Legislature(2011 - 2012)SENATE FINANCE 532
03/20/2012 09:00 AM Senate FINANCE
| Audio | Topic |
|---|---|
| Start | |
| SB91 | |
| SB201 | |
| SB146 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | SB 91 | TELECONFERENCED | |
| *+ | SB 201 | TELECONFERENCED | |
| + | SB 146 | TELECONFERENCED | |
| + | TELECONFERENCED |
SENATE FINANCE COMMITTEE
March 20, 2012
9:03 a.m.
9:03:02 AM
CALL TO ORDER
Co-Chair Stedman called the Senate Finance Committee
meeting to order at 9:03 a.m.
MEMBERS PRESENT
Senator Lyman Hoffman, Co-Chair
Senator Bert Stedman, Co-Chair
Senator Lesil McGuire, Vice-Chair
Senator Johnny Ellis
Senator Dennis Egan
Senator Donny Olson
Senator Joe Thomas
MEMBERS ABSENT
None
ALSO PRESENT
Senator Bill Wielechowski, Sponsor; Michelle Sydeman,
Staff, Senator Bill Wielechowski; Johanna Bales, Deputy
Director, Tax Division, Department of Revenue; Michael
Hurley, Director, Government Affairs, ConocoPhillips
Alaska; Senator Cathy Giessel, Sponsor.
PRESENT VIA TELECONFERENCE
Lisa Evans, Assistant Director, Sport Fish Division, Alaska
Department of Fish and Game; Deborah Vogt, Self, Haines;
Kara Moriarty, Executive Director, Alaska Oil and Gas
Association; Chancy Croft, Self, Anchorage; Rebecca
Reichlin, Board Chair, Four Valleys Community Schools,
Girdwood; Dianna Hiibner, Ski Area General Manager, Alyeska
Resort, Girdwood.
SUMMARY
SB 91 SPORT FISHING GUIDING SERVICES
SB 91 was HEARD and HELD in committee for further
consideration.
SB 146 SNOW CLASSIC
SB 146 was HEARD and HELD in committee for
further consideration.
SB 201 OIL AND GAS CORPORATE TAXES
SB 201 was HEARD and HELD in committee for
further consideration.
SENATE BILL NO. 91
"An Act amending the termination date of the licensing
of sport fishing operators and sport fishing guides;
and providing for an effective date."
9:04:02 AM
Co-Chair Hoffman MOVED to ADOPT the proposed committee
substitute (CS) for SB 91, Work Draft 27-LS0550\M (Bullard,
3/16/12).
Co-Chair Stedman OBJECTED for discussion. He explained that
the CS extended the sunset date from FY 13 to FY 17. He
WITHDREW his OBJECTION. There being NO further OBJECTION,
the CS was ADOPTED.
SENATOR LESIL MCGUIRE, SPONSOR, introduced SB 91 and stated
that the legislature had put the licensing of sport fish
operators in place in 2004. The licensing had been
beneficial to the state; the program had tracked more than
1.8 million clients, of which 88 percent were non-residents
who had taken more than 460,000 guided trips in Alaska. An
important feature of the program was aimed at ensuring that
sport fish guides operated under basic standards and that
data was provided to the Department of Fish and Game (DFG).
She discussed struggles related to the tracking of salmon
returns; the program was part of an overall state strategy
to better manage its resources. She referred to a prior
version of the bill that would have created a more
comprehensive program, which she hoped the legislature
could look at down the road. The CS extended the sunset to
prevent the program from expiring in the near future.
Co-Chair Stedman pointed to the one fiscal note from DFG
that reflected a $400,000 cost to administer the program;
the increment had been included in the governor's FY 13
budget.
9:06:27 AM
LISA EVANS, ASSISTANT DIRECTOR, SPORT FISH DIVISION, ALASKA
DEPARTMENT OF FISH AND GAME (via teleconference),
highlighted that the sport fish guide program was very
important to the department and fisheries managers. She
relayed that the program provided critical data on guided
sport fishing activities and was an effective tool for
successful fisheries management in the state. Data
collected from the program was used extensively to analyze
regulatory options and inform decisions on pacific halibut
within the International Pacific Halibut Commission and the
North Pacific Fisheries Management Council. She furthered
that the data was also used in a variety of ways by DFG
fisheries managers at a local level and to inform decisions
made by the Board of Fisheries. She elaborated that in 2010
logbooks had been modified to specifically query charter
vessel operators for the harvest of sable fish by clients
in Southeast Alaska because in 2009 the board had adopted
an annual limit for non-residents. The data had been taken
to the board in 2010 and 2011 to repeal the annual region-
wide eight fish limit in order to open up opportunities for
non-resident anglers and the sport fish guiding industry.
Ms. Evans explained that the program provided documentation
of harvest patterns within specific timeframes (e.g. bag
limits), which helped fisheries managers to evaluate and
update the regulatory structure for certain species. She
detailed that freshwater logbook catch and harvest
statistics were used in Kodiak to routinely observe
preseason establishment of management objectives and for
in-season assessment of harvest and effort. Local area
managers relied on the data when considering management
options for local fisheries. She had many statewide
examples showing how managers used the information gathered
under the program. She communicated that DFG had responded
to concerns of the sport fish guide industry by working to
modernize its logbook reporting process. The prior year the
department had reported all guided sport fish harvest of
halibut caught in May through June by July 15, 2011 in a
pilot program that used a scanable logbook. The department
planned to implement a scanning technology for guided
freshwater sport fish activities that would result in more
timely data reporting. She informed the committee that
sport fishing was a $1.4 billion industry in the state and
without the information collected under the program
fisheries managers would lose a necessary tool. She
expounded that in the absence of the data, fisheries would
likely be managed more conservatively in order to fulfill
the department's mission to protect and improve Alaska's
recreational fisheries resources.
9:10:17 AM
Senator Olson queried the attitude of the sport fish guide
industry towards DFG, given that licenses had not been
required prior to 2004. Ms. Evans noted that some guides
were not fond of the requirement but she believed that in
general the industry recognized the importance of the data
that was collected by the department.
Senator Olson asked whether sport fish guides would likely
recommend the program or not. Ms. Evans replied that some
guides may express that the program was slightly cumbersome
and that they would prefer to be able to report
electronically; however, she believed that in general
guides would say that they liked the program because it
protected their opportunity to have a viable economic
industry.
Senator Olson wondered what the penalties were for non-
compliance. Ms. Evans responded that the penalties were
outlined in statute; she would follow up with the
information.
9:12:25 AM
Senator McGuire opined that approximately 80 percent of the
guides supported the program; many of the supporters were
local Alaskans who were interested in protecting their
resource. Pushback had been received when a bill had been
introduced that would have established a board to oversee
the program, which would have resulted in enhanced
penalties; the bill had been introduced at the same time
federal government had cracked down on salt water guides.
She shared that members of the industry had expressed their
support for a simple extension of the license program as an
alternative to the less popular legislation. She added that
concerns had been expressed related to efficiencies; the
department was taking steps to address the issue, but many
of the guides would like to see an electronic reporting
system.
Co-Chair Stedman CLOSED public testimony.
SB 91 was HEARD and HELD in committee for further
consideration.
9:14:18 AM
AT EASE
9:16:16 AM
RECONVENED
SENATE BILL NO. 201
"An Act relating to the oil and gas corporate income
tax; relating to the credits against the oil and gas
corporate income tax; making conforming amendments;
and providing for an effective date."
9:16:33 AM
Co-Chair Stedman discussed that the subject included in SB
201 had been brought up by consultants in the past and that
he thought the bill presentation would be useful.
SENATOR BILL WIELECHOWSKI, SPONSOR, explained that SB 201
addressed how corporate income taxes were calculated when
dealing with oil and gas taxes. He relayed that corporate
income taxes in the state were generally 9.4 percent of the
profits made by a company (e.g. if a company earned
$100,000 it would typically pay $9,400); however, the taxes
were calculated differently for multinational companies in
relation to oil and gas. Oil and gas companies were allowed
to calculate their worldwide profits and to apportion the
profits based on production sales and facilities property;
therefore, a company could make $2 billion in Alaska, but
only pay a corporate income tax based on a much lower
worldwide number. He elaborated that separate accounting
allowed companies to write-off bad investments made in
other parts of the world (i.e. Libya or the Gulf of Mexico)
on their Alaska taxes. Conversely, if Alaska was a less
profitable place to do business, under separate accounting
the bill would result in a lower tax rate for the oil
industry. He shared that the concept in SB 201 had been
recommended by oil consultant Pedro van Meurs.
9:19:06 AM
MICHELLE SYDEMAN, STAFF, SENATOR BILL WIELECHOWSKI,
provided a PowerPoint presentation titled "SB 201: Separate
Accounting of Oil and Gas Corporate Income Taxes" (copy on
file). She read from the presentation (pages 2 through 4):
Senate Bill 201 would reinstate the separate
accounting method of calculating corporate income tax
paid by the oil and gas industry.
Under separate accounting, oil and gas companies pay
tax on the income they earn within a particular
jurisdiction as opposed to a share of their worldwide
earnings.
This method is used by EVERY oil and gas producing
nation in the world, including the United States,
according to a March 9, 2012, analysis by Roger Marks,
requested by LB&A [Legislative Budget and Audit].
Ms. Sydeman noted that she had received a phone call (prior
to the meeting) from Johanna Bales within the Department of
Revenue Tax Division who believed the U.S. used a variation
on separate accounting. She returned to the presentation
(pages 5 and 6):
Separate Accounting is also used by some U.S. states,
including Oklahoma and Mississippi, and is offered as
an option to O&G taxpayers in Louisiana.
Since oil production in Alaska began, the O&G industry
has strongly urged the State to use a worldwide
apportionment method for calculating their income tax.
Ms. Sydeman moved to slide 7:
The O&G industry is the only industry in Alaska that
uses this method.
The income of other multinational corporations
operating in Alaska is apportioned on a "water's edge"
or U.S.-only basis.
9:20:44 AM
Ms. Sydeman turned to slides 8 through 11:
In the mid-70s, Alaska realized that it would lose
significant revenue under the apportionment method.
After 63 hearings and 4 years of analysis and debate,
the legislature adopted separate accounting in 1978.
Under AS 43.21, revenues generated in Alaska, less
expenses, became the basis for the 9.4 percent state
corporate income tax.
The oil companies sued. They lost in the lower court
and appealed to the State Supreme Court.
Four years later, in 1982, the State reverted to the
apportionment system because the legislature feared a
potential cost of $1.8 billion if Alaska lost.
Ms. Sydeman moved to slide 12, which included a screenshot
of a document that had been provided to the Alaska Supreme
Court by the state, showing the state's potential liability
of $1.8 billion. She continued on slides 13 through 14:
At the time, the legislature saw that as too great a
liability, given the treasury balance in 1981.
However, two years later, the state won on all points
at the Alaska Supreme Court, and in 1986, the United
States Supreme Court declined the oil companies'
appeal request, stating there were no federal issues.
Ms. Sydeman noted that the industry had raised numerous
constitutional issues ranging from violations of commerce
clause due process and equal protection; the U.S. Supreme
Court had determined that none of the issues were relevant.
9:22:25 AM
Ms. Sydeman turned to slides 15 and 16:
Separate accounting has never been reinstated.
In 2000, the Department of Revenue estimated that
Alaska lost $4.7 billion between 1982 and 1997 because
of the switch from separate accounting to
apportionment.
Ms. Sydeman pointed to an analysis that had been done by
Dan Dickenson who had worked in the Department of Revenue
Tax Division at the time (slide 17). [The slide showed a
comparison of actual oil and gas corporate income tax
collected with estimated revenues using a separate
accounting income tax approach.]
Ms. Sydeman presented slide 18 with the disclaimer that she
had not seen a fiscal note for the bill; however a House
companion bill had a DOR fiscal note estimating a $250
million annual loss. Slide 18:
The DOR fiscal note for this bill also estimates that
Alaska is losing about $250 million a year due to its
use of worldwide apportionment as opposed to separate
accounting.
Ms. Sydeman discussed slide 19:
Statements made over the past decade by oil industry
executives support the conclusion that Alaska loses
income using formulary apportionment.
Ms. Sydeman shared that statements included (slide 20):
"...Norway, the U.K., Alaska, Indonesia, all have
relatively high, higher than average margins."
Jeffrey Wayne Sheets, CFO and Senior VP of
Finance for ConocoPhillips, in a 2011 Q3
conference call.
"Talk about Alaska, we like Alaska. . . . Last year
240,000 BOE a day, strong cash margins in this area...
We'll invest $350 million in exploitation this year,
all at very good returns."
Greg Garland, Senior Vice President of
Exploration and Production for the Americas with
ConocoPhillips. Said on March 23, 2011.
9:24:06 AM
Ms. Sydeman read from slides 22 through 25:
" … Alaska's role in BP's portfolio is to provide a
stable production base and cash flow to fuel growth
elsewhere in the business while improving margins and
returns."
Alaska Business Unit, Mid-Stream Alaska, Trans-
Alaska Pipeline Pump Station Electrification
Decision Support Package - Sanction, February 9,
2004, page 13
These statements are confirmed by information
contained in Securities and Exchange Commission
filings, which show that per BOE (Barrel of Earnings)
earnings in Alaska for ConocoPhillips are nearly
double what they are in the Lower 48 or the rest of
the world.
A Legislative Research report issued yesterday
compares net income per BOE from Alaska, the Lower 48
and the rest of the world from 2000-2010.
· Alaska average: $15.10
· Lower 48 average: $8.79
· Rest of world average: $8.57
One cause of this difference in net income per BOE is
lower value gas production in other jurisdictions
intermingled with higher value oil production. But
this intermingling is exactly what occurs with
formulary apportionment.
Ms. Sydeman pointed to a line graph on slide 26 titled
"Figure 3: ConocoPhillips: Net Income per Barrel of Oil
Equivalent" (developed by Legislative Research Services).
She explained that the blue line showed Alaska's net income
per barrel of oil equivalent; the red line represented the
Lower 48, the gray line represented international, and the
purple line represented global. She moved to slide 27 that
included a table depicting the information used on slide
26. The average net income per barrel of oil over 11 years
was shown on the far right; Alaska was nearly double the
Lower 48, international, and global numbers.
Ms. Sydeman turned to slide 28:
Recently international oil industry consultant Pedro
Van Meurs testified to this committee that he believes
worldwide apportionment is cumbersome, an obstacle to
new investment, and not in the state's best interest.
Ms. Sydeman provided several quotes from Mr. van Meurs on
slides 29 and 30:
"I have always been in favor of calculating the Alaska
portion of the corporate income tax entirely on the
revenues and costs attributable to Alaska and not to
any other part of the world."
Pedro Van Meurs on worldwide apportionment: "It messes
up significantly the Alaska possibility for giving
these kind of incentives, making these kind of rules,
allowing international companies to benefit."
Ms. Sydeman elaborated that Mr. van Meurs was referring to
some of the recommendations he had made to the Senate
Finance Committee for incentivizing higher cost and heavy
and shale oil; he felt that it would be much easier to do
using a separate account methodology. She read an
additional quote from Mr. van Meurs on slide 31 (she noted
that the quote related to Roger Marks' findings that most
jurisdictions used a separate accounting methodology):
"It makes the tax system very cumbersome to run. In
fact, it is actually an obstacle to investment in
Alaska because it is very difficult to explain to any
newcomer how you even have to calculate your state
corporate income tax."
Ms. Sydeman provided a concluding remark on separate
accounting by Mr. van Meurs (slide 32):
"It gives you far more political freedom to pursue the
interests of the state the way the state wants to do."
Ms. Sydeman addressed slides 33 and 34:
A review of the history of this issue is instructive
as the legislature reconsiders separate accounting and
other changes to our oil tax regime.
· In 1949, the territorial income tax enacted. This
tax remained essentially unchanged until 1978.
· Income of multi-state corporations in Alaska was
apportioned on the basis of three factors:
property, payroll and sales.
Ms. Sydeman relayed that income of multistate corporations
in Alaska was currently apportioned on the basis of
property, production, and sales.
9:28:49 AM
Ms. Sydeman discussed slides 35 through 38:
· This method of apportionment was developed
principally for mercantile businesses.
· Over many years, it became apparent that it
systematically under-calculates income
attributable to oil production.
The oil industry in testimony will likely tell you
that Alaska should maintain formulary apportionment to
be consistent with many other states, avoid the
potential for duplicative taxation, and sidestep the
administrative burdens associated with separate
accounting.
However, all of the constitutional issues regarding
duplicative and discriminatory taxation have been
resolved, and the fiscal benefits of separate
accounting clearly outweigh the costs and
administrative challenges.
· According to the fiscal note submitted by DOR (on
the House bill version), separate accounting
would have generated about $250 million more in
each of the 5 preceding fiscal years.
· The cost[s] of administering the system are
estimated to be about $525,000/year, primarily to
hire 4 new tax auditors.
· Thus the benefits are roughly 475 times greater
than the costs.
Ms. Sydeman did not believe that the argument that the
system was costly and cumbersome to administer held water,
given the very different ratio between cost and benefits.
She pointed to slide 39 that showed DOR calculations
comparing separate accounting and worldwide apportionment
for the top 5 oil companies' corporate income taxes during
the past five years. She believed DOR had used the
calculations to determine its fiscal note for the House
companion version of the legislation. She noted that for
the five corporations there was a difference of $190
million per year [on average].
9:30:52 AM
Ms. Sydeman turned to slide 40:
· It's true that until the 1970s, Alaska lacked the
resources and staff to administer a corporate
income tax effectively.
· Returns were generally accepted as filed and
field audits were never conducted. However, that
is not the case today.
Ms. Sydeman discussed slides 41 and 42 related to the late
1970s:
As the development of Prudhoe Bay approached, interest
within the legislature on appropriate methods of
taxation increased.
Legislative consultants warned that Alaska would
receive little income tax from the O&G industry, not
only because of the apportionment formula, but also
because the state tax was based on federally taxable
income, which usually amounted to very little.
Ms. Sydeman noted that Darwin Peterson, Staff, Senator Bert
Stedman would distribute several articles related to
federal income tax paid primarily by the Exxon Corporation
following the meeting. She detailed that one group
estimated that the effective tax rate was approximately
half of the statutory 35 percent standard for U.S.
corporations. She elaborated that Alaska may be getting far
less than imagined if its corporate income tax was based on
federal corporate income tax.
Ms. Sydeman moved to slide 43 and provided the perspective
of legislative consultants [mentioned on slide 42]:
They argued that income tax should be tied to
profitability, rather than production, property,
payroll, sales, or other variables which do not
represent the health or viability of the industry.
These arguments are true today.
Ms. Sydeman directed attention to slides 44 and 45:
Since little of Alaska's oil is sold instate, the
sales factor, which is still part of the formula,
minimizes income generated from Alaska.
The property factor is also not as reflective of value
as one might expect. It does not include the value of
oil or gas in the ground, and facilities are valued at
their original cost, not their value today.
Ms. Sydeman pointed to a recent decision by Judge Gleason
that looked at the value of the Trans-Alaska Pipeline based
on its current economic value of approximately $9 billion;
the value was higher than the original construction cost
and would not be reflected in the property factor in the
state corporate income tax calculation.
9:33:30 AM
Ms. Sydeman moved to slides 46 and 47:
Formulary apportionment also fails to recognize the
greater profitability of production, compared with
refining or retail sales.
It doesn't reflect that not all facets or areas of a
company are equally profitable.
In addition, formulary apportionment treats companies
with the same earnings (those doing business only in
Alaska and multinational corporations) differently.
Ms. Sydeman read a quote from the state's brief to the
Alaska Supreme Court on April 27, 1984 (slide 48):
"The three-factor formula bestows a benefit on
multistate oil companies that is not shared by other
Alaskan businesses. It allows those corporations to
pay tax on only a fraction of their Alaska income,
which substantially lowers their effective tax
rate..."
Ms. Sydeman turned to a quote from the late 1970s on slide
49:
During the hearings on AS 43.21, legislators asked
about this:
· Senator John Huber: "Does SOHIO object to paying
9.4% on its true net income the same as they
would have to if they were strictly an Alaskan
corporation?"
· SOHIO Vice President Richard Donaldson: "Yes"
9:35:09 AM
Ms. Sydeman addressed slides 50 through 54:
In 1977, the Department of Revenue acknowledged some
of the drawbacks of formulary apportionment,
including:
1. the federal tax base on which it is based (for
U.S. corporations) allows for significant and
undesirable erosions in the tax base;
2. the polices underlying many federal tax
exemptions, credits and deductions are irrelevant
to or inconsistent with state objectives; and
3. none of the property, payroll or sales factors
truly represent O&G producing activity in Alaska.
During the same period, the O&G industry made many of
the same arguments heard today about ACES.
They said separate accounting:
1. would have an adverse impact on exploration and
development investment in Alaska;
2. was unnecessary because Alaska already imposed
one of the highest tax burdens of any state on
the O&G industry; and
3. illustrated the instability of the Alaska
business climate.
· Exxon released a "Business Climate Analysis" showing
Alaska ranked 47th and 48th out of the 50 states on
2 important measures of business friendliness.
· The company argued that separate accounting would
make it worse.
Despite O&G industry opposition to separate accounting
in Alaska, it's interesting to note that elsewhere
they have sued to be able to use this methodology.
Even in Alaska, industry has sued in support of the
right to use separate accounting.
(See State of Alaska v. Amoco Production Company,
676 P. 2d 595, Supreme Court of Alaska.)
9:37:15 AM
Ms. Sydeman moved to slides 55 through 57:
Separate accounting has several additional benefits
the sponsor would like to highlight:
1. It doesn't tax a company until that company makes
a profit. Under apportionment, companies begin to
pay taxes as soon as they set up shop in Alaska.
In this manner, separate accounting encourages
new business development.
2. If a company invests in Alaska, it drives down
that company's corporate income tax. It is an
incentive to additional investment.
3. If oil development in Alaska becomes less
profitable than elsewhere, that change in
profitability is reflected in the corporate
income tax. Under that circumstance, it would
result in a well-deserved tax cut for the oil
industry.
4. The separate accounting methods proposed in SB
201 are nearly identical to methods used by other
states, the IRS, and other nations. They are also
consistent with OECD model treaties.
Ms. Sydeman elaborated that a business would have property
that was taxable under worldwide apportionment once it
leased property in downtown Anchorage. In relation to point
number 2 she noted that the concept was one of the primary
principles behind the ACES tax system (the more money a
business spent in the state, the less it paid).
Ms. Sydeman closed with slides 58 and 59:
In closing, as the State argued in 1984 to the Alaska
Supreme Court, separate accounting "foregoes the
surrogates and assumptions of mathematical formulas
and looks instead at actual revenues and costs of
instate operations."
State of Alaska brief, April 27, 1984, page 41.
It is a fair and equitable method of assessing
corporate income taxes that is used successfully
around the world and in other U.S. states.
9:39:19 AM
Co-Chair Stedman asked about the origin of the data on
slide 39 and how it had been developed. He asked for
specific detail related to 2007 transportation income. Ms.
Sydeman replied that the data had been assembled by DOR and
deferred the question to Johanna Bales, Tax Division, DOR.
JOHANNA BALES, DEPUTY DIRECTOR, TAX DIVISION, DEPARTMENT OF
REVENUE, asked for detail related to the question.
Co-Chair Stedman noted that there was no information about
where the data had come from and which companies were
included. He wondered why the 2007 transportation income
was not negative.
Ms. Bales responded that the data used to develop the table
came from oil and gas tax production tax returns; the
sponsor of the House version of the bill had requested the
calculation using the net profits tax. She detailed that
the production tax value of the top five oil and gas
companies had been used to calculate the corporate income
tax based on language in the bill. She noted that the
transportation information came directly from public
Federal Regulatory and Exchange Commission (FERC) reports;
the department did not know why 2007 had positive
transportation income.
Co-Chair Stedman observed that transportation was typically
negative due to tariff charges. He wondered whether DOR had
broken the figure down to determine whether the positive
number was a company specific issue or related to an
accounting adjustment. Ms. Bales replied that DOR had
looked at it on a company basis, but it had not followed
through to determine the cause of the anomaly in 2007. She
would follow up with the committee with more detail.
9:43:05 AM
Co-Chair Stedman asked for verification that the table (on
slide 39) included the five major tax paying companies that
were in Alaska's legacy fields. Ms. Bales responded in the
affirmative.
Co-Chair Stedman asked whether DOR had restated historic
revenues and expenses to put them under the ACES system in
2006. Ms. Bales replied in the affirmative.
Co-Chair Stedman surmised that the table included
hypothetical numbers looking back at the ACES structure
that did not exist. Ms. Bales replied that there was
production tax value information for FY 06 and FY 07; DOR
had been gathering information from oil companies and its
economic research group had pulled the data together. She
did not believe that the data was extrapolated.
Co-Chair Stedman asked whether the industry had paid $630
million in 2006 or whether the figure was used to show what
would have occurred if ACES had been in place. Ms. Bales
replied that the actual corporate income tax paid came from
real corporate income tax returns. The comparison figure
had been derived from oil and gas production tax returns,
which was the only available data to determine activity
that took place in Alaska. She elaborated that the oil and
gas corporate income tax returns did not provide specific
Alaska data only.
Co-Chair Stedman inquired what format the $619 million in
2006 had been calculated (i.e. ACES or the Petroleum
Production Tax system (PPT)). Ms. Bales responded that the
$619 million tax was calculated using the production tax
value from information the department had received under
ACES or PPT coupled with recently acquired information from
oil and gas companies to estimate corporate income tax
under the legislation, which approximated the petroleum
profits tax calculation.
9:45:58 AM
Co-Chair Stedman asked for verification that the table was
not depicting data from a different tax regime. He queried
whether the actual tax paid was $630 million and that using
the calculated rate of 9.4 percent would have resulted in
$619 million in tax. Ms. Bales replied that the $619
million was an estimate based on the production tax
petroleum profits; there were some differences in the
calculation of net income for the corporate income tax
under the bill (compared to PPT). She clarified that DOR
had done a quick estimation using the production tax either
under ACES or PPT and had used the 9.4 percent tax rate;
the figure was an estimate, but DOR believed it was only
off from $10 million to $20 million per year.
Co-Chair Stedman looked at 2010 and noted that at 9.4
percent the statutory rate was $638 million. He asked
whether the tax collected then would be $385 million. Ms.
Bales answered in the affirmative. Co-Chair Stedman queried
which number he would under the DOR revenue source book.
Ms. Bales responded that it would not be possible to tie
the actual corporate income tax number to the revenue
source book because the book included other oil and gas
companies that had not been included in the table.
9:48:01 AM
Co-Chair Stedman stated that it was his understanding that
most of the other companies in the source book would have
expenses and credits but no revenue. Ms. Bales replied that
it was possible that the companies may have had other
activity and did pay corporate income tax. Co-Chair Stedman
surmised that the amount would be small. Ms. Bales replied
that she would need to look into the matter.
Co-Chair Stedman asked Ms. Bales to report back to the
committee with a total. He clarified that he would like the
information related to the oil and gas sector corporate
income tax paid. He requested that the five relevant
companies be parsed out with production. Ms. Bales agreed.
Co-Chair Stedman inquired whether the expectation in 2011
was similar to those in 2009 and 2010. Ms. Bales responded
that based on the table (slide 39), the department's
estimate going forward would be similar.
Ms. Bales provided comments from the perspective of the
administration. She stated that the bill would run counter
to the governor's goals to improve Alaska's tax structure
to make long-term investment attractive to companies. She
opined that the bill would set Alaska back in terms of its
ability to compete with other jurisdictions for oil and gas
investment dollars. She stressed that there was nothing
simple about separate accounting and that the bill would
require companies to calculate their tax on three different
methods: separate accounting for oil and gas production
activity, FERC accounting for transportation activity, and
worldwide apportionment for all other activity. She
emphasized that the proposed accounting system would
increase complexity for DOR. She pointed out that there was
a significant difference between separate accounting and
separate entity reporting; the U.S. used separate entity
reporting and not separate accounting. She explained that a
U.S. corporation that conducted activity in the U.S. and
internationally would report and pay tax on all of its
income. She believed that there was some general confusion
about the definition of separate accounting. She expressed
that DOR would like to work with the committee and the bill
sponsor to help clarify the impacts the bill would have
going forward.
9:51:56 AM
Senator McGuire wondered whether there was any other
industry that paid a severance profits tax and a corporate
tax on profits. Ms. Bales responded that the fisheries and
mining industries paid severance tax and corporate income
tax on profits.
Senator McGuire believed that in order to stay competitive
that it may be better to take a look at the overall impact
of Alaska's taxes. She opined that Alaska should have a
fair split, but should that it should increase its
competitiveness through a change in the current structure
or through another option.
Co-Chair Stedman pointed to concern related to the net cash
position, which could come from several areas, but needed
to be counted together; however, the current focus was
zeroing in on the corporate income tax. He was concerned
that in 2010 the table showed $638 million in tax, but only
$385 million collected. Page 2 of the revenue source book
referenced $662 million in petroleum corporate income tax
for FY 12 and $728 million in FY 13. He furthered that the
committee was using the revenue source book frequently
related to models and government split numbers; however,
based on the table there appeared to be a substantial $300
million difference. He referred to numerous presentations
that dealt with the government take number, of which
corporate income tax was one portion of the total. The
number was roughly 9 percent or more of the total
hydrocarbon income that dealt with royalties and other. He
stressed that the money was substantial.
9:55:27 AM
Ms. Bales clarified that the table (slide 39) had been
prepared quickly for the House; she was happy to expand and
refine it for the committee.
Co-Chair Stedman asked DOR to polish up the numbers on the
table for 2008 through 2010 and to reference the revenue
source book. He noted that there were two separate issues:
(1) corporate taxes expected and (2) separate accounting.
He explained that the question was - were the numbers and
decisions made presently going to provide an accurate
picture when "we turn it into cash and stack it on the
table." He believed there were areas that needed to be
tightened up to ensure that neither the industry nor the
state were surprised at the outcome. He relayed that the
committee's consultant PFC Energy could work with DOR on
the issue.
Senator Thomas queried the reason for the $252 million
corporate income tax difference shown for 2010 (slide 39).
Ms. Bales replied that the difference was a result of
calculating corporate income tax on separate accounting
using only the net profit tax versus worldwide
apportionment.
9:58:53 AM
Senator Thomas pointed to the Alaskan comparison with the
Lower 48 international and global slide 27 and asked
whether the higher average net income per barrel would be a
likely place for a company to take worldwide deductions.
Ms. Bales replied that one of the reasons worldwide
apportionment was attractive to taxing jurisdictions was
that it was very difficult for companies to game the
system. Once the focus was narrowed to the U.S. or to
separate accounting there was more ability for taxpayers to
game the system and to either move income out of a
jurisdiction or pull expenses into a jurisdiction to offset
earned income. Worldwide accounting removed the transfer
pricing and inner company activities; as a result
corporations were not looking at what expenses they could
incur to eliminate paying more taxes in one jurisdiction
versus another because they were looking at what was best
for the company. She was not certain what the table was
trying to show. She understood that Alaska's barrel of oil
equivalent was currently priced higher than most other
jurisdictions (not always the case in the past), which
probably made Alaska more profitable at present. She
surmised that separate accounting was most likely the
better way to go during a period of higher prices and
production in Alaska, but over time as production and value
decreased separate accounting would result in lower income
for the state. She stressed that worldwide apportionment
helped to remove volatility in world markets in relation to
corporate income tax.
10:02:18 AM
Co-Chair Stedman wondered how an accident outside the state
(e.g. an oil tanker spill, a platform issue, or other) that
was in the billions of dollars would impact Alaska. He
pointed to a current concern in the Gulf of Mexico and
wondered whether it could fold back in against Alaska's
revenue stream. Ms. Bales replied that the types of
incidents did cut into worldwide net income; therefore the
income base did shrink. She relayed that the state adopted
federal law, which meant that penalties and fines were not
deductible; however, the state shared in other expenses or
revenue increases such as maintenance, cleanup, and other
that were incurred in other jurisdictions worldwide.
Co-Chair Stedman queried whether there was an estimate
related to the [2010] Gulf of Mexico oil spill and its
impact on Alaska's revenue stream. Ms. Bales replied in the
negative.
Co-Chair Stedman wondered whether DOR expected the spill to
have any impact to the State of Alaska. Ms. Bales answered
that DOR expected that the state would see a reduction in
corporate income tax. She noted that it was very possible
that the expenses for cleanup were included in 2010 numbers
in the presentation.
Co-Chair Stedman requested additional information regarding
the department's expectations of the types of incidents
that the state may be exposed to. Ms. Bales agreed to
provide that information.
Co-Chair Stedman remarked that the state should have an
understanding of its risk exposure related to outside
incidents.
Senator Olson asked for a comment related to Roger Marks'
statement that every oil and gas producing nation in the
world used the separate accounting method (slide 4). Ms.
Bales believed Mr. Marks had "fallen into the trap" that
others did. She stressed that corporate income tax was very
complex and that separate accounting was different than
separate entity reporting.
Senator Olson asked whether Mr. Marks' statement on slide 4
was a fact. Ms. Bales replied that the statement was
incorrect.
10:06:03 AM
Co-Chair Stedman requested further information related
methods used by other states.
MICHAEL HURLEY, DIRECTOR, GOVERNMENT AFFAIRS, CONOCOPHILIPS
ALASKA, looked at slide 39 and noted that the production
tax value and tax paid did not include the corporate income
interest expense or corporate overhead that would be
attributable to Alaska; all of the data was excluded in
ACES calculations, but it would be included as part of the
calculation under the legislation. He pointed out that the
result would be significantly different if the numbers were
considered in the calculation.
Co-Chair Stedman surmised that the numbers were non-
deductible lease hold expenditures. Mr. Hurley replied that
the statement was correct related to ACES, but would not be
under SB 201. He relayed that the numbers on slide 39 would
need some work to be able to determine whether the
statement was true related to the past five fiscal years.
10:09:38 AM
Co-Chair Stedman stated that the committee would work with
DOR, consultants, and the industry to obtain a close
approximation of the data on slide 39. He wanted to ensure
that the numbers used when looking at the broader picture
were as accurate as possible.
Mr. Hurley understood. He relayed that ConocoPhillips
opposed SB 201. The company did not understand how the bill
would improve the fiscal environment needed to attract
additional investment and increased production if the goal
was to increase revenue from the industry. He stressed that
the company evaluated its projects based on the overall
fiscal take package. He stated that the bill would go in
the opposite direction as SB 192 [oil and gas production
tax legislation]. He addressed the philosophy of state
corporate income tax. He detailed that policy makers had to
decide how to attribute income from multistate companies
(e.g. Walmart, Alaska Airlines, ConocoPhillips, or other),
to a particular jurisdiction. He stressed that most states
used an apportionment formula; each state looked at the
local business attributes (e.g. amount of payroll,
property, sales, etc.) relative to the business amounts in
all other taxing jurisdictions. A fraction was then used
based on a combination of the attributes to determine how
much of the total income of the business related to the
particular state; the process avoided the potential problem
of double taxation on the same income.
Mr. Hurley explained that over time the apportionment
system had been somewhat standardized by the multistate tax
compact, which was overseen by the Multistate Tax
Commission; Alaska was currently a member. The system was
currently used and was slightly modified for Alaska to
represent its particular circumstances. He discussed that
the other method was to use separate accounting, which was
a policy call. He believed that one of the reasons Alaska
had not switched back to separate accounting was because it
resulted in a doubling down on oil prices. Currently the
tax system had royalties and the ACES production tax, both
of which were heavily dependent on volatile oil prices. He
relayed that there was a counter-cyclical nature to the oil
and gas industry because when looking at the worldwide
income apportioned to Alaska multiple items were taken into
account including, income in Alaska, and downstream income
(refining, marketing, and distribution occurring in the
Lower 48); the profits and income associated with the
businesses tended to be counter-cyclical with upstream oil
and gas. He explained that a switch to separate accounting
would mean total dependence on the upstream business, which
was tightly tied to oil prices. He stated that there was
currently a counter-cyclical effect taking place because
when oil prices were high, refining margins were "really
bad," but when oil prices went down, refining margins went
up, which resulted in a balancing in the total worldwide
income that dampened the volatility of the state income
tax.
10:15:06 AM
Mr. Hurley directed the committee's attention to slide 27.
He relayed that the numbers only included upstream data.
Co-Chair Stedman asked for an explanation of upstream and
downstream. Mr. Hurley clarified that upstream applied to
the exploration and production business; it did not include
transportation businesses (e.g. TAPS), the refining,
marketing, or distribution in the downstream portion of the
business. He reiterated that the data on slide 27 did not
include downstream numbers.
Mr. Hurley opined that it was beneficial to the state for
DOR to use the federal income tax return as a starting
point for the apportionment calculation. He relayed that
the federal rules on what constituted a deductible expense
had "long been debated and resolved between tax payers and
the IRS"; the state saved money and controversy because it
was able to rely on federal audits of taxpayers' revenues
and expenses. Under a different system, DOR would need to
write its own regulations, which would become voluminous if
it tried to mirror federal rules. He reiterated that
ConocoPhillips did not support SB 201; it believed that the
bill would make the state's fiscal system more dependent on
volatile oil prices and that an administratively burdensome
process would be necessary to administer the separate
accounting system.
Senator Thomas queried the perspective of ConocoPhillips as
a corporation versus the perspective of DOR. Mr. Hurley
replied that they did not want to see the state in a
position of having no revenue when low oil prices occurred;
oil prices are cyclical. He stressed that the situation
would not be positive for the company either.
10:19:54 AM
DEBORAH VOGT, SELF, HAINES (via teleconference), was a
retired attorney who had handled the separate accounting
litigation at the State and U.S. Supreme Courts. She
believed that the committee had heard a significant amount
of testimony that accurately presented the issues related
to separate accounting. She discussed factors in
apportionment formulas that were used in Alaska and in
other states and the reasons they did not work for oil and
gas production. She relayed that prior to the state's
adoption of separate accounting it had used the standard
three-factor formula (payroll, property, and sales) that
was reflected in the Uniform Division of Income for Tax
Purposes Act. She explained that the state had moved to
separate accounting. She stated that when separate
accounting was repealed the state moved to two different,
two-factor formulas; one for production and one for
pipeline transportation. The formulas had always been
combined to a three-factor formula, but she did not believe
it accurately represented income earned in the state.
Ms. Vogt furthered that the methods did not accurately
attribute income because the factors were not able to
accurately include the revenue from oil and gas production.
She provided several reasons that the old three-factor
formula did not work: (1) the property factor did not
include oil in the ground (discovery was not an accounting
event). She explained that for a time a method called
reserve recognition accounting had been used, which would
have put oil reserve values on the books, but the attempt
was unsuccessful; (2) the payroll factor was somewhat
distorted because compared to other parts of the oil
industry production was not a labor intensive activity. The
payroll used in producing when compared to payroll used in
refining and marketing tended to understate the income from
production. She noted that the industry used a lot of
subcontractors for production; (3) the sales factor was
currently used and because most of the state's oil was not
sold in Alaska; therefore, all of the sales were attributed
to jurisdictions outside of the state.
Ms. Vogt discussed that separate accounting was an attempt
to isolate and use only the income earned in Alaska. She
noted that apportionment had to be used "a little bit" in
separate accounting. She expounded that the difference
between separate accounting and apportionment was like
restaurant accounting; the bill could be divided up between
people based on what they ate (separate accounting) or it
could be divided equally between the people dining
(apportionment). She detailed that if separate accounting
was used that apportionment may be used as well for shared
items such as wine or bread. She explained that the same
thing was true with separate accounting under AS 43.21;
apportionment was needed to account for non-oil and gas
production or transportation income earned instate and for
administration and overhead costs shared amongst companies.
Ms. Vogt continued to address why factors had not worked.
The current modified apportionment method was an attempt to
design a formula that more accurately represented income
activities in Alaska. There was a two-factor formula for
production that included property and extraction;
extraction was the portion of the oil extracted instate
versus extraction everywhere. Transportation used a two-
factor formula using property and sales or tariffs (tariffs
instate versus tariffs everywhere). She had understood that
when the formulas were designed they were to be separately
applied to production and to transportation. She noted that
there had been an argument that separate corporations were
separate tax payers and should have used the formulas
separately (FERC required a transportation company to be
separately incorporated); however, the factors had always
been combined as a three-factor formula, which presented a
problem of having a sales factor applied against production
income and an extraction factor applied to pipeline
transportation income.
Ms. Vogt believed that separate accounting was more
accurate than any other designed formulas. She acknowledged
that there was more volatility if more of the tax was based
on the price of oil; however, she opined that accuracy was
sacrificed under other accounting methods. She added that
oil and gas companies paid on a worldwide apportionment
that used to apply to all taxpayers; however, at the urging
of taxpayers the state had gone from worldwide to water's-
edge (i.e. modified apportionment) for all non-oil and gas
taxpayers.
Ms. Vogt briefly discussed the separate accounting
litigation that she had been involved with. The industry
had argued in many jurisdictions that separate accounting
more accurately represented their income (e.g. ExxonMobil
v. Wisconsin). She addressed that the U.S. Supreme Court
had vigorously upheld the refining and marketing states'
right to use a three-factor formula and it had looked as if
the court may hold that the method was constitutionally
required and that separate accounting was not permitted;
however, the court had upheld state's rights to do as they
pleased. She detailed that when the separate accounting
litigation had gone to the U.S. Supreme Court it had found
that there was no significant federal issue involved
because it was clear from prior cases that states were
permitted to use their preferred method.
10:29:24 AM
Senator Olson asked who would prevail if the state moved to
separate accounting and it was challenged legally. Ms. Vogt
replied that the legality of separate accounting had been
settled and she did not believe that industry could prevail
in a legal challenge.
10:30:21 AM
KARA MORIARTY, EXECUTIVE DIRECTOR, ALASKA OIL AND GAS
ASSOCIATION (AOGA)(via teleconference), testified in
opposition to the legislation on behalf of the association.
She stated that AOGA was a business trade association with
a mission to foster the long-term viability of the oil and
gas industry in Alaska; member companies accounted for the
majority of oil and gas exploration, production,
transportation, refining, and marketing activities in the
state. She stated that the bill would re-impose the
separate accounting income tax that the state had used from
1078 to 1981. Beginning in 1982 the state had moved to the
current corporate income tax system under AS 43.20 and
apportionment under AS 43.20.072. She referred to a
PowerPoint presentation titled "Oil and Gas: Fueling
Alaska's Economy" (copy on file). She relayed that both
methods sought to answer the same question: "How much
income of a multistate or international business is
properly attributable to its instate assets and activities
so it can be taxed by that state?" (slide 3).
10:33:30 AM
Ms. Moriarty spoke to slide 4 related to separate
accounting:
Separate Accounting
Looks at what the business actually has and does in
the state and then seeks to determine directly the
net-income as if that instate portion of the business
stood alone - separate from the rest of the business.
Ms. Moriarty continued that conceptually separate
accounting seemed to tackle the question of how much income
was made by the instate portion of a multi-jurisdictional
business; however, she stated that appearances could be
misleading. She testified that the method's vulnerability
arose from the fact that the instate portion of a business
did not stand alone from the remainder of the business;
whether the business was conducted within a single
corporate entity or through a unitary web of coordinated
affiliates, the opportunities were often present for the
instate portion to engage in business transactions with the
out of state portions that shifted income and expenses,
gains and losses into and out of the instate portion of the
overall business.
10:34:57 AM
Ms. Moriarty illustrated how complicated it could be to
unravel transactions among parts of an overall business.
She referred to regulations that had been adopted under the
Internal Revenue Code to control "artfully created tax
opportunities within such a business." She pointed to
treasury regulation 1.1502-13 that established the general
principles for unraveling various tax effect created by
transactions between or among affiliated corporations. She
referenced regulations 14 through 16, which applied and
adapted the general principles to specific kinds of
businesses or transactions; the related that regulations
continued through Section 100.
10:36:15 AM
Ms. Moriarty spoke to slides 6 and 7 related to
apportionment:
Apportionment
Starts with a "pie" containing the apportionable
income for the instate and outside business together
and then determines how wide a "slice" is attributable
to the income-generating potential of the instate
portion of the business. It is the "slice" that is
then taxes by the state.
· Avoids the need to unravel transactions.
· Avoids the analytical difficulties that arise when a
unitary business as a whole is greater than the sum
of its individual parts.
Ms. Moriarty discussed that the key assumption underlying
apportionment was that overall, money invested, sales,
workers, and oil and gas produced all had the same
potential instate as they did elsewhere. In relation to oil
and gas producers, pipeline companies and their affiliates
doing business in Alaska (slide 7):
· The width of a company's "slice" of their respective
business's "pie" is the average of the percentages
of that business's real or tangible property (at
cost), its sales, and its oil and gas production
that is present within the state.
10:38:10 AM
Ms. Moriarty quoted from an Alaska Supreme Court 1984
ruling:
These factors are merely indicative of the business'
income producing capabilities. They are not intended
to reflect the business' precise sources of income for
any particular year. The factors in an apportionment
formula represent and attempt to relate the tax
payer's presence within the state to its presence
everywhere.
Ms. Moriarty stated that for any given taxpayer the
question of whether its Alaska income tax would be greater
under separate accounting versus apportionment depended on
whether the profitability of the Alaskan business was
greater overall than the profitability of the combined
instate and out of state business as measured by the per
dollar invested, per dollar sold, and per barrel produced.
She expounded that apportionment would be preferable if the
instate portion of the business was materially superior; if
it was materially inferior to out of state business,
separate accounting was preferred. Meaning that certain oil
and gas taxpayers could start out preferring separate
accounting and others would prefer apportionment. She
stated that the preferred method depended on a company's
own facts and circumstances.
Ms. Moriarty reminded the committee that AOGA represented a
diverse group of companies and explained that there was
nothing inherent about separate accounting that caused a
taxpayer's tax to be greater than tax under apportionment;
however, she stressed that there was something inherent
about a non-renewable resource like oil and gas. She
emphasized that no matter how long an oil company may
initially prefer apportionment over separate accounting,
there eventually would come a day when the company's
resources would become depleted and separate accounting
would become the smaller tax for the business; the timing
would vary widely between companies. The association
believed that it was premature for Alaska to restructure
its income tax that would be more suitable for an advanced
stage in the oil and gas industry.
Ms. Moriarty expressed that AOGA also thought that the
proposed enactment of separate accounting could be ill
advised because depending on how the rest of the tax system
was restructured, the enactment of separate accounting may
turn into a self-fulfilling prophecy; particularly because
separate accounting would take more money from industry
instead of optimizing opportunities. She stated that
"having 100 percent of nothing is just as poor as having 0
percent of everything." She understood that the legislature
was working to determine the "sweet spot" between the two
extremes where the tradeoff was optimized between the size
of one's share and the size of what there was to be shared.
She stressed that the overall government take was already
too high in Alaska; therefore increasing the government
take through the enactment of separate accounting would be
a mistake. She reiterated AOGA's opposition to the
legislation.
10:42:55 AM
CHANCY CROFT, SELF, ANCHORAGE (via teleconference),
testified in support of separate accounting because he
thought that it realistically reflected the income derived
by a company's operations in Alaska. He believed it was
preferable to an "artificial" system based on inaccurate
assumptions. He stated that separate accounting reflected
Alaska as a resource producing state and the desires of
states down the line that wanted to extract something from
Alaska's resource. He provided a fishing analogy and
explained that allocation was appropriate if fishermen
wanted others using their catch to benefit more than they
did; however, he believed separate accounting was the
preferred method if a person believed that the real profit
from operation came from producing oil in Alaska.
Mr. Croft referred to the 1985 Arco Pipeline v Alaska case
that quoted him as saying that the income tax was not
designed to pick up additional money but to try to
establish equal treatment between companies operating
within the state. He stated that Pedro van Meurs was not
the first advisor to urge separate accounting to the state;
the first was Milton Lipton of Walter, Levy and Associates
whose firm advised the legislature for more than 10 years.
The same case quoted Mr. Lipton as saying "the purpose of
separate accounting is not to get higher taxation but it
gives you a direct fix on what the profitability of the
industry's operations are."
Mr. Croft elaborated on the reason he believed that the
allocation formula was artificial. The supreme court noted
that in 1978 to 1980 10 percent of Sohio's payroll, 12
percent of sale, and 50 percent of its property were in
Alaska; at the same time the company had indicated that
over 90 percent of its oil production derived from Alaska
resources. He offered that the question was "are we going
to be real or are we going to be artificial"; he thought in
fairness to Alaska businesses and to have a stable tax
structure, a consistent approach towards the corporate tax
rate was important. He stated that separate accounting
provided the consistency; however, the formula approach did
not.
Mr. Croft spoke to why separate accounting had been
repealed if it was so good. He detailed that former
governor Jay Hammond had said that one of his two biggest
mistakes as governor had been to repeal separate
accounting; he had repealed it for two reasons: (1) the
commissioner of DOR had assured him that the change would
be revenue neutral and (2) he was worried about the state's
ability to repay the tax that had been paid if the supreme
court determined that the method was unconstitutional (the
supreme court did not hold it unconstitutional). He urged
the committee to consider the adoption of separate
accounting as the corporate tax method for oil and gas
operations and companies operating in the state.
10:48:22 AM
Co-Chair Stedman relayed that there was one fiscal note
from DOR that included the estimated cost to hire four
auditors to administer the program; FY 14 costs were
$253,900 because the auditors would be hired halfway
through the fiscal year; FY 15 costs would increase to
$522,900 and would remain the same moving forward.
Senator Wielechowski reiterated that the bill was not
intended to be a tax increase. The legislature had heard
repeatedly from industry that Alaska was not competitive
and was not as profitable as other areas; if that was the
case or it did become the case, the bill would result in a
tax decrease to the industry. He had filed the bill because
the state's tax calculation method was bad policy; the rate
was currently based on events that were completely
unrelated to events occurring in the state. He believed
that from a cash flow perspective it was a bad method;
world events such as a natural disaster, war, or an oil
spill, directly impacted corporate tax collected in Alaska.
He thought that separate accounting would enable the state
to have a direct ability to fix the system.
Senator McGuire asked whether the sponsor had reviewed data
on slide 28 of the presentation that showed a $10 million
loss in 2005; the net calculation from that point forward
was almost $1 billion. She wondered whether he had looked
at data prior to 2005 to determine whether the state was
losing money at the time.
Senator Wielechowski pointed to slide 17 that had been
prepared by former tax director Dan Dickenson regarding the
1982 to 1997 timeframe. The data showed that Alaska had
lost $4.656 billion during the period.
10:51:30 AM
Senator McGuire pointed to a statement by Mr. Hurley that
the current tax method allowed the state to diversify its
portfolio risk and that during times of revenue decline
perhaps the state would make up the difference through
global investment.
Senator Wielechowski responded that for the 15-year period
from 1982 to 1997 the state had lost money every year. He
referred to another chart showing the ConocoPhillips barrel
of oil equivalent indicating that the state had probably
lost money every year. The DOR chart showed that the state
lost money every year with the exception of 2006. He
reiterated that the bill was not about tax increase or
decrease; it was about setting policy on collecting
taxation. He did not believe the state should have its
policy tied to allowing companies to essentially write-off
bad investments or disasters in other parts of the world.
Senator McGuire agreed. She surmised that the current tax
system was not a good method of diversifying the state's
risk and that the state had lost money in almost every
case. Senator Wielechowski replied that from a policy
perspective it was bad policy to tie Alaska's taxation to
events in other countries or states.
SB 201 was HEARD and HELD in committee for further
consideration.
10:53:18 AM
AT EASE
10:53:51 AM
RECONVENED
SENATE BILL NO. 146
"An Act establishing a snow classic as an authorized
form of charitable gaming."
10:54:25 AM
SENATOR CATHY GIESSEL, SPONSOR, introduced SB 146 and
relayed that it had no fiscal impact. She stated that the
bill established a Snow Classic, which was essentially the
Nenana Ice Classic in reverse. The bill would add to the
charitable gaming list of opportunities for 501(c)(3) non-
profit Four Valleys Community School to run a guessing game
that would raise money for the schools 250-plus classes
offered in the Turnagain Arm area. The school provided
scholarships for athletes and local high school graduates
and participated in community services with the Girdwood
Lion's Club, Rotary, and volunteer fire department. She
expounded that the Snow Classic was similar to the Nenana
Ice Classic; people would make guesses about the
accumulated snow depth at a specific location on Mt.
Alyeska on a specific day. She noted that Mt. Alyeska was
the state's major ski resort.
Senator Giessel furthered that the profits for the gaming
would replace community school funding that had been
eliminated from the Anchorage school district; she referred
to the community school program that had been run by the
Anchorage School District, which had been eliminated 10
years earlier. She relayed that the Girdwood community had
elected to continue the program because it was an important
service to the community; it provided classes for youths
and adults at a low cost with local teachers. The Snow
Classic would help Four Valleys achieve self-sufficiency
and to keep the classes affordable and available. There
were many other charitable gaming opportunities listed in
statute (e.g. the Cabbage Classic run by the Palmer Rotary,
the Canned Salmon Classic run by the Petersburg Chamber of
Commerce, the Deep Freeze Classic in Delta, the Goose
Classic in Fairbanks, the King Salmon Classic, the Mercury
Classic, and other). The bill had 79 letters of support.
10:57:34 AM
Co-Chair Stedman referenced that the bill had one zero
fiscal note.
REBECCA REICHLIN, BOARD CHAIR, FOUR VALLEYS COMMUNITY
SCHOOLS, GIRDWOOD (via teleconference), spoke in support of
SB 146 on behalf of the Four Valleys Board. She detailed
that since 1981 the school's community programs were the
main source of education, recreation, and cultural
opportunities for community members of all ages in
Girdwood, Bird Creek, Indian, and Portage Valleys. The
school served approximately 6,800 participants and had 700
volunteers. The organization had a long and stable history
of providing quality programs for the community. She
relayed that the Girdwood year-round recreational program
through the school was a model that provided extensive and
varied opportunities for youths to be physically active; it
included activities such as cross country skiing, fall
trail running, indoor soccer, downhill and nordic skiing,
gymnastics and other. Since 1984 Four Valleys had
administered public funds for programs; all awarded monies
provided direct community services. To help with funding
the school had established partnerships with local
businesses, non-profits, and private donors; volunteers
contributed their time to support a wide range of
activities.
Ms. Reichlin expounded that Four Valleys had a prior
history utilizing gaming activities to raise funds; it had
offered a Monte Carlo night, but when gaming regulations
changed it could not continue to offer the event. The
legislation would allow Four Valleys to control its
financial destiny. She accentuated that in a small
community all of the organizations solicited community
support. She relayed that the bill would allow the school
to support its mission, eliminate dependence on property
tax dollars, and to meet its goal of self-sufficiency. The
bill expanded on current gaming regulations.
11:01:32 AM
DIANNA HIIBNER, SKI AREA GENERAL MANAGER, ALYESKA RESORT,
GIRDWOOD (via teleconference), spoke in favor of the
legislation on behalf of the resort. The resort had been
involved in the Alyeska Snow Classic since its inception.
The resort felt that the Snow Classic would be a great
fundraising opportunity for Four Valleys Community Schools
and the community of Girdwood. She urged the committee to
vote in favor of the Snow Classic that would be
administered by Four Valleys.
Senator Giessel reiterated that the bill had a zero fiscal
note and that it would benefit Girdwood.
SB 146 was HEARD and HELD in committee for further
consideration.
Co-Chair Stedman discussed the agenda for the following
meeting.
ADJOURNMENT
11:02:50 AM
The meeting was adjourned at 11:02 AM.