally supported the proposed language change of "child"
to "infant".
12:17:19 PM
Senator Bunde asked if the proposed amendment would prevent a
Christian Science practitioner from reporting knowledge of a
child who appeared to be affected by prenatal drug use.
Ms. Smith responded that practitioners are primarily concerned
with the best interest of the child. They would have to use
their judgment. Church doctrine would not prevent them from
reporting a child in danger.
Co-Chair Green understood that the language in bill would
address that situation.
Ms. Smith concurred. The change to "infant" from "child" might
provide more clear direction in that instance, as a child could
be "affected" by a parent's alcoholism, but in a different
manner than an infant with fetal alcohol symptoms.
12:18:55 PM
Senator Bunde furthered that the current language proposal
stated that the practitioner "cannot be compelled" to disclose
information, but language elsewhere in the bill stipulates a
doctor "shall report" evidence of drug use. This appeared to
leave practitioners with more discretion than doctors when
reporting medical observations.
12:19:25 PM
Co-Chair Green read the current language as follows: "a
practitioner of the healing arts involved in the delivery or
care of a child who the practitioner determines has been
adversely affected by, or is withdrawing from exposure to, a
controlled substance or alcohol shall immediately notify the
nearest office of the department of the child's condition". She
interpreted the requested amendment as applying to knowledge
gained through a conversation with a family. She likened the
confidentiality afforded by the proposed amendment to a
psychiatrist's doctor-client privilege.
12:20:31 PM
Senator Dyson asked for a definition of "sacred communication"
as it appears within the suggested amendment.
Ms. Smith explained that because a Christian Science
practitioner is not technically a member of the clergy, but acts
in that capacity, "sacred communication" would apply to
conversations between practitioners and parishioners, as well as
clergy.
Senator Dyson surmised the definition was similar to
confidential. He commented that mandatory reporting requirements
apply to the medical field, but not clergy. Christian Science
practitioners were in the difficult position of providing both
types of services.
Ms. Smith agreed, and desired to make the Committee aware of
this disconnect in the law. The proposed amendment would satisfy
the current requirements in this bill.
12:22:43 PM
TAMMY SANDOVAL, Acting Deputy Commissioner, Office of Children's
Services, Department of Health and Social Services, testified
that the original intent of this legislation was to provide for
compliance with federal law. A person assisting in the delivery
of an infant must report if that infant was adversely affected
by alcohol or a controlled substance. The Department of Health
and Social Services would then be obligated to investigate the
matter.
The bill was HELD in Committee.
RECESS TO CALL OF THE CHAIR 12:24:34 PM / 2:37:11 PM
CS FOR SENATE BILL NO. 305(RES)
"An Act providing for a production tax on oil and gas;
repealing the oil and gas production (severance) tax;
relating to the calculation of the gross value at the point
of production of oil or 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 tax for
certain expenditures and losses; 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 or
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."
This bill was again before the Committee.
Co-Chair Green noted that following the adoption of Amendment #7
as Amended, earlier in the meeting, it was determined that a
section that should have been removed from the bill had been
overlooked.
Co-Chair Wilken offered a motion to rescind the Committee's
action in adopting this amendment.
There was no objection and the earlier adoption of the amendment
was RESCINDED.
Amendment to Amendment #7 as Amended: This conceptual amendment
deletes the insertion of new subsection (j) to Sec. 43.55.024 on
page 10, following line 21 as added by the adoption of Amendment
#7 as amended. The language being deleted reads as follows.
(j) A producer or explorer that does not produce an
amount of oil and gas in a taxable year under AS 43.20 that
is more than 50,000 barrels of oil equivalent may apply
against the producer's or explorer's tax due for that
taxable year under AS 43.20 a tax credit under this section
that would otherwise be applicable against a tax due under
AS 43.55.011(e) but for the limitation set out in (e) of
this section. An amount of a tax credit may not be applied
against both a tax due under AS 43.20 and a tax due under
AS 43.55.011(e). For purposes of this subsection, a barrel
of oil equivalent is
(1) one barrel of oil, in the case of oil;
(2) 6,000 cubic feet of gas, in the case of gas.
Co-Chair Wilken offered the motion to amend Amendment #7 as
amended. He objected for purposes of clarification and read the
language that would be eliminated by the motion.
Co-Chair Wilken removed his objection.
Without further objection, the amended amendment was AMENDED.
The amendment as twice amended was ADOPTED with no objection.
Amendment #11: This amendment inserts a new subparagraph to
subsection (d)(2) of Sec. 43.55.160. Determination of production
tax value of oil and gas., added by Section 26, on page 21,
following line 20, to read as follows.
(d) For purposes of (c) of this section, "direct
costs"
…
(2) does not include
…
(P) the portion of costs incurred for
dismantlement, removal, surrender, or abandonment of a
well, facility, pipeline, platform, or other
structure, or for the restoration of a lease, field,
unit, area, body of water, or right-of-way in
conjunction with dismantlement, removal, surrender, or
abandonment that is attributable to production of oil
or gas occurring before the effective date of this
section; the portion is calculated as a ratio of
production of oil or gas associated with the well,
facility, pipeline, platform, or other structure,
lease, field, unit, area, body of water, or right-of-
way occurring before the effective date of this
section to all production of oil or gas associated
with that well, facility, pipeline, platform, or other
structure, lease, field, unit, area, body of water, or
right-of-way through the end of the calendar month
before commencement of the dismantlement, removal,
surrender, or abandonment.
Co-Chair Wilken moved for adoption.
Co-Chair Green objected for discussion.
Co-Chair Wilken stated that this amendment would address the
issue of abandonment. The language being proposed had previously
been "contemplated" in regards to the State's existing severance
tax regime, the Economic Limit Factor (ELF), and had also been
discussed by the Senate Resources Committee in its PPT
deliberations.
Co-Chair Wilken asked that the Committee consider adding the
language to this bill. To that point, he asked that Senator Gene
Therriault be allowed to provide further detail about the
amendment.
Co-Chair Green preferred that the Department of Revenue address
the issue.
Ms. Wilson explained that the amendment would allow for costs of
abandonment. The issue of abandonment had been previously
discussed by the Committee; however, it was determined that the
phrase "extended period of disuse" required further
clarification. That language was eliminated from the language
being proposed. Thus, the amendment would "simply address
abandonment … removal costs".
Co-Chair Green asked how CSSB 305(RES) addressed this issue.
2:40:36 PM
Co-Chair Wilken stated that after discussing this issue with the
Administration and a representative of British Petroleum, "it
became clear that the words 'extended period of disuse' were
problematic when it comes to administering the tax". Mr.
Dickinson and Ms. Wilson indicated that the language needed to
change or they would ask for the provision to be removed. They
also indicated they would work on "language to effectuate that
change". That language has not yet been provided.
2:41:11 PM
Senator Stedman was confused as to whether the amendment was
complete.
2:41:36 PM
Co-Chair Green asked Ms. Wilson to expand on the term
abandonment.
2:41:50 PM
Ms. Wilson expressed that "abandonment would be the cost of
closing up the well. … The problem with the language" that had
previously been considered was that, regardless of whether it
would be a credit or deduction, the costs associated with an
extended period of disuse were denied. There are several
facilities on the North Slope which, while not being in use,
might be called upon for "backup purposes in case the main
facility is down". Thus, the question was how to treat the costs
for that backup facility. Similar questions arose in regards to
facilities which were "mothballed" or not intended to be
permanently abandoned. That "troublesome" language has been
removed from the language in this amendment.
Co-Chair Green asked how the current Statute addressed
abandonment.
Ms. Wilson responded that abandonment was currently considered
an upstream cost and therefore did not affect the existing
production tax.
Co-Chair Green concluded therefore that abandonment was
considered a legitimate necessary business expense.
Ms. Wilson affirmed.
Co-Chair Green understood that abandonment was "generally"
addressed as part of a lease or contract.
Ms. Wilson affirmed, and noted that the Alaska Oil and Gas
Conservation Commission (AOGCC) might also apply specific
abandonment requirements.
Co-Chair Green concluded that the adoption of this amendment
would add abandonment costs to the list of things that would not
be included as a direct cost.
Ms. Wilson concurred.
2:44:28 PM
Ms. Wilson stated that CSSB 305(RES) contained "a prohibition
against taking credits for abandonment". The exclusion of
abandonment provisions in Version "P" "means it's not
addressed". Therefore, the adoption of this amendment would
exclude the costs specified in the amendment as abandonment
costs from being applied "against the production tax values". In
other words, "you could not deduct abandonment costs".
In response to a question from Co-Chair Green, Ms. Wilson
communicated that even though abandonment could be viewed as "an
ordinary and necessary part of doing business in the oil field,
whether that's a acceptable deductible expense would be a policy
call".
2:45:53 PM
Senator Bunde pointed out that because abandonment is "a usual
business expense", it would be deductible from a company's
income tax. However, because "abandonment obviously doesn't
increase production", which is "the goal" of the credits in the
PPT, "then the abandonment costs could not be taken as a credit
under PPT".
Ms. Wilson affirmed that abandonment costs were a deductible
expense on an entity's income tax. The adoption of this
amendment would include abandonment costs in "the list of items
for which a deduction is not allowed" under the provisions of
this bill.
2:47:01 PM
Senator Bunde reiterated that the adoption of this amendment
would not "prohibit abandonment expenses from being deducted
from an income tax".
Ms. Wilson agreed.
In response to a question from Co-Chair Green, Ms. Wilson
expressed that the amendment would exclude abandonment costs
from the list of direct costs. This would prohibit those costs
from being deductible or creditable under the PPT.
2:47:56 PM
Senator Stedman understood that the amendment would apply only
"to assets that are not used today before the effective date" of
the PPT. It would not apply to facilities constructed after the
effective date.
Ms. Wilson affirmed that to be the effect of the amendment's
language "attributable to production of oil or gas occurring
before the effective date".
2:48:24 PM
Co-Chair Green understood therefore that the exemption was "only
relating to things before the effective date of this bill".
Ms. Wilson affirmed.
2:48:36 PM
Co-Chair Wilken stated that the drafter of the amendment, Jack
Chenoweth, Assistant Revisor, Legislative Legal and Research
Services, Legislative Affairs Agency, could provide further
information about the amendment if desired. The amount of money
that would be affected by this "policy call …""was not an
insignificant amount of money".
AT EASE 2:48:58 PM / 2:49:16 PM
Co-Chair Wilken referred the Committee to a letter [copy on
file] dated February 27, 2006 to Senator Gene Therriault,
Chairman Legislative Budget and Audit Committee from James E.
Eason, Oil and Gas Operations Management and Policy, a
consultant to the Legislature. The letter indicated that the
cost associated with decommissioning just the wells in Cook
Inlet would be $1,007,699,000. The cost of decommissioning wells
on the North Slope and other fields in the future could be
considerable. The cost of that activity for the North Star
region could be approximately $75 million.
Co-Chair Wilken stated that this policy call should consider the
affect of not excluding these costs. The expenses associated
with that activity in Cook Inlet alone could provide the
industry "billions of dollars of credit". This issue should be
addressed.
2:50:58 PM
In response to a question from Senator Olson, Ms. Wilson stated
that contract provisions never allowed for abandonment costs.
Co-Chair Green also noted that this issue was moot in regards to
a proposed gas pipeline contract as that contract was still
being developed.
2:52:27 PM
Senator Bunde stated that the amendment solely addressed credits
under the PPT.
Co-Chair Green affirmed.
2:52:38 PM
Senator Stedman offered a point of clarification: this amendment
would serve "to exclude existing infrastructure that's not used.
There's a sharing relationship if its not used today, but used
in the future, and it really doesn't impact anything built"
after the effective date of the bill.
Ms. Wilson, after reviewing the amendment, agreed with Senator
Stedman.
Co-Chair Green summarized therefore that the amendment would
prohibit abandonment costs associated with facilities predating
the effective date of the bill.
2:54:03 PM
Ms. Wilson exampled that the majority of the costs of a well
abandoned two months after the effective date of the PPT bill
would be disallowed, based on "the formula specified here
comparing the production before effective date to total
production".
2:54:21 PM
Co-Chair Wilken noted there being 16 platforms in Cook Inlet.
Four of those have been shut in or converted to lighthouses. The
decommissioning expenses of those 16 were reflected on page 3 of
Mr. Eason's letter.
Co-Chair Green asked whether this amendment would address
abandonment costs on a statewide basis or were limited to Cook
Inlet.
2:54:45 PM
Ms. Wilson concluded that since no geographic exclusions were
specified in the amendment, its provisions would apply
statewide.
2:55:11 PM
Senator Hoffman observed that the letter from Mr. Eason had not
been signed.
AT EASE 2:55:26 PM / 2:55:46 PM
A roll call was taken on the motion.
IN FAVOR: Senator Olson, Senator Stedman, Senator Bunde, Senator
Dyson and Co-Chair Wilken
OPPOSED: Senator Hoffman and Co-Chair Green
The motion PASSED (5-2)
The amendment was ADOPTED.
2:56:24 PM
Amendment #12: This amendment deletes the language of Section
25, on page 17 line 9 through page 18, line 5, which reads as
follows.
Sec. 25. AS 43.55.150 is amended by adding a new subsection
to read:
(d) Under regulations adopted by the department, if
the department determines that an election under this
subsection would improve the efficiency and economy of tax
administration and would result in calculations that
represent value and actual costs of transportation with
reasonable accuracy and are not biased toward understating
a producer's tax liability, the department may allow a
producer, subject to limitation prescribed by the
department as to the frequency of making elections, to
elect prospectively to calculate the gross value at the
point of production of oil or gas based in whole or part on
(1) a formula prescribed by the department that
uses, with adjustments if appropriate, a royalty value or
valuation methodology accepted by the
(A) Department of Natural Resources under AS
38.05, in the case of oil or gas produced from a lease
issued by the Department of Natural Resources or
produced from a lease or property that is part of a
unit approved by the Department of Natural Resources;
or
(B) United States Department of the Interior
under applicable federal oil and gas leasing statutes,
in the case of oil or gas produced from a lease issued
by the United States Department of the Interior that
is not part of a unit approved by the Department of
Natural Resources, or produced from a lease or
property that is part of a unit approved by the United
States Department of the Interior but not approved by
the Department of Natural Resources; or
(2) another formula prescribed by the Department
of Natural Resources that reasonably estimates a value for
the oil or gas at a specific geographical locations, such
as the point of tender or delivery into a common carrier
pipeline; the formula may use factors such a published
price indices for oil or gas in or outside the state,
quality differentials for oil or gas, transportation costs
between markets, and inflation adjustments.
This amendment also makes the necessary conforming changes to
delete references to the deleted language elsewhere in the bill.
Co-Chair Wilken moved for adoption.
Co-Chair Green objected for discussion.
Co-Chair Wilken informed the Committee that this amendment
pertained to Royalty Settlement Agreements (RSAs). He requested
that Senator Therriault be allowed to testify on the effect of
the amendment.
Co-Chair Green denied the request.
Co-Chair Wilken then asked Ms. Wilson for assistance.
2:56:50 PM
Ms. Wilson expressed that RSAs were settlement agreements "with
a specific royalty payor regarding the royalties". This issue
was addressed in this bill because both the Department of
Revenue and the Department of Natural Resources calculated
royalty values under ELF. While the information utilized by the
departments was the same, a difference in methodologies resulted
in a slight difference in those values. Thus, language was
included in SB 305 to improve efficiency and simplicity. The
result was that the Department of Revenue could rely on the
value determination calculated by the Department of Natural
Resources. A tremendous amount of discussion occurred in this
regard during the bill's committee hearing process.
2:58:11 PM
Mr. Mintz advised that the impact of this amendment on Version
"P" would be more extensive than solely affecting RSAs. At one
time, the PPT bill included three valuation methodology
alternatives: one was RSAs, the second was "other valuations,
and then general provisions for a simplified formula". RSAs were
excluded from the alternatives in Version "P". This amendment
would remove the remaining options "so that the department would
no longer be allowed to authorize a producer to use a simplified
formula to calculate gross value at the point of production".
Co-Chair Green asked the result of that action.
Mr. Mintz expressed that it would not have "a material impact on
revenues because the simplified formulas themselves were not
intended to have material impact", they were intended "to
improve the economy and efficiency of tax administration" for
both the producers and the Department of Revenue, as they could
"take advantage of rules of thumb or ways of arriving at
estimates of values that wouldn't require as much detailed
specific information system to be calculated every month and
then be subject to specific audit in the future". Thus, "it was
really an administrative issue".
3:01:44 PM
Ms. Wilson stated that Version "P" contained "specific language"
that would only allow the simplified methods to occur were the
Department of Revenue to determine "that it would improve the
efficiency and economy. And only if it doesn't systemically
understate tax liability".
3:02:26 PM
Co-Chair Wilken concluded that, in effect, an RSA would allow a
producer to value their oil differently than another.
3:02:48 PM
Mr. Mintz responded that that was "essentially correct". He
noted that the phrase "with adjustments if appropriate" as
depicted in Sec. 25 subsection (d)(1) page 17, lines 18 and 19
would allow the department to add 50 cents a barrel were it
determined that a producer's formula "understated the value by
50 cents a barrel". Thus, "in detail, there could be variations
amongst producers, but … the intent is that they wouldn't be
material over the long term".
Co-Chair Wilken asked Mr. Mintz whether he would agree with the
Legislature's consultant, Econ One Research Inc., that "the
value of the RSAs over the next ten years" would be three
million dollars" under current law.
Mr. Mintz was not qualified in that regard.
Co-Chair Wilken identified one issue with RSAs as being that
some producers could lower their tax liability because they
could deduct transportation costs.
Mr. Mintz affirmed that transportation costs were "a deduction
for royalty values just as they are for the production tax".
There could be "variations among RSAs in how transportation
costs are handled". Nonetheless, "the aim of the RSA would be to
have a reasonable and accurate way of stating" those costs.
Senator Stedman asked Ms. Wilson whether the language reflected
in Version "P" would be "problematic and put the State at a
disadvantage in the enforcement and collection of the taxes".
3:05:04 PM
Ms. Wilson expressed that the language in Version "P" "would not
disadvantage the State". It would "place the responsibility on
the Department to evaluate" a producer's formula for
efficiencies and economies as well as to consider whether the
formula might be "biased towards understating the tax
liability".
3:06:04 PM
Co-Chair Wilken recalled there being concern that continuance of
RSAs might result in litigation on the basis of "equal
protection under the Constitution".
3:06:29 PM
Ms. Wilson deferred to Mr. Mintz.
3:06:38 PM
Mr. Mintz expressed that "equal protection is concerned with
[indisc] treatment of similarly situated persons, and the Courts
look at equal protection questions with different standards
depending on the type of interest that's involved. When it comes
to taxation, the Courts have been lenient in terms of upholding
distinctions and different treatment". While there was no
guarantee that there "could not be a successful equal protection
challenge here", he doubted that such a challenge "would be
successful … The considerations of tax administration would
probably be sufficient to justify whatever relatively minor
difference in treatment … might occur under this provision".
A roll call was taken on the motion.
IN FAVOR: Co-Chair Wilken and Senator Dyson
OPPOSED: Senator Hoffman, Senator Olson, Senator Stedman,
Senator Bunde, and Co-Chair Green
The motion FAILED (2-5)
Amendment #12 FAILED to be adopted.
3:08:49 PM
Amendment #13: This amendment inserts language following "this
section" in subsection (i) of Sec. 43.55.160. Determination of
production tax value of oil and gas., added by Section 26 on
page 23 line 15 to read as follows.
(i) the department may adopt regulations that
establish additional standards necessary to carrying out
the purposes of this section, including the incorporation
of the concepts of 26 U.S.C. 482 (Internal Revenue Code),
as amended, and 26 U.S.C. 6662(e) (Internal Revenue Code),
as amended, the related or accompanying regulations of each
of those sections, and any ruling or guidance issued by the
United States Internal Revenue Service that relates to each
of those sections.
Co-Chair Wilken moved for adoption.
Co-Chair Green objected for explanation.
Co-Chair Wilken explained that this amendment would provide the
Department of Revenue the option "to use the concepts of the
Internal Revenue Code" 26 U.S.C 482 and 26 U.S.C 6662(e) when
auditing producers to insure that the State would be "paid
properly" under the terms of the PPT bill.
Ms. Wilson stated that this topic had also been addressed by the
Senate Resources Committee. Neither she nor Dan Dickinson felt
that incorporating this option into the bill "was necessary;"
however, it may be another tool".
Ms. Wilson noted that the amendment might address potential
problems associated with inter-company transfers. Current
language would disallow an inter-company transfer exceeding
current market value. Thus, Legislative consultants questioned
whether the State might require "more power in terms of
auditing". 26 U.S.C 482 is primarily utilized by the Internal
Revenue Service (IRS) to audit offshore transfer pricing
transactions. This code would assist the State in addressing
situations where a producer had the flexibility to utilize a
range of possible values. "No one expected the Department to
quibble about a four million dollar drill bit" that might cost
$4.5 million due to weather conditions or timing; however, it
would be an issue, were $10 million paid for that drill bit.
Ms. Wilson stated that a disadvantage to 26 U.S.C 482 audits was
that they were "very time consuming and … very hard";
specifically as contracts and other material would be reviewed.
3:12:14 PM
Senator Bunde understood that the adoption of this amendment
would make the use of the Internal Revenue Codes "permissive"
but not required.
Ms. Wilson affirmed.
Co-Chair Wilken considered this one of the times when "you look
down the wrong end of the binoculars". The provisions in this
bill could be in effect for 30 years. During that time, the
producers would become "more sophisticated in their analysis in
their efforts to pay correctly". With that in mind, the State
should endeavor to include "every tool in the toolbox that we
have should we need it". This amendment would further that
effort.
3:13:24 PM
Senator Stedman asked how changes made to the federal tax
statutes at the federal level might affect the State were this
language incorporated into the bill. He allowed that changes at
the federal level would likely continue to be applicable to the
State regardless.
3:14:03 PM
Ms. Wilson agreed that changes to the federal codes could be
possible. There were other references to Internal Revenue codes
in the PPT bill, including in the definition of ordinary and
necessary. She reminded that this amendment was "discretionary":
the State could revise any regulations pertaining to the Code
were changes at the federal level deemed not applicable.
3:15:00 PM
Co-Chair Green asked whether the State could utilize these
federal codes without adopting this amendment.
Ms. Wilson disclosed that she would tend to use these federal
codes as "a reference" on transfer pricing issues, even absent
this amendment. The federal code would provide starting point
guidelines.
Co-Chair Green asked whether the Department would rank the
option proposed in this amendment higher than other audit
options that were available. In addition, she asked whether
confusion might arise over the decision to use one option over
another.
Ms. Wilson deferred to Mr. Mintz as the question had legal
ramifications.
3:16:44 PM
Mr. Mintz considered this a "very good question" as there could
be "certain examples enumerated in a Statute". However, he did
not think there would be "a problem" in this case as there "was
really not much of a list; its' just pretty much singling out
one or two sources" which would "be relevant to aspects of AS
43.55.160".
A roll call was taken on the motion.
IN FAVOR: Senator Bunde, Senator Dyson, and Co-Chair Wilken
OPPOSED: Senator Hoffman, Senator Olson, Senator Stedman and Co-
Chair Green
The motion FAILED (3-4)
The amendment FAILED to be adopted.
Amendment #14: This amendment inserts a new subsection to Sec.
43.55.024. Tax credits for certain losses and expenditures.,
added by Section 12 on page 10, following line 21, to read as
follows.
(j) As a condition of receiving a tax credit under
this section, a producer, explorer, or other taxpayer that
obtains the tax credit for or directly related to a
pipeline, facility, or other asset that is or becomes
subject to regulation by the Federal Energy Regulatory
Commission or the Regulatory Commission of Alaska, or a
successor regulatory body, shall at all times support and
in all rate proceedings file to flow through 100 percent of
the tax credits to ratepayers as a reduction in the costs
of service for the pipeline, facility, or other asset.
Co-Chair Wilken moved for adoption.
Co-Chair Green objected for explanation.
Co-Chair Wilken asked that Senator Therriault be able to testify
to this amendment.
Co-Chair Green refused.
Co-Chair Wilken then explained that this amendment was pertinent
to Sec. 12. subsection 42.55.024. Tax credits for certain losses
and expenditures. The effect of the amendment would be that the
builder receiving a credit from the State for building an asset
could ask the Federal Energy Regulatory Commission (FERC) to
allow that credit to be utilized against "the tariff for hauling
the product north to south". This would in effect lower that
tariff rate.
Co-Chair Wilken stated that lowering the pipeline tariff would
have two beneficial consequences: it would reduce the cost of
hauling the product and it would make the cost of using the
pipeline more accessible for new producers. This could result in
there being more explorers and producers.
3:20:23 PM
Co-Chair Green read the last sentence of the amendment. She
thought that the consideration of this language was "a little
premature" to address at this time. She suggested an alternative
approach: that the credits be used as currently proposed in the
PPT bill until FERC suggested otherwise.
3:21:21 PM
Senator Stedman did not support the amendment. It was an issue
relevant to a proposed gas pipeline rather than to this
"supposedly stand alone tax bill". While he acknowledged that
this issue must be eventually addressed, it should be done at a
later time.
A roll call was taken on the motion.
IN FAVOR: Senator Bunde, Senator Dyson and Co-Chair Wilken
OPPOSED: Senator Olson, Senator Stedman, Senator Hoffman and Co-
Chair Green
The motion FAILED (3-4)
The amendment FAILED to be adopted.
3:23:44 PM
In response to a question from Co-Chair Wilken, Co-Chair Green
communicated that language pertaining to "the Anadarko issue"
had not developed to a desired point. That matter would likely
be addressed by either the House or the Senate at a later time.
AT EASE 3:24:03 PM / 3:25:39 PM
Co-Chair Green directed members to Amendment #7 as twice
amended. In order to address a phase inadvertently included in
that amendment, she would be offering a separate amendment.
Amendment #15: This conceptual amendment inserts "other than tax
credits" following "credits" in the last sentence of subsection
(e) of Sec. 43.55.160. Determination of production tax value of
oil and gas., added by Section 26, on page 22, line 1. The
amended language reads as follows.
…The payments or credits that a producer shall
subtract from the producer's lease expenditures, or from
zero, under this subsection are payments or credits other
than tax credits received by the producer for…
Co-Chair Green moved for adoption.
Senator Bunde objected for explanation.
3:26:17 PM
Ms. Wilson stated that the phrase ", other than tax credits
under this chapter," inserted following "credits" in subsection
(e) Sec. 43.55.160. Determination of production tax value of oil
and gas., added by Section 26 on page 22, line 1 by the adoption
of Amendment #7 as amended seemed to imply that tax credits
other than those in this chapter would have to be added back.
The intention "was to address tax credits in general".
Senator Bunde removed his objection.
Without objection the amendment was ADOPTED.
Senator Bunde offered a motion to report CSSB 305, Version 24-
GS2052\P, as amended, from Committee with individual
recommendations and accompanying fiscal notes.
There being no objection, CSSB 305 (FIN) was REPORTED from
Committee with new $801,200 Department of Revenue fiscal note
dated April 24, 2006 and previous zero fiscal note #1 from the
Department of Natural Resources.
Co-Chair Green expressed appreciation for the efforts exerted by
the Committee and the many others who contributed to the
development of this legislation.
ADJOURNMENT
Co-Chair Lyda Green adjourned the meeting at 3:30:27 PM.
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