Legislature(2007 - 2008)BUTROVICH 205
11/03/2007 09:00 AM Senate JUDICIARY
| Audio | Topic |
|---|---|
| Start | |
| SB2001 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB2001 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
SENATE JUDICIARY STANDING COMMITTEE
November 3, 2007
9:06 a.m.
MEMBERS PRESENT
Senator Hollis French, Chair
Senator Charlie Huggins, Vice Chair
Senator Bill Wielechowski
Senator Lesil McGuire
Senator Gene Therriault
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
SENATE BILL NO. 2001
"An Act relating to the production tax on oil and gas and to
conservation surcharges on oil; relating to the issuance of
advisory bulletins and the disclosure of certain information
relating to the production tax and the sharing between agencies
of certain information relating to the production tax and to oil
and gas or gas only leases; amending the State Personnel Act to
place in the exempt service certain state oil and gas auditors
and their immediate supervisors; establishing an oil and gas tax
credit fund and authorizing payment from that fund; providing
for retroactive application of certain statutory and regulatory
provisions relating to the production tax on oil and gas and
conservation surcharges on oil; making conforming amendments;
and providing for an effective date."
MOVED CSSB 2001(JUD) OUT OF COMMITTEE
PREVIOUS COMMITTEE ACTION
BILL: SB2001
SHORT TITLE: OIL & GAS TAX AMENDMENTS
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
10/18/07 (S) READ THE FIRST TIME - REFERRALS
10/18/07 (S) RES, JUD, FIN
10/19/07 (S) RES AT 9:00 AM BUTROVICH 205
10/19/07 (S) Heard & Held
10/19/07 (S) MINUTE(RES)
10/20/07 (S) RES AT 8:00 AM BUTROVICH 205
10/20/07 (S) Heard & Held
10/20/07 (S) MINUTE(RES)
10/21/07 (S) RES AT 1:00 PM HOUSE FINANCE 519
10/21/07 (S) Heard & Held
10/21/07 (S) MINUTE(RES)
10/22/07 (S) RES AT 11:30 AM BUTROVICH 205
10/22/07 (S) Heard & Held
10/22/07 (S) MINUTE(RES)
10/23/07 (S) RES AT 9:00 AM BUTROVICH 205
10/23/07 (S) Heard & Held
10/23/07 (S) MINUTE(RES)
10/24/07 (S) RES AT 10:00 AM BUTROVICH 205
10/24/07 (S) Heard & Held
10/24/07 (S) MINUTE(RES)
10/25/07 (S) RES AT 10:00 AM BUTROVICH 205
10/25/07 (S) Heard & Held
10/25/07 (S) MINUTE(RES)
10/26/07 (S) RES AT 1:30 PM BUTROVICH 205
10/26/07 (S) Heard & Held
10/26/07 (S) MINUTE(RES)
10/27/07 (S) RES AT 9:00 AM BUTROVICH 205
10/27/07 (S) Moved CSSB2001(RES) Out of Committee
10/27/07 (S) MINUTE(RES)
10/28/07 (S) RES AT 0:00 AM BUTROVICH 205
10/28/07 (S) -- MEETING CANCELED --
10/29/07 (S) RES RPT CS 1NR 6AM NEW TITLE
10/29/07 (S) NR: GREEN
10/29/07 (S) AM: HUGGINS, MCGUIRE, STEVENS, STEDMAN,
WIELECHOWSKI, WAGONER
10/29/07 (S) JUD AT 9:30 AM BUTROVICH 205
10/29/07 (S) Heard & Held
10/29/07 (S) MINUTE(JUD)
10/30/07 (S) JUD AT 9:00 AM BUTROVICH 205
10/30/07 (S) Heard & Held
10/30/07 (S) MINUTE(JUD)
10/31/07 (S) JUD AT 9:00 AM BUTROVICH 205
10/31/07 (S) Heard & Held
10/31/07 (S) MINUTE(JUD)
11/01/07 (S) JUD AT 9:00 AM BUTROVICH 205
11/01/07 (S) Heard & Held
11/01/07 (S) MINUTE(JUD)
11/02/07 (S) JUD AT 5:00 PM BUTROVICH 205
11/02/07 (S) -- Testimony <Invitation Only> --
11/03/07 (S) JUD AT 9:00 AM BUTROVICH 205
WITNESS REGISTER
PATRICK GALVIN, Commissioner
Department of Revenue (DOR)
Anchorage, AK
POSITION STATEMENT: Offered perspective on SB 2001
ROBERT MINTZ, Attorney
Kirkpatrick & Lockhart Preston Gates Ellis, LLP (K&L Gates)
POSITION STATEMENT: Explained conceptual Amendment 4 for SB 2001
JOHN MESSENGER, Staff to Representative Kerttula
Juneau, AK
POSITION STATEMENT: Explained conceptual Amendment 5 for SB 2001
DONALD BULLOCK, Attorney
Legislative Legal and Research Services Division
Legislative Affairs Agency
Juneau, AK
POSITION STATEMENT: Offered perspective on SB 2001
NANETTE THOMPSON
Division of Oil & Gas
Department of Natural Resources
Anchorage, AK
POSITION STATEMENT: Explained Amendment 11 for SB 2001
ACTION NARRATIVE
CHAIR HOLLIS FRENCH called the Senate Judiciary Standing
Committee meeting to order at 9:06:57 AM. Present at the call to
order were Senators Therriault, Wielechowski, McGuire, Huggins,
and Chair French.
SB 2001-OIL & GAS TAX AMENDMENTS
9:07:12 AM
CHAIR FRENCH announced the consideration of SB 2001. Before the
committee was CSSB 2001, labeled 25-GS0014\K. He asked
Commissioner Galvin to describe the fiscal note process.
9:07:35 AM
PATRICK GALVIN, Commissioner, Department of Revenue (DOR),
Anchorage, Alaska, informed the committee that a draft fiscal
note should be completed within the hour. Two adjustments that
are recognized at this time include a distinction for lease
expenditures having to be incurred within the state and an
adjustment to the personal services for exempt employees.
CHAIR FRENCH stated that the first technical amendment addresses
a drafting error on page 25, line 22, that Mr. Bullock spoke
about yesterday.
SENATOR HUGGINS moved Amendment 1, labeled 25-GS0014\K.8.
A M E N D M E N T 1
OFFERED IN THE SENATE
To CSSB 2001(JUD), Draft Version "K"
Page 25, line 22:
Delete "10"
Insert "20"
CHAIR FRENCH announced that without objection Amendment 1 is
passed.
CHAIR FRENCH said Amendment 2 appears on page 25, line 10. It's
clean up language that was referred to yesterday during the
discussion of the penalty provisions of the bill. He recalls
that the suggestion was to add language saying, "In addition to
other penalties prescribed by law," to make certain that this
isn't the only penalty for understatement of tax. In response to
a question, he said the amendment is not drafted.
COMMISSIONER GALVIN suggested the committee either insert the
clause as a lead-in that applies to both subsections or add the
clause to each subsection separately because it is intended to
modify both subsection (a) and (b).
CHAIR FRENCH moved Amendment 2 as follows:
Amendment 2
Page 25, line 10 following (a):
Insert: "In addition to other penalties
prescribed by law,"
Page 25, line 14 following (b):
Insert: "In addition to other penalties
prescribed by law,"
CHAIR FRENCH announced that without objection Amendment 2 is
passed.
9:13:21 AM
CHAIR FRENCH moved Amendment 3 as suggested by Mr. Bullock.
AMENDMENT 3
Page 27, lines 11-12 following "appropriation":
Delete: "for the purpose from penalties collected
by the department under this chapter,"
CHAIR FRENCH announced that without objection, Amendment 3 is
passed.
9:15:38 AM
SENATOR THERRIAULT referred to page 27, line 30 and asked about
Mr. Bullock's suggestion to change the word "conditions" to the
singular.
CHAIR FRENCH said that is part of transportation piece that will
be addressed in part of the "Nan Thompson amendment." [Amendment
11]
CHAIR FRENCH asked Mr. Mintz to comment on conceptual Amendment
4.
9:16:56 AM
ROBERT MINTZ, Attorney, Kirkpatrick & Lockhart Preston Gates
Ellis, LLP (K&L Gates), clarified that although he styled the
amendment conceptual, it does contain the exact language that is
intended. He said it addresses an inconsistency in annual versus
monthly tax calculations. There are two components to the tax
rate under the bill--the basic tax rate of 25 percent and the
additional progressivity tax rate, which depends on a monthly
determination. Basically there are three ways to handle this.
The original PPT legislation had an annual calculation of the
base rate and an additional monthly tax under progressivity. The
ACES bill had both the base rate and progressivity as an annual
rate. He understands that the judiciary committee substitute
(CS) intends that both the base rate and the progressivity rate
would be calculated on a monthly basis. The point of the
proposed amendment is to make the numbers work. There would also
be conforming changes in other parts of the bill, he stated.
MR. MINTZ said although the tax calculations are done on a
monthly basis, the amendment does preserve the basic aspect of
the legislation, which is that it's an annual tax. This is
important because a lot of the other provisions specifically
involving tax credits are done on an annual basis. Totally
reverting to a monthly tax would require much more extensive
changes, he said.
9:19:49 AM
CHAIR FRENCH asked him to identify which page his amendment
sections refer to.
MR. MINTZ said the first change, which repeals and reenacts AS
43.55.011(e), is on page 10, line 30, of version "K". It
clarifies that the tax calculation of production tax value for
oil and gas multiplied by the tax rate is done each month. The
second sentence of subsection (e) preserves the annual aspect of
the tax.
Page 11, line 7, Sec. 16, which repeals and reenacts AS
43.55.011(g), says that the tax rate is calculated for each
month separately. The second sentence says that the tax rate may
not be more than 50 percent.
Page 11, line 14, Sec. 17, amends AS 43.55.011(h). It clarifies
the way the price index is calculated for a month is to add the
production tax values of all the oil and gas produced in the
state and divide that by the production.
CHAIR FRENCH noted that it's a minor change to Sec. 17.
9:23:09 AM
MR. MINTZ said on page 14, line 13, there is a conforming change
to changes in AS 43.55.160. In general the reason is that there
is no longer a need to have both an annual and a monthly
production tax value of oil and gas since the base rate tax and
the progressivity tax are now calculated on a monthly basis.
CHAIR FRENCH noted a typographical error on page 2, text line 6,
of the amendment. Mr. Mintz agreed there is an extra "4" in the
bolded and underlined statutory reference to AS 43.55.020(a)(2).
It was removed.
9:24:39 AM
MR. MINTZ said the next change is in bill section 41, page 28,
line 8, through page 29, line 5. It amends AS 43.55.160(a),
which explains how to calculate the production tax value of oil
and gas. In the bill the production tax value feeds into the
application of the tax rate under AS 43.55.011(e) and in
figuring out the monthly installment payments in AS
43.55.020(a)(2). The reference to Section 011(g) is deleted
because it was the previous monthly progressivity tax under
current law.
COMMISSIONER GALVIN noted that the explanation covers page 28,
line 8, through page 29, line 5.
MR. MINTZ again said the annual production tax values are no
longer needed. In current law Section 160(a)(1) has four
subparagraphs that explain how to calculate annual production
tax value. Paragraph (2) on page 29 of the CS also has four
paragraphs to explain how to calculate monthly production tax
values. The calculations under paragraph (1) are no longer
needed so all the language on page 28, line 8, through page 29,
line 5 can be deleted from the existing statute.
9:27:18 AM
COMMISSIONER GALVIN asked for clarification that the language is
not to be deleted from the bill. It should be shown to be
deleted from the statute.
MR. MINTZ said yes, but since Sec. 41 of the CS already amends
Section 160(a), proposed Amendment 4 would make another change
in Section 160(a), which is to delete subparagraphs (A), (B),
(C), and (D).
CHAIR FRENCH asked him how Section 160(a) would read if the
amendment were adopted.
MR. MINTZ clarified that new text is bolded and underlined and
deleted text is capitalized and bracketed and then read from
page 28, line 7, and page 29, line 5 of the CS as follows:
(a) Except as provided in (b) of this section, for
the purposes of [(2)] AS 43.55.011(e) and AS
43.55.020(a)(2), the [MONTHLY] production tax
value of the taxable"
CHAIR FRENCH reread the proposed subsection (a).
MR. MINTZ said the next change is to renumber on page 29,
subparagraphs (A), (B), (C), and (D) to become paragraphs (1),
(2), (3), and (4). Again, the reason for the change is that
there no longer a need for an annual production tax value.
9:31:05 AM
COMMISSIONER GALVIN said this characterization may confuse the
drafter.
At ease from 9:31:28 AM to 9:37:43 AM. Sound is missing until
9:40:19 AM.
COMMISSIONER GALVIN suggested the committee amend the amendment.
CHAIR FRENCH moved an amendment to the amendment as follows:
Page 28, line 8, bracket "(1)" and leave the reference
to "AS 43.55.011(e)" and insert "and". Bracket "," and
all material through "(2)" on page 29, line 5. Leave
the reference to "AS 43.55.020(a)(2)". Leave the
bracket that's in place for "[43.55.011(g)]". Leave ",
the", bracket "monthly" and leave "production tax
value of the taxable".
Finding no objection, he announced that the amendment to the
amendment is adopted.
9:41:14 AM
MR. MINTZ said the next change is to conform AS 43.55.160(c) to
the changes that have been discussed previously in terms of
calculating a monthly production tax value rather than an annual
alternative.
COMMISSIONER GALVIN stated agreement with the provision.
9:43:08 AM
MR. MINTZ said the next change would amend AS 43.55.160(e). The
subsection is not addressed in the CS so it would be a new bill
section. This conforming change removes the reference to an
annual production tax value.
COMMISSIONER GALVIN stated agreement with the provision.
MR. MINTZ said the next change would amend AS 43.55.170(b). The
subsection, which deals with adjustments to lease expenditures,
is not addressed in the CS, but it is conforming to the changes
made in Section 160.
9:45:20 AM
MR. MINTZ said the final change would remove the reference to
Section 160(c) from the repealer on page 37.
CHAIR FRENCH found no further comments or discussion on the
proposed amendment and asked for a motion.
SENATOR WIELECHOWSKI moved [conceptual] Amendment 4. [Original
punctuation and the amendment to the amendment included]
AMENDMENT 4
Conceptual Amendment to CSSB 2001(JUD) version "K"
Repeal and reenact AS 43.55.011(e) to read:
(e) There is levied on the producer of oil or gas
a tax for all oil and gas produced each calendar year
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 landowner's royalty
interest. Except as otherwise provided under (f), (j)
and (k) of this section, the tax is equal to the sum,
over all months in the calendar year, of each month's
production tax value of the taxable oil and gas as
calculated under AS 43.55.160 multiplied by the tax
rate of the month determined under (g) of this
section.
Repeal and reenact AS 43.55.011(g) to read:
(g) The tax rate applied to the production tax
value of oil and gas under (e) of this section is 25
percent plus, for a month for which the price index
determined under (h) of this section is greater than
zero, 0.40 multiplied by the price index determined
under (h) of this section. However, a tax rate
calculated under this subsection may not be more than
50 percent.
Amend AS 43.55.011(h) to read:
(h) For purposes of (g) of this section, the
price index for a month is calculated by subtracting
30 [40] from the number that is equal to the quotient
of the total [MONTHLY] production tax values [VALUE]
of the taxable oil and gas produced by the producer
from all leases or properties in the state during that
month, as calculated under AS 55.160, divided by the
total amount of that [THE TAXABLE] oil and gas
produced by the producer during that month, in BTU
equivalent barrels. However, a price index calculated
under this subsection may not be less than zero.
Page 14, line 13 of the CS: delete "AS
43.55.160(a)(2)" and insert "AS 43.55.160"
AS 43.55.160(a) is amended to read:
(a) Except as provided in (b) of this section,
for the purposes of
[(1)] AS 43.55.011(e) and AS 43.55.020(a)(2)
[, THE ANNUAL PRODUCTION TAX VALUE OF THE TAXABLE
(A) OIL AND GAS PRODUCED DURING A
CALENDAR YEAR FROM LEASES OR PROPERTIES IN THE STATE
THAT INCLUDE LAND NORTH OF 68 DEGREES NORTH LATITUDE
IS THE GROSS VALUE AT THE POINT OF PRODUCTION OF THE
OIL AND GAS TAXABLE UNDER AS 43.55.011(e) AND PRODUCED
BY THE PRODUCER FROM THOSE LEASES OR PROPERTIES, LESS
THE PRODUCER'S LEASE EXPENDITURES UNDER AS 43.55.165
FOR THE CALENDAR YEAR APPLICABLE TO THE OIL AND GAS
PRODUCED BY THE PRODUCER FROM THOSE LEASES OR
PROPERTIES, AS ADJUSTED UNDER AS 43.55.170;
(B) OIL AND GAS PRODUCED DURING A
CALENDAR YEAR FROM LEASES OR PROPERTIES IN THE STATE
OUTSIDE THE COOK INLET SEDIMENTARY BASIN, NO PART OF
WHICH IS NORTH OF 68 DEGREES NORTH LATITUDE, IS THE
GROSS VALUE AT THE POINT OF PRODUCTION OF THE OIL AND
GAS TAXABLE UNDER AS 43.55.011(e) AND PRODUCED BY THE
PRODUCER FROM THOSE LEASES OR PROPERTIES, LESS THE
PRODUCER'S LEASE EXPENDITURES UNDER AS 43.55.165 FOR
THE CALENDAR YEAR APPLICABLE TO THE OIL AND GAS
PRODUCED BY THE PRODUCER FROM THOSE LEASES OR
PROPERTIES, AS ADJUSTED UNDER AS 43.55.170;
(C) OIL PRODUCED DURING A CALENDAR YEAR
FROM A LEASE OR PROPERTY IN THE COOK INLET SEDIMENTARY
BASIN IS THE GROSS VALUE AT THE POINT OF PRODUCTION OF
THE OIL TAXABLE UNDER AS 43.55.011(e) AND PRODUCED BY
THE PRODUCER FROM THAT LEASE OR PROPERTY, LESS THE
PRODUCER'S LEASE EXPENDITURES UNDER AS 43.55.165 FOR
THE
CALENDAR YEAR APPLICABLE TO THE OIL PRODUCED BY THE
PRODUCER FROM THAT LEASE OR PROPERTY, AS ADJUSTED
UNDER AS 43.55.170;
(D) GAS PRODUCED DURING A CALENDAR YEAR
FROM A LEASE OR PROPERTY IN THE COOK INLET SEDIMENTARY
BASIN IS THE GROSS VALUE AT THE POINT OF PRODUCTION OF
THE GAS TAXABLE UNDER AS 43.55.011(e) AND PRODUCED BY
THE PRODUCER FROM THAT LEASE OR PROPERTY, LESS THE
PRODUCER'S LEASE EXPENDITURES UNDER AS 43.55.165 FOR
THE 14 CALENDAR YEAR APPLICABLE TO THE GAS PRODUCED BY
THE
PRODUCER FROM THAT LEASE OR PROPERTY, AS ADJUSTED
UNDER AS 43.55.170; (2) AS 43.55.011(g)], the
[MONTHLY] production tax value of the taxable
Page 29, lines 7, 14, 22, and 29: replace "(A)",
"(B)", "(C)", and "(D)" with "(1)", and "(2)", "(3)",
and "(4)", respectively
Amend AS 43.55.160(c) to read:
(c) Notwithstanding any contrary provision of AS
43.55.150, for purposes of calculating a [MONTHLY]
production tax value under (a)[(a)(2)] of this
section, the gross value at the point of production of
the oil and gas taxable under AS 43.55.011(e) [AS
43.55.011(g)] is calculated under regulations adopted
by the department that provide for using an
appropriate monthly share of the producer's costs of
transportation for the calendar year.
Amend AS 43.55.160(e) to read:
(e) Any adjusted lease expenditures under AS
43.55.165 and 43.55.170 that would otherwise be
deductible by a producer in a calendar year but whose
deduction would cause a [AN ANNUAL] production tax
value calculated under (a) [(a)(1)] of this section of
taxable oil or gas produced during the calendar year
to be less than zero may be used to establish a
carried-forward annual loss under AS 43.55.023(b). In
this subsection, "producer" includes "explorer."
Amend AS 43.55.170(b) to read:
(b) Except as otherwise provided under this
subsection, if one or more payments or credits subject
to this section are received by a producer or by an
operator acting for the producer during a calendar
year and if either the total amount of the payments or
credits exceeds the amount of the producer's
applicable lease expenditures for that calendar year
or the producer has no lease expenditures for that
calendar year, the producer shall nevertheless
subtract those payments or credits from the lease
expenditures or from zero, respectively, and the
producer's applicable adjusted lease expenditures for
that calendar year are a negative number and shall be
applied to the pertinent calculations [CALCULATION]
under AS 43.55.160 AS [43.55.160(a)] as a negative
number.
Delete 43.55.160(c) from the repeal in Sec. 49 of the
bill.
CHAIR FRENCH announced that without objection Amendment 4 is
adopted.
CHAIR FRENCH said Amendment 5 is by Senator Wielechowski and it
relates to lease expenditures.
SENATOR WIELECHOWSKI explained that the idea of the amendment is
to tighten the lease expenditure language. He worked on this
with former Senator Guess and Mr. Messenger who is an oil and
gas attorney.
JOHN MESSENGER, Staff to Representative Kerttula, Juneau, AK,
informed the committee that he is a former deputy commissioner
to the Department of Revenue. He also worked on tax matters when
he was in the attorney general's office. Subsequently he entered
private practice and in that capacity he represented the State
of Alaska in oil and tax matters including audits.
9:49:40 AM
MR. MESSENGER said the first change on page 30 basically deletes
lines 25-27 from the bill and would eliminate the deduction of
overhead expenses as a direct cost of producing, exploring or
developing oil and gas deposits.
9:53:15 AM
MR. MESSENGER said the second change is page 30, line 29 through
page 31, line 30. It addresses a starting point for direct costs
then leaves it to the department to identify additional direct
costs. The language regarding typical industry practices is
deleted because of the problems associated with developing
regulations by relying on what industry has established in its
unit agreements. The standard the department should use in
adopting the regulation is addressed.
9:58:02 AM
MR. MESSENGER said the next change is on page 32, line 1,
through page 35, line 12. It adds to the list of items that
would not be allowable lease expenditures. Under paragraph (8),
the additional disallowed costs include "lobbying, public
relations, advertising, or policy advocacy". The basis for the
change is that they are indirect costs rather than direct costs.
MR. MESSENGER said paragraph (12) on page 32, lines 23-24, deals
with transactions between parties. Currently the onus is on the
Department of Revenue to establish the fair market value of a
transaction between affiliated parties. The intent here is to
shift the onus to the producer.
At ease from 10:02:27 AM to 10:04:01 AM.
CHAIR FRENCH asked Commissioner Galvin to comment on the last
two provisions. He's been assured that lobbying, public
relations, advertising, and policy advocacy are not allowed
through regulation, but he knows that the public is very
interested in having this specifically spelled out in the bill.
COMMISSIONER GALVIN agreed that they are not deductible, but
spelling them out in statute isn't a problem.
CHAIR FRENCH asked his view of the change to paragraph (12), on
page 3, lines 24-25, of the proposed amendment.
COMMISSIONER GALVIN clarified he's just seen it for the first
time, but it doesn't appear to include anything that's
objectionable. The common goal is ensuring that any affiliated
transactions are captured and that the producers have the burden
to demonstrate that the cost is appropriate.
10:05:26 AM
MR. MESSENGER said the final change appears on page 6, lines 16-
20, of the amendment. Paragraph (21) adds costs "relating to
office buildings, fixtures and equipment, and real property that
are not located on an oil or gas exploration, production, or
development lease of property in the state". Paragraph (22) adds
"overhead, office, or administrative expenses and all other
indirect costs of oil or gas exploration, development, or
production."
10:07:49 AM
CHAIR FRENCH asked Commissioner Galvin if he'd seen these
concepts before and if he had a comment.
COMMISSIONER GALVIN said he's discussed the last idea, but most
of the others are new. Beginning with the first suggested
change, he said his understanding is that it is typical to have
an allowance for deducting direct costs for overhead. It
recognizes that there will be overhead costs associated with any
direct costs. It's a straight percentage and that's what is
currently allowed through regulations. Eliminating that is
merely a statement that only direct costs will be allowed.
"We're not going to allow for that extra 3 percent bump." That's
a policy call. Our experience is based on having the allowance
so we'd have to adjust our expectation of the impact of tax if
it were deleted, he said.
10:10:21 AM
COMMISSIONER GALVIN said the next primary change is captured by
omission. Referring to the bottom of page 2 of the amendment, he
said those provisions, which are in both the CS and the original
bill, are included so the department can use company accounting
systems to identify which costs are allowable, which are not,
and which will be used during the auditing process. Before
eliminating that language he wants to make sure it doesn't deny
the auditors the opportunity to use certain tools.
COMMISSIONER GALVIN commented generally there are a number of
changes that don't pick up the modifications that were made in
the CS. That includes reference to costs incurred in the state
and provisions from SB 80 that were discussed yesterday.
10:12:20 AM
COMMISSIONER GALVIN referred to paragraphs (21) and (22) on page
6 of the amendment and said it's a little narrow to think that
all costs associated with oil and gas production will actually
be on the leasehold. To develop the resources it's necessary to
have engineers, geologists, computer systems, and certain
infrastructure that's not on the North Slope. Don't ignore the
contribution of folks working in Anchorage, he cautioned.
10:14:26 AM
SENATOR WIELECHOWSKI said the concern he's heard about overhead
being a direct cost is that we don't know what we're allowing.
Potentially it could be health club costs in Dallas Texas or
steak dinners in Houston Texas. "People have a concern about
that and this is a way for us to ratchet that up." The safety
valve is on page 2, paragraph 7, so the department may include
as direct costs things that may currently be overhead.
With regard to the industry standard provision, he said this
makes it very clear what will be allowed and what will not be
allowed. The political advertising and public relations change
is very important and he said he's happy that the administration
supports that.
10:16:06 AM
SENATOR WIELECHOWSKI asked Mr. Messenger to talk about the
provision on limiting allowable deductions to activity that
occurs within the state.
MR. MESSENGER said the proposed amendment uses a direct versus
indirect approach for determining what's deductible rather than
making a distinction between in-state and out-of-state.
Generally it's up to the legislature to decide what deductions
are allowed, but making a distinction between in-state and out-
of-state brings up potential constitutional problems under the
commerce clause. Although the CS has language that makes such a
distinction, a more neutral approach is to narrow the deductions
to what is directly involved in the production, exploration, and
development of oil and gas. He suggested that it's better to tie
the deductions between direct and indirect costs and treat all
the producers the same way. The same category of expenses should
be deductible regardless of where they are incurred, he stated.
10:19:04 AM
SENATOR WIELECHOWSKI asked if the language in SB 80 regarding
corrosion is included.
MR. MESSENGER said it wasn't his intent to deal with the
corrosion aspect.
SENATOR WIELECHOWSKI referred to paragraph (19) on page 5 of the
amendment and noted that the CS contains language that would not
allow improper maintenance. He suggested an amendment to the
amendment.
CHAIR FRENCH said the amendment hasn't been moved yet.
COMMISSIONER GALVIN suggested it may be appropriate to address
the different parts of the amendment separately.
CHAIR FRENCH said deleting that section of the amendment would
leave the CS alone.
COMMISSIONER GALVIN said by doing that the administration
wouldn't be concerned about the entire amendment. It has a lot
of unintended consequences, he said.
10:21:05 AM
SENATOR WIELECHOWSKI moved Amendment 5, labeled 25-GS0014\K.7
25-GS0014\K.7
Bullard/Bullock
A M E N D M E N T 5
OFFERED IN THE SENATE BY SENATOR WIELECHOWSKI
To: CSSB 2001(JUD), Draft Version "K"
Page 30, lines 6 - 27:
Delete all material and insert:
"(a) For purposes of this chapter, a producer's
lease expenditures for a calendar year are costs,
other than items listed in (e) of this section, that
are
(1) incurred by the producer during the
calendar year after March 31, 2006, to explore for,
develop, or produce oil or gas deposits located within
the producer's leases or properties in the state or,
in the case of land in which the producer does not own
an operating right, operating interest, or working
interest, to explore for oil or gas deposits within
other land in the state; and
(2) allowed by the department by
regulation, based on the department's determination
that the costs satisfy the following three
requirements:
(A) the costs must be incurred upstream of
the point of production of oil and gas;
(B) the costs must be ordinary and
necessary costs of exploring for, developing, or
producing, as applicable, oil or gas deposits; and
(C) the costs must be direct costs of
exploring for, developing, or producing, as
applicable, oil or gas deposits."
Page 30, line 29, through page 31, line 30:
Delete all material and insert:
"(b) For purposes of (a) of this section,
[(1)] direct costs include
(1) [(A)] an expenditure, when incurred, to
acquire an item if the acquisition cost is otherwise a
direct cost, notwithstanding that the expenditure may
be required to be capitalized rather than treated as
an expense for financial accounting or federal income
tax purposes;
(2) [(B)] payments of or in lieu of
(A) property taxes [,] for properties on
which oil and gas exploration, development, or
production is taking place; and
(B) sales and use taxes, motor fuel taxes,
and excise taxes related to transactions or activities
involving oil or gas exploration, development, or
production;
(3) supplies to be used for oil or gas
exploration, development, or production [(C) A
REASONABLE ALLOWANCE, AS DETERMINED UNDER REGULATIONS
ADOPTED BY THE DEPARTMENT, FOR OVERHEAD EXPENSES
DIRECTLY RELATED TO EXPLORING FOR, DEVELOPING, AND
PRODUCING OIL OR GAS DEPOSITS LOCATED WITHIN LEASES OR
PROPERTIES OR OTHER LAND IN THE STATE];
(4) purchased fuel;
(5) routine maintenance;
(6) the wages and benefits of employees who
are directly participating in exploration,
development, or production operations; and
(7) other direct costs as may be established
in regulations adopted by the department
[(2) AN ACTIVITY DOES NOT NEED TO BE
PHYSICALLY LOCATED ON, NEAR, OR WITHIN THE PREMISES OF
THE LEASE OR PROPERTY WITHIN WHICH AN OIL OR GAS
DEPOSIT BEING EXPLORED FOR, DEVELOPED, OR PRODUCED IS
LOCATED IN ORDER FOR THE COST OF THE ACTIVITY TO BE A
COST UPSTREAM OF THE POINT OF PRODUCTION OF THE OIL OR
GAS]."
Page 32, line 1, through page 35, line 12:
Delete all material and insert:
"(e) For purposes of this section, lease
expenditures do not include
(1) depreciation, depletion, or
amortization;
(2) oil or gas royalty payments, production
payments, lease profit shares, or other payments or
distributions of a share of oil or gas production,
profit, or revenue;
(3) taxes based on or measured by net
income;
(4) interest or other financing charges or
costs of raising equity or debt capital;
(5) acquisition costs for a lease or
property or exploration license;
(6) costs arising from fraud, wilful
misconduct, [OR] gross negligence, violation of law,
or failure to comply with an obligation under a lease,
permit, or license issued by the state or federal
government;
(7) fines or penalties imposed by law;
(8) costs of arbitration, litigation, [OR
OTHER] dispute resolution activities, lobbying, public
relations, advertising, or policy advocacy [THAT
INVOLVE THE STATE OR CONCERN THE RIGHTS OR OBLIGATIONS
AMONG OWNERS OF INTERESTS IN, OR RIGHTS TO PRODUCTION
FROM, ONE OR MORE LEASES OR PROPERTIES OR A UNIT];
(9) costs incurred in organizing a
partnership, joint venture, or other business entity
or arrangement;
(10) amounts paid to indemnify the state;
the exclusion provided by this paragraph does not
apply to the costs of obtaining insurance or a surety
bond from a third-party insurer or surety;
(11) surcharges levied under AS 43.55.201
or 43.55.300;
(12) an expenditure otherwise deductible
under (b) of this section that is the result of [FOR A
TRANSACTION THAT IS] an internal transfer, a
transaction with an affiliate, or a transaction
between related parties, or is otherwise not an arm's
length transaction, unless the producer establishes to
the satisfaction of the department that the amount of
the expenditure does not exceed the [EXPENDITURES
INCURRED THAT ARE IN EXCESS OF] fair market value of
the expenditure;
(13) an expenditure incurred to purchase an
interest in any corporation, partnership, limited
liability company, business trust, or any other
business entity, whether or not the transaction is
treated as an asset sale for federal income tax
purposes;
(14) a tax levied under AS 43.55.011;
(15) [THE PORTION OF] costs incurred for
dismantlement, removal, surrender, or abandonment of a
facility, pipeline, well pad, platform, or other
structure, or for the restoration of a lease, field,
unit, area, tract of land, 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 APRIL 1,
2006; THE PORTION IS CALCULATED AS A RATIO OF THE
AMOUNT OF OIL AND GAS PRODUCTION, IN BARRELS OF OIL
EQUIVALENT, ASSOCIATED WITH THE FACILITY, PIPELINE,
WELL PAD, PLATFORM, OTHER STRUCTURE, LEASE, FIELD,
UNIT, AREA, BODY OF WATER, OR RIGHT-OF-WAY OCCURRING
BEFORE APRIL 1, 2006, TO THE TOTAL AMOUNT OF OIL AND
GAS PRODUCTION, IN BARRELS OF OIL EQUIVALENT,
ASSOCIATED WITH THAT FACILITY, PIPELINE, WELL PAD,
PLATFORM, 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]; a
cost is not excluded under this paragraph if the
dismantlement, removal, surrender, or abandonment for
which the cost is incurred is undertaken for the
purpose of replacing, renovating, or improving the
facility, pipeline, well pad, platform, or other
structure; [FOR THE PURPOSES OF THIS PARAGRAPH,
"BARREL OF OIL EQUIVALENT" MEANS
(A) IN THE CASE OF OIL, ONE BARREL;
(B) IN THE CASE OF GAS, 6,000 CUBIC FEET;]
(16) costs incurred for containment,
control, cleanup, or removal in connection with any
unpermitted release of oil or a hazardous substance
and any liability for damages imposed on the producer
or explorer for that unpermitted release; this
paragraph does not apply to the cost of developing and
maintaining an oil discharge prevention and
contingency plan under AS 46.04.030;
(17) costs incurred to satisfy a work
commitment under an exploration license under
AS 38.05.132;
(18) that portion of expenditures, that
would otherwise be qualified capital expenditures, as
defined in AS 43.55.023 [AS 43.55.023(k)], incurred
during a calendar year that are less than the product
of $0.30 multiplied by the total taxable production
from each lease or property, in BTU equivalent
barrels, during that calendar year, except that, when
a portion of a calendar year is subject to this
provision, the expenditures and volumes shall be
prorated within that calendar year;
(19) costs incurred for repair,
replacement, or deferred maintenance of a facility, a
pipeline, a structure, or equipment, other than a
well, that results in or is undertaken in response to
a failure, problem, or event that results in an
unscheduled interruption of, or reduction in the rate
of, oil or gas production; or costs incurred for
repair, replacement, or deferred maintenance of a
facility, a pipeline, a structure, or equipment, other
than a well, that is undertaken in response to, or is
otherwise associated with, an unpermitted release of a
hazardous substance or of gas; however, costs under
this paragraph that would otherwise constitute lease
expenditures under (a) of this section may be treated
as lease expenditures if the department determines
that the repair or replacement is solely necessitated
by an act of war, by an unanticipated grave natural
disaster or other natural phenomenon of an
exceptional, inevitable, and irresistible character,
the effects of which could not have been prevented or
avoided by the exercise of due care or foresight, or
by an intentional or negligent act or omission of a
third party, other than a party or its agents in
privity of contract with, or employed by, the producer
or an operator acting for the producer, but only if
the producer or operator, as applicable, exercised due
care in operating and maintaining the facility,
pipeline, structure, or equipment, and took reasonable
precautions against the act or omission of the third
party and against the consequences of the act or
omission; in this paragraph,
(A) "costs incurred for repair,
replacement, or deferred maintenance of a facility, a
pipeline, a structure, or equipment" includes costs to
dismantle and remove the facility, pipeline,
structure, or equipment that is being replaced;
(B) "hazardous substance" has the meaning
given in AS 46.03.826;
(C) "replacement" includes renovation or
improvement;
(20) costs incurred to construct, acquire,
or operate a refinery or crude oil topping plant,
regardless of whether the products of the refinery or
topping plant are used in oil or gas exploration,
development, or production operations; however, if a
producer owns a refinery or crude oil topping plant
that is located on or near the premises of the
producer's lease or property in the state and that
processes the producer's oil produced from that lease
or property into a product that the producer uses in
the operation of the lease or property in drilling for
or producing oil or gas, the producer's lease
expenditures include the amount calculated by
subtracting from the fair market value of the product
used the prevailing value, as determined under
AS 43.55.020(f), of the oil that is processed;
(21) costs relating to office buildings,
fixtures and equipment, and real property that are not
located on an oil or gas exploration, production, or
development lease or property in the state; and
(22) overhead, office, or administrative
expenses and all other indirect costs of oil or gas
exploration, development, or production."
CHAIR FRENCH asked if there is objection to Amendment 5.
SENATOR WIELECHOWSKI said he'd like to deal with the provision
in paragraph (19).
10:21:28 AM
SENATOR THERRIAULT said, "Then I will object."
SENATOR WIELECHOWSKI said, "My intent is to have paragraph (19)
and (20) as written in the CS transported into this amendment."
CHAIR FRENCH recapped the idea and Senator Wielechowski agreed
it accomplishes the purpose.
10:22:33 AM
COMMISSIONER GALVIN noted that the corrosion fix would be
deleted from the bill.
At ease from 10:22:44 AM to 10:23:22 AM.
CHAIR FRENCH asked Mr. Bullock to help with the drafting issue.
DONALD BULLOCK, Attorney, Legislative Legal and Research
Services Division, Legislative Affairs Agency, Juneau, AK , said
he hadn't seen the amendment, but generally an amendment should
only address the paragraphs that are involved. The problem with
Amendment 5 is it deletes everything and then reinserts it in
modified form rather than simply addressing the part of the
existing language that is intended to be changed.
SENATOR WIELECHOWSKI began to suggest a fix.
10:24:17 AM
CHAIR FRENCH said, "We're on an amendment to an amendment and we
either need to withdraw it or vote on it."
SENATOR WIELECHOWSKI withdrew the amendment to the amendment.
SENATOR WIELECHOWSKI read page 2 lines 29-30 of the amendment
and suggested deleting all material from page 2, line 31,
through page 34, line 2. Delete from page 5 of the amendment
lines 9-31, and page 6, line 15.
10:25:13 AM
MR. BULLOCK offered to redraft the amendment so it fits.
CHAIR FRENCH summarized the suggestion is to withdraw Amendment
5 for the time being so it can be redrafted.
MR. BULLOCK again advised that when drafting an amendment
general practice is to only address the page and line numbers
that are being changed.
SENATOR WIELECHOWSKI said, "I crafted an amendment, I sent it to
Leg Legal and this is what I got back."
MR. BULLOCK suggested that he received what he asked for.
10:26:55 AM
SENATOR WIELECHOWSKI suggested the problem comes from working
from the resources CS.
MR. BULLOCK offered his view that the amendment is inappropriate
and it needs to be narrowed.
At ease from 10:27:17 AM to 10:55:27 AM
SENATOR WIELECHOWSKI withdrew Amendment 5.
10:55:37 AM
SENATOR THERRIAULT moved Amendment 6, labeled 25-GS0014\K.2. The
purpose is to reinsert original bill sections 36-44 that dealt
with exploration incentive credits (EIC) for seismic
information. The administration wants to restructure some
existing statutes and create a new class of 5 percent credit. It
says that the state will participate in securing seismic
information, but it wants a better process so the information is
available to the public and other explorers, he said.
25-GS0014\K.2
Kane/Bullock
A M E N D M E N T 6
OFFERED IN THE SENATE BY SENATOR THERRIAULT
To: CSSB 2001(JUD), Draft Version "K"
Page 2, line 3:
Delete "sec. 37"
Insert "sec. 46"
Page 19, following line 7:
Insert new bill sections to read:
"* Sec. 29. AS 43.55.025(a) is amended to read:
(a) Subject to the terms and conditions of this
section, a credit against the production tax levied by
[DUE UNDER] AS 43.55.011(e) [OR (f)] is allowed for
exploration expenditures that qualify under (b) of
this section in an amount equal to one of the
following:
(1) 20 percent of the total exploration
expenditures that qualify only under (b) and (c) of
this section;
(2) 20 percent of the total exploration
expenditures [FOR WORK PERFORMED BEFORE JULY 1, 2007,
AND] that qualify only under (b) and (d) of this
section;
(3) 40 percent of the total exploration
expenditures that qualify under (b), (c), and (d) of
this section; or
(4) 40 percent of the total exploration
expenditures that qualify only under (b) and (e) of
this section.
* Sec. 30. AS 43.55.025(b) is amended to read:
(b) To qualify for the production tax credit
under (a) of this section, an exploration expenditure
must be incurred for work performed [ON OR] after
December 31, 2007 [JULY 1, 2003], and before July 1,
2016, [EXCEPT THAT AN EXPLORATION EXPENDITURE FOR A
COOK INLET PROSPECT MUST BE INCURRED FOR WORK
PERFORMED ON OR AFTER JULY 1, 2005,] and
(1) may be for seismic or other geophysical
exploration costs not connected with a specific well;
(2) if for an exploration well,
(A) must be incurred by an explorer that
holds an interest in the exploration well for which
the production tax credit is claimed;
(B) may be for either a [AN OIL OR GAS
DISCOVERY] well that encounters an oil or gas deposit
or a dry hole; [AND]
(C) must be for a well that has been
completed or abandoned at the time the explorer claims
the tax credit under (f) of this section; and
(D) must be for goods, services, or rentals
of personal property reasonably required for the
surface preparation, drilling, casing, cementing, and
logging of an exploration well, and, in the case of a
dry hole, for the expenses required for abandonment if
the well is abandoned within 18 months after the date
the well was spudded;
(3) may not be for testing, stimulation, or
completion costs; administration, supervision,
engineering, or lease operating costs; geological or
management costs; community relations or environmental
costs; bonuses, taxes, or other payments to
governments related to the well; costs arising from
gross negligence or violation of health, safety, or
environmental statutes or regulations; or other costs
that are generally recognized as indirect costs or
financing costs; and
(4) may not be incurred for an exploration
well or seismic exploration that is included in a plan
of exploration or a plan of development for any unit
on May 13, 2003.
* Sec. 31. AS 43.55.025(c) is repealed and
reenacted to read:
(c) To be eligible for the 20 percent production
tax credit authorized by (a)(1) of this section or the
40 percent production tax credit authorized by (a)(3)
of this section, exploration expenditures must
(1) qualify under (b) of this section; and
(2) be for an exploration well, subject to
the following:
(A) before spudding the well, (i) the
explorer shall submit to the commissioner of natural
resources the information necessary to determine
whether the geological objective of the well is a
potential oil or gas trap that is distinctly separate
from any trap that has been tested by a preexisting
well; and (ii) the commissioner of natural resources
must make an affirmative determination on that
question; the commissioner of natural resources shall
decide whether to make that determination within 60
days after receiving all the necessary information
from the explorer and based on the information
received and on other information the commissioner of
natural resources may consider relevant;
(B) for an exploration well other than a
well to explore a Cook Inlet prospect, the well must
be located and drilled in such a manner that the
bottom hole is located not less than three miles away
from the bottom hole of a preexisting well drilled for
oil or gas, irrespective of whether the preexisting
well has been completed, suspended, or abandoned;
(C) after completion or abandonment of the
exploration well, the commissioner of natural
resources must determine that the well adequately
achieved the explorer's stated geological objective.
* Sec. 32. AS 43.55.025(f) is amended to read:
(f) For a production tax credit under this
section,
(1) an explorer shall, in a form prescribed
by the department and, except for a credit under (l)
of this section, within six months of the completion
of the exploration activity, claim the credit and
submit information sufficient to demonstrate to the
department's satisfaction that the claimed exploration
expenditures qualify under this section;
(2) an explorer shall agree, in writing,
(A) to notify the Department of Natural
Resources, within 30 days after completion of seismic
or geophysical data processing, completion of [A] well
drilling, or filing of a claim for credit, whichever
is the latest, for which exploration costs are
claimed, of the date of completion and submit a report
to that department describing the processing sequence
and providing a list of data sets available; [IF,
UNDER (c)(2)(B) OF THIS SECTION, AN EXPLORER SUBMITS A
CLAIM FOR A CREDIT FOR EXPENDITURES FOR AN EXPLORATION
WELL THAT IS LOCATED WITHIN THREE MILES OF A WELL
ALREADY DRILLED FOR OIL AND GAS, IN ADDITION TO THE
SUBMISSIONS REQUIRED UNDER (1) OF THIS SUBSECTION, THE
EXPLORER SHALL SUBMIT THE INFORMATION NECESSARY FOR
THE COMMISSIONER OF NATURAL RESOURCES TO EVALUATE THE
VALIDITY OF THE EXPLORER'S CLAIM THAT THE WELL IS
DIRECTED AT A DISTINCTLY SEPARATE EXPLORATION TARGET,
AND THE COMMISSIONER OF NATURAL RESOURCES SHALL, UPON
RECEIPT OF ALL EVIDENCE SUFFICIENT FOR THE
COMMISSIONER TO EVALUATE THE EXPLORER'S CLAIM, MAKE
THAT DETERMINATION WITHIN 60 DAYS;]
(B) to provide to the Department of Natural
Resources, within 30 days after the date of a request,
unless a longer period is provided by the Department
of Natural Resources, specific data sets, ancillary
data, and reports identified in (A) of this paragraph;
in this subparagraph,
(i) a seismic or geophysical data set
includes the data for an entire seismic survey,
irrespective of whether the survey area covers
nonstate land in addition to state land or land in a
unit in addition to land outside a unit;
(ii) well data include all derivative
products, results, and copies of data collected and
data analyses for the well; well logs; sample
analyses; geophysical and velocity data including
vertical seismic profiles and check shot surveys; and
tangible material including, for each whole core
collected, a lengthwise cut slab that is at least 1/3
of the whole core volume, and representative samples,
as specified by the Department of Natural Resources,
of other gaseous, liquid, or solid material collected
from drilling or testing the well;
(C) that, notwithstanding any provision of
AS 38, information provided under this paragraph will
be held confidential by the Department of Natural
Resources
(i) in the case of well data, until the
expiration of the 24-month period of confidentiality
described in AS 31.05.035(c), without extension, after
which the Department of Natural Resources [FOR 10
YEARS FOLLOWING THE COMPLETION DATE, AT WHICH TIME
THAT DEPARTMENT] will release the information after 30
days' public notice;
(ii) in the case of seismic or other
geophysical data, other than seismic data acquired by
seismic exploration subject to (l) of this section,
for 10 years following the completion date, at which
time the Department of Natural Resources will release
the information after 30 days' public notice;
(iii) in the case of seismic data obtained
by seismic exploration subject to (l) of this section,
only until the expiration of 30 days' public notice
issued on or after the date the production tax credit
certificates are issued under (5) of this subsection;
and
(D) that, in the case of well data, the
explorer will not make a request under AS 31.05.035(c)
that the commissioner of natural resources keep the
data confidential for longer than the 24-month period
of confidentiality described in AS 31.05.035(c);
(3) if more than one explorer holds an
interest in a well or seismic exploration,
(A) each explorer may claim an amount of
credit that is proportional to the explorer's cost
incurred;
(B) in the case of a well, each explorer
holding an interest in the well shall agree, in
writing, that the explorer will not make the request
described in (2)(D) of this subsection;
(4) the department may exercise the full
extent of its powers as though the explorer were a
taxpayer under this title, in order to verify that the
claimed expenditures are qualified exploration
expenditures under this section; and
(5) if the department is satisfied that the
explorer's claimed expenditures are qualified under
this section and that all data required to be
submitted under this section have been submitted, the
department shall issue to the explorer two [A]
production tax credit certificates, each [CERTIFICATE]
for half of the amount of the credit to be allowed
against production taxes levied by AS 43.55.011(e);
the credit shown on one of the two certificates is
available for immediate use; the credit shown on the
second of the two certificates may not be applied
against a tax for a calendar year earlier than the
calendar year following the calendar year in which the
certificate is issued, and the certificate must
contain a conspicuous statement to that effect;
notwithstanding any contrary provision of AS 38,
AS 40.25.100, or AS 43.05.230, the following
information is not confidential:
(A) the explorer's name;
(B) the date of the application;
(C) the location of the well or seismic
exploration;
(D) the date of the department's issuance
of the certificate; and
(E) the date on which the information
required to be submitted under this section will be
released [DUE UNDER AS 43.55.011(e) OR (f)].
* Sec. 33. AS 43.55.025(g) is amended to read:
(g) An explorer, other than an entity that is
exempt from taxation under this chapter, may transfer,
convey, or sell its production tax credit certificate
to any person, and any person who receives a
production tax credit certificate may also transfer,
convey, or sell the certificate.
* Sec. 34. AS 43.55.025(h) is amended to read:
(h) A producer that purchases a production tax
credit certificate may apply the credits against its
production tax liability under AS 43.55.011(e) [OR
(f)]. Regardless of the price the producer paid for
the certificate, the producer may receive a credit
against its production tax liability for the full
amount of the credit, but for not more than the amount
for which the certificate is issued. A production tax
credit allowed under this section may not be applied
more than once.
* Sec. 35. AS 43.55.025(i) is repealed and
reenacted to read:
(i) For a production tax credit under this
section,
(1) a credit may not be applied to reduce a
taxpayer's tax liability under AS 43.55.011(e) below
zero for a calendar year; and
(2) an amount of the production tax credit
in excess of the amount that may be applied for a
calendar year under this subsection may be carried
forward and applied against the taxpayer's tax
liability under AS 43.55.011(e) in one or more later
calendar years.
* Sec. 36. AS 43.55.025(k) is amended by adding a
new paragraph to read:
(4) "preexisting well" means a well that
was spudded more than 540 days but less than 35 years
before the date on which the exploration well to which
it is compared is spudded.
* Sec. 37. AS 43.55.025 is amended by adding a new
subsection to read:
(l) Subject to the terms and conditions of this
section, if a claim is filed under (f)(1) of this
section before January 1, 2016, a credit against the
production tax levied by AS 43.55.011(e) is allowed in
an amount equal to five percent of an eligible
expenditure under this subsection incurred for seismic
exploration performed before July 1, 2003. To be
eligible under this subsection, an expenditure must
(1) have been for seismic exploration that
(A) obtained data that the commissioner of
natural resources considers to be in the best interest
of the state to acquire for public distribution; and
(B) was conducted outside the boundaries of
a production unit; however, the amount of the
expenditure that is otherwise eligible under this
section is reduced proportionately by the portion of
the seismic exploration activity that crossed into a
production unit; and
(2) qualify under (b)(3) of this section."
Renumber the following bill sections accordingly.
Page 37, line 28:
Delete "Sections 42 - 45 and 48"
Insert "Sections 51 - 54 and 57"
Page 37, line 30:
Delete "and 41"
Insert "34, 35, 37, and 50"
Page 38, line 1:
Delete "Sections 30 - 32"
Insert "Sections 39 - 41"
Page 38, line 2:
Delete "sec. 30"
Insert "sec. 39"
Page 38, line 3:
Delete "sec. 32"
Insert "sec. 41"
Page 38, line 4:
Delete "Section 36"
Insert "Section 45"
Page 38, line 5:
Delete "sec. 36"
Insert "sec. 45"
Page 38, line 6:
Delete "sec. 37"
Insert "sec. 46"
Page 38, line 8:
Delete "37"
Insert "46"
Page 38, following line 8:
Insert a new subsection to read:
"(f) Sections 29 - 32 and 36 of this Act apply
to exploration expenditures incurred for work
performed after December 31, 2007, that are the bases
of tax credits that may be claimed against taxes
levied for oil and gas produced after December 31,
2007."
Page 38, line 25:
Delete "Sections 42 - 45 and 48"
Insert "Sections 51 - 54 and 57"
Page 38, line 27:
Delete "and 30"
Insert ", 29 - 32, 34 - 37, and 39"
Page 39, lines 13 - 14:
Delete "Sections 42 - 45 and 48"
Insert "Sections 51 - 54 and 57"
Page 39, line 15:
Delete "Sections 15 - 28, 30 - 32, and 49"
Insert "Sections 15 - 32, 34 - 37, 39 - 41, and
58"
Page 39, line 16:
Delete "sec. 55"
Insert "sec. 64"
10:56:57 AM
CHAIR FRENCH objected for discussion purposes.
COMMISSIONER GALVIN said the administration strongly supports
all the amendments to the EIC program that were included in the
original bill so they would support any that are reinserted
here.
CHAIR FRENCH asked for clarification that the provisions were in
version "A" and essentially they were written by the
administration.
SENATOR THERRIAULT said that's correct; he asked the drafter to
reinsert the provisions with no changes to the language.
CHAIR FRENCH withdrew his objection.
10:58:19 AM
SENATOR HUGGINS stated that he has supported the concept. His
concern was that a public airing was needed. That's been done
and he's pleased that Senator Therriault offered the amendment.
CHAIR FRENCH announced that without further objection Amendment
6 is adopted.
10:59:03 AM
SENATOR THERRIAULT moved Amendment 7, labeled 25-GS0014\ K.9.
25-GS0014\K.9
Cook/Bullock
A M E N D M E N T 7
OFFERED IN THE SENATE BY SENATOR THERRIAULT
To: CSSB 2001 (JUD), Draft Version "K"
Page 27, line 16, following "exceed":
Insert "the lesser of $1,000,000 or"
CHAIR FRENCH objected for discussion purposes.
SENATOR THERRIAULT said the amendment stems from the committee
discussion on the Qui Tam provision. When a whistleblower
identifies a company that is not properly applying the tax and
that results in additional money flowing to the state, there is
a 10 percent provision for a reward. Because 10 percent of
hundreds of millions of dollars could be a staggering amount of
money, this places a $1 million cap on the reward. Although he
isn't wedded to the particular amount, it might not be out of
line if somebody is willing risk their job to bring beneficial
information to the state.
11:00:21 AM
SENATOR HUGGINS said he won't object to the $1 million, but he
does intend to discuss what the number ultimately should be in
the Finance Committee.
CHAIR FRENCH said he has no objection to the concept of a cap.
Now probably isn't the time to quibble about where to draw the
line. Withdrawing his objection and finding no further
objection, he announced that Amendment 7 is adopted.
11:01:22 AM
SENATOR McGUIRE moved Amendment 8. [Original punctuation
provided] She explained that the amendment levels the playing
field and treats gas basins in any part of the state the same
way that Cook Inlet is treated. She asked Commissioner Galvin to
give his perspective.
AMENDMENT 8
AMENDMENT TO CSSB 2001(JUD)
Page 2, line 2 following "LEGISLATIVE INTENT." Through
line 5:
Delete all material
Insert:
"It is the intent of the legislature that
provisions of this Act will ensure a fair
and equitable means of assessing and taxing
Alaska's oil and gas resources; encourage
the availability to Alaska's citizens of
affordable gas produced, transported, and
consumed within Alaska; and confirm by
clarification the long-standing
interpretation of AS 43.55.075(b), enacted
by sec. 37 of this Act, relating to
limitation of assessments for the production
tax on oil and gas and conservation
surcharges on oil."
Page 11, line 3:
Following "(j),":
Delete "and"
Following "(k),":
Insert "and (o)"
Page 11, following line 6:
Insert a new bill section to read:
"*Sec. 16. AS 43.55.011(f) to read:
(f) The levy of tax under this section on a
producer of oil and gas produced north of 68 degrees
North latitude, other than gas subject to (o) of this
section, may not be less than
(1)four percent of the gross value at the
point of production when the average price per
barrel for Alaska North Slope crude oil for
sale on the United States West Coast during the
calendar year for which the tax is due is more
than $25;
(2)three percent of the gross value at the
point of production when the average price per
barrel for Alaska North Slope crude oil for
sale on the United States West Coast during the
calendar year for which the tax is due is over
$20 but not over $25;
(3)two percent of the gross value at the
point of production when the average price per
barrel for Alaska North Slope crude oil for
sale on the United States West Coast during the
calendar year for which the tax is due is over
$17.50 but not over $20;
(4)one percent of the gross value at the
point of production when the average price per
barrel for Alaska North Slope crude oil for
sale on the United States West Coast during the
calendar year for which the tax is due is over
$15 but not over $17.50; or
(5)zero percent of the gross value at the
point of production when the average price per
barrel for Alaska North Slope crude oil for
sale on the United States West Coast during the
calendar year for which the tax is due is $15
or less."
Renumber the following bill sections accordingly.
Page 13, line 7:
Following "against":
Delete "the"
Insert "that [THE]
Following "tax":
Delete "levied by (e) of this section"
Insert "[LEVIED BY (e) OF THIS SECTION]"
Page 13, line 8:
Delete "for [ON] that gas"
Insert "[ON THAT GAS]"
Insert "and tax credits under AS 38.05.180(i), AS
41.09.010, AS 43.20.043, AS 43.55.024, and AS
43.55.025 that are allocated to gas subject to (o) of
this section and that are available to be applied
against a tax levied by (e) of this section for that
gas during a calendar year may be applied only against
that tax"
Page 13, line 9:
Following "basin":
Insert "or to gas subject to (o) of this
section, respectively,"
Page 13, line 12:
Following "that":
Insert "respective"
Page 13, line 13:
Following "following":
Insert ", applied separately for the Cook
Inlet sedimentary basin and for gas
subject to (o) of this section,
respectively"
Page 13, line 15:
Following "section" as first appearing:
Insert "or under (o) of this section"
Page 13, line 26:
Insert a new bill section to read:
"*Sec. 21. AS 43.55.011(n) is amended to
read:
(n)Allocation of credits under (m) of this
section shall be made under regulations
adopted by the department that provide for
reasonable methods of allocating tax credits
to gas produced from leases or properties in
the Cook Inlet sedimentary basin and to gas
subject to (o) of this section. The method of
allocating tax credits available under AS
43.55.024 shall be based in the number of BTU
equivalent barrels produced from a lease or
property."
Page 13, line 27:
Insert a new bill section to read:
"*Sec. 22. AS 43.55.011 is amended to
read:
(o)For a calendar year before 2022, the tax levied by
(e) of this section per 1,000 cubic feet of gas for
gas produced from a lease or property outside the Cook
Inlet sedimentary basin and used in the state may not
exceed the amount of tax per 1,000 cubic feet of gas
that as determined under section (j)(2) of this
section."
Renumber the following bill sections accordingly.
Page 28, line 10:
Following "latitude":
Insert ", other than gas subject to AS
43.55.011(o),"
Page 28, line 18:
Following "latitude":
Insert "other than gas subject to AS
43.55.011(o),"
Page 29, line 8:
Following "latitude":
Insert ", other than gas subject to AS
43.55.011(o),"
Page 29, line 16:
Following "latitude":
Insert "other than gas subject to AS
43.55.011(o),"
Page 29, line 5:
Insert:
"(E) gas produced during a calendar year
from a lease or property outside the Cook Inlet
sedimentary basin and used in the state is the
gross value at the point of production of that gas
taxable under AS 43.55.011(e) and produced by the
producer from that lease or property, less the
producer's lease expenditures under AS 43.55.165
for the calendar year applicable to that gas
produced by the producer from that lease or
property, as adjusted under AS 43.55.170;"
Page 30, line 4, following "AS 43.55.170":
Insert: ";
"(E) gas produced during a month from a
lease or property outside the Cook Inlet
sedimentary basin and used in the state is the
gross value at the point of production of that gas
taxable under AS 43.55.011(e) and produced by the
producer from that lease or property, less 1/12 of
the producer's lease expenditures under AS
43.55.165 for the calendar year applicable to that
gas produced by the producer from that lease or
property, as adjusted under AS 43.55.170"
Page 35, following line 12:
Insert: a new bill section to read:
"*Sec. 45. AS 43.55.165(h) is amended to
read:
(h)The department shall adopt regulations
that provide for reasonable methods of
allocating costs between oil and gas between
gas subject to AS 43.55.011(o) and other gas,
and between leases or properties in those
circumstances where the determination of the
lease expenditures that are applicable to oil
or to gas, that are applicable to gas subject
to AS 43.55.011(o) or to other gas, or that
are applicable to oil and gas produced from
different leases or properties, requires an
allocation of costs."
Renumber the following bill sections accordingly.
CHAIR FRENCH welcomed Senator Green, Senator Stevens and Senator
Thomas to the committee.
11:02:58 AM
COMMISSIONER GALVIN relayed that different legislators were
trying to address this in various ways depending on the
particular interests in their areas, but there was a common
theme. This amendment addresses the various interests and says
that if gas is going to be produced for in-state purposes, it
will be taxed for production tax purposes, under the calculation
that's used for Cook Inlet. It provides what amounts to a
ceiling for all in-state gas use under the production tax
calculation.
11:05:16 AM
CHAIR FRENCH observed that it has the affect of treating
Fairbanks consumers the same as Anchorage consumers.
COMMISSIONER GALVIN said yes with respect to gas and to the
extent that the production tax is passed along to consumers.
SENATOR WIELECHOWSKI said he likes the concept but he wants to
make sure it's tight enough. First he asked how "used in the
state" is defined. Second he said, "If we get a gas pipeline
from the North Slope and we're exporting huge amounts of gas in-
state, I'm assuming that that will be included in this. In other
words, that we will not receive tax benefits from that."
COMMISSIONER GALVIN said that's correct. Any gas that's exported
from the state has the regular production tax requirements. With
regard to a definition for gas used in the state, he said that
isn't included so by default it would be the common use of the
term. Adding clarification he said first it has to be gas that's
produced and used as a commodity and then it has to be used
within the state. The gas that's currently being cycled is not
going to be affected by this, he said.
CHAIR FRENCH asked if this differentiates between residential
and industrial use.
COMMISSIONER GALVIN said no and there is no volume restriction.
11:07:34 AM
SENATOR THERRIAULT said this is potentially beneficial to the
consumers in Fairbanks who have access to a limited but building
distribution network for home heating. This amendment will help
expand that network once more gas is available. He noted that
different groups around the state are running into problems with
the status quo, because they have to run all their economics
knowing that the additional tax burden has to be passed along to
the consumer. He said he's pleased that the administration has
come up with something that appears to work for all areas
although it's likely that the issue will need to be revisited
once gas is exported.
11:09:00 AM
CHAIR FRENCH stated that Amendment 8 has been moved and he is
objecting for the purpose of further discussion.
SENATOR HUGGINS stated, "I request upfront that we declare when
we're going to deal with gas."
CHAIR FRENCH withdrew his objection to Amendment 8. Finding no
further objection, he announced that Amendment 8 is adopted.
At ease from 11:10:42 AM to 11:33:42 AM.
CHAIR FRENCH said asked for a motion to adopt Amendment 9 by
Senator Wielechowski.
SENATOR WIELECHOWSKI moved Amendment 9, labeled 25-GS0014\K.1.
[The amendment is conceptual with regard to the dates.]
25-GS0014\K.1
Cook/Bullock
A M E N D M E N T 9
OFFERED IN THE SENATE BY SENATOR WIELECHOWSKI
CSSB 2001(JUD), Draft Version "K"
Page 2, line 2, following "INTENT":
Insert "(a)"
Page 2, following line 5:
Insert a new subsection to read:
"(b) It is the intent of the legislature that
the amount of money received by the state as a result
of the retroactivity of certain provisions under sec.
54 of this Act that exceeds the amount the state would
have received if those provisions had not been made
retroactive will be appropriated to the budget reserve
fund (art. IX, sec. 17, Constitution of the State of
Alaska)."
Page 37, line 29:
Delete "March 31, 2006"
Insert "December 31, 2006"
Page 38, lines 25 - 26:
Delete "April 1, 2006"
Insert "January 1, 2007"
Page 39, line 2:
Delete "April 1, 2006"
Insert "January 1, 2007"
Page 39, line 14:
Delete "April 1, 2006"
Insert "January 1, 2007"
CHAIR FRENCH objected for discussion purposes.
SENATOR WIELECHOWSKI explained that this amendment will make the
bill that's enacted retroactive to January 1, 2007, which will
have a significant impact on the state treasury. Also, the
intent language makes it clear that the additional money will be
deposited in the Constitutional Budget Reserve Fund (CBR).
Deferring to Mr. Bullock for an explanation, he said the dates
will need some conceptual changes.
11:35:23 AM
MR. BULLOCK said he has a question about the amendment. His
understanding is that the provisions that would have otherwise
been effective on January 1, 2008 will now become effective
January 1, 2007 because other parts of the bill have earlier
effective dates. For example, the corrosion amendments go back
to March 31, 2006.
SENATOR WIELECHOWSKI stated, "The intent of this amendment is to
have the production tax aspect of the bill retroactive to
January 1, 2007."
MR. BULLOCK responded the deductibility of lease expenditures is
a production tax related event that's retroactive to March 31,
2006. If that is changed to January 1, 2007, those deductions
would be allowed during 2006. "I think what you're trying to do
is the changes in the tax rate and the change in the floor and
other changes that relate to the change in the tax structure
after that that don't include the expenditures would now become
effective January 1, 2007 rather than 2008." If that's correct,
the substantive part of the tax, other than lease expenditures
and provisions that are retroactive to March 31 or some date
earlier than January 1, 2007 would continue with the earlier
effective dates. The other provisions that would have come into
effect after the end of this year would instead start at the
beginning of this year.
SENATOR WIELECHOWSKI thanked him for the explanation.
MR. BULLOCK continued to say that the amendment only changes the
provisions of the bill that would not otherwise have been
effective until January 1, 2008. However, changing the tax back
to January 1, 2007 brings up issues related to the installment
payments that the taxpayers were supposed to be making during
the year. Thus, applicability and transition language needs to
be added in uncodified sections of the bill to give some
direction to the Department of Revenue and the taxpayers. For
example, consider whether the taxpayers should make true-up
payments in the next few months. That's the kind of substantive
decision you should be making, he said. Then language can be
drafted to explain how this retroactive law will affect what's
already happened this year.
11:39:16 AM
SENATOR WIELECHOWSKI stated his intent is not to penalize. "The
appropriate method is to have this resolved at the next true-
up." That's on or before April 1. Mr. Bullock and Commissioner
Galvin agreed.
CHAIR FRENCH asked Senator Wielechowski if that's his intent.
SENATOR WIELECHOWSKI said yes.
MR. BULLOCK clarified that the conceptual part of the amendment
will be to provide applicability in the transition language and
provide for the true-up to incorporate the increased tax for
2007 that comes as a result of the retroactivity.
11:40:06 AM
SENATOR HUGGINS highlighted the tremendous debt in the public
employee retirement fund and said he intends to add broadening
provisions in the Finance Committee. Stating that retroactive
dates make him particularly nervous when they involve taxes, he
said he also intends to bring that provision up for further
review.
CHAIR FRENCH said he too had qualms about reaching back but this
is fair and he particularly appreciates that all the money
coming from retroactivity will go into savings.
SENATOR HUGGINS stated support for the basic concept of
budgetary frugality and publicly challenged the administration
to come in with some restraint in the operating budget.
11:42:53 AM
CHAIR FRENCH said he particularly appreciates the reference to
the PERS/TRS debt. There are a number of worthy places to save
money but in his mind the CBR is the state's savings account so
you start there and move forward. "Also, in my heart of hearts I
know that finance will work this provision over," he stated.
SENATOR THERRIAULT agreed that everyone might say the money
should be saved for a different purpose, but the common thread
is that everyone believes the money should be saved. Money
that's placed in the CBR could be removed during the next
regular session to pay down PERS/TRS or whatever. We're striving
to have the money to potentially have the luxury to do that, he
said.
CHAIR FRENCH asked Commissioner Galvin to give his thoughts on
retroactivity and saving money.
11:44:11 AM
COMMISSIONER GALVIN stated that the administration supports the
amendment in terms of the retroactivity and in particular saving
the money. The theme throughout the ACES discussion has been the
need to save money that comes in when oil is selling at a
premium. He noted that the estimated fiscal impact for current
FY08 revenue and retroactive FY07 revenue is in the neighborhood
of $1.2 billion.
CHAIR FRENCH said the figure makes him stutter and then he
withdrew his objection to Amendment 9.
SENATOR WIELECHOWSKI clarified that the dates stated in the
amendment are conceptual and will be corrected by Mr. Bullock
and reviewed in finance.
CHAIR FRENCH found no further objection and announced that
Amendment 9 is passed.
11:46:03 AM
CHAIR FRENCH said the next item is Amendment 10, labeled 25-
GS0014\M.2.
SENATOR HUGGINS moved Amendment 10.
25-GS0014\M.2
Kurtz/Bullock
A M E N D M E N T 10
OFFERED IN THE SENATE
TO: CSSB 2001(RES)
Page 1, following line 8:
Insert a new bill section to read:
"* Section 1. AS 37.10 is amended by adding a new
section to read:
Sec. 37.10.440. Appropriations to the budget
reserve fund of production tax revenue. (a) By
February 1 of each year, the Department of Revenue
shall determine the amount of money received by the
state for the general fund during the immediately
preceding calendar year from the tax levied under
AS 43.55.011, as well as the amount the state would
have received that year from the tax levied under
AS 43.55.011 under the law in effect immediately
before January 1, 2008. If the amount received is
greater than the amount that would have been received
under AS 43.55.011 under the law in effect immediately
before January 1, 2008, the department shall report
the difference between the two amounts to the
legislature.
(b) The legislature may appropriate 50 percent
of the amount identified by the Department of Revenue
under (a) of this section to the budget reserve fund
(art. IX, sec. 17, Constitution of the State of
Alaska).
(c) Nothing in this section requires that money
be appropriated or creates a dedicated fund."
Renumber the following bill sections accordingly.
Page 23, line 3:
Delete "Sections 21, 22, and 25"
Insert "Sections 22, 23, and 26"
Page 23, line 5:
Delete "Sections 19, 20, and 26"
Insert "Sections 20, 21, and 27"
Page 23, line 7:
Delete "Sections 14 and 16"
Insert "Sections 15 and 17"
Page 23, line 8:
Delete "sec. 14"
Insert "sec. 15"
Page 23, line 9:
Delete "sec. 16"
Insert "sec. 17"
Page 23, line 19:
Delete "sec. 9"
Insert "sec. 10"
Page 23, line 22:
Delete "sec. 9"
Insert "sec. 10"
Page 23, line 25:
Delete "sec. 9"
Insert "sec. 10"
Page 24, line 6:
Delete "secs. 21, 22, and 25"
Insert "secs. 22, 23, and 26"
Page 24, line 8:
Delete "secs. 13, 14, 16, 19, 20, and 26"
Insert "secs. 14, 15, 17, 20, 21, and 27"
Page 24, lines 25 - 26:
Delete "Sections 21, 22, 25, and 29"
Insert "Sections 22, 23, 26, and 30"
Page 24, line 27:
Delete "Sections 13, 14, 16, 19, 20, and 26"
Insert "Sections 14, 15, 17, 20, 21, and 27"
Page 24, line 28:
Delete "sec. 32"
Insert "sec. 33"
CHAIR FRENCH objected for discussion purposes. This amendment
looks forwards, he said. The intent is to calculate on an annual
basis the difference between what will be taken in under ACES
and what would have come in under the current PPT. The
Department of Revenue is to report that number to the
legislature and then 50 percent is to be deposited in the CBR.
11:48:00 AM
MR. BULLOCK asked if there is a desire to change the dates on
lines 9 and 11 to January 1, 2007 in light of the amendment that
just passed.
CHAIR FRENCH acknowledged that it would conform to the amendment
that just passed.
COMMISSIONER GALVIN opined that it would be confusing because
the amendment that just passed drops all the money for that year
in the CBR and this amendment says the difference goes in.
MR. BULLOCK said his question relates to which two taxes are
being compared and for what period.
th
CHAIR FRENCH said the comparison is PPT as it passed the 24
th
Legislature versus ACES should it pass the 25 Legislature. He
asked if the intent is clear.
MR. BULLOCK said the law that will be in effect before January
2008 will now be the amendment.
11:49:06 AM
CHAIR FRENCH said he sees the date issue in the amendment; he
wants to know if the intent is clear.
MR. BULLOCK stated, "The law in effect in 2007 will be the law
in effect immediately before January 1, 2008. … Under the
amendment that just passed, the law that's effective in 2007 is
ACES as modified by the CS."
COMMISSIONER GALVIN suggested the easiest way to address that is
on page 1, line 5 following "year" insert "beginning in 2009".
CHAIR FRENCH asked about 2008.
COMMISSIONER GALVIN explained that the calculation starts in
2009 and it looks at the 2008 calendar year.
MR. BULLOCK said two things are going on here. First you're
comparing PPT to ACES. PPT was in effect before January 1, 2007
so that's the base comparison. Second you determine when you'll
start paying and how much will be paid into the CBR. The first
amount that's appreciated by the state will go under the intent
of Senator Wielechowski's previous amendment. Starting with the
first report in 2009, the amount that's appreciated by the state
goes for the purpose expressed in this amendment.
At ease from 11:52:17 AM to 12:09:45 PM.
CHAIR FRENCH moved an amendment to the amendment as follows:
Page 1, lines 7-11 of Amendment 10 will read as
follows:
"immediately preceding calendar year from the tax
levied under AS 43.55[.011], as well as the amount the
state would have received that year from the tax
levied at the rates under AS 43.55.011(e) and (g)
under the law in effect immediately before January 1,
2007 [2008]. If the amount received is greater than
the amount that would have been received at the tax
rates [UNDER AS 43.55.011] under the law in effect
immediately before January 1, 2007 [2008],"
CHAIR FRENCH said the idea is to lessen the burden on the
Department of Revenue. They will make a rough calculation of
what the old tax would have taken in and compare that to what
the new tax takes in. That will be reported to the legislature
and half that difference will be placed in a savings account.
12:11:26 PM
COMMISSIONER GALVIN thanked Chair French for working with him.
He said he's had experience with having to keep dual books to
track just one calculation. That essentially doubles the
accounting so he's sensitive to the unintended consequences of
having a law that requires a quick calculation. He understands
that the intent here is to say that a calculation will be made
under PPT and then under ACES and the difference is the number
that falls into this category. The additional administrative
burden should be moderate, he said.
12:13:12 PM
CHAIR FRENCH found no objection and announced that the amendment
to the amendment is adopted and Amendment 10 is again before the
committee. He asked if there is further objection or comment to
Amendment 10.
SENATOR THERRIAULT stated that he would like to be shown as a
sponsor of Amendment 10.
CHAIR FRENCH announced that Chair French, Senator Therriault and
Senator Wielechowski are sponsors. Finding no further objection
he announced that Amendment 10 is adopted.
12:13:57 PM
SENATOR THERRIAULT relayed that Senator Dyson has said that he
will review this in the Finance Committee and more than likely
he will be supportive.
12:14:11 PM
CHAIR FRENCH announced that Amendment 11 by Senator Therriault
is next.
SENATOR THERRIAULT moved Amendment 11, labeled 25-GS0014\K.13.
25-GS0014\K.13
Luckhaupt/Bullock
A M E N D M E N T 11
OFFERED IN THE SENATE BY SENATOR THERRIAULT
TO: CSSB 2001(JUD), Draft Version "K"
Page 27, line 25:
Delete "or is not representative"
Insert "requiring payment [OR IS NOT
REPRESENTATIVE]"
Page 27, line 30:
Delete "the conditions"
Insert "a condition [THE CONDITIONS]"
Page 27, line 31:
Delete "are"
Insert "is [ARE]"
Page 28, lines 3 - 4:
Delete "properly on file with"
Insert "that have been adjudicated just and
reasonable by [PROPERLY ON FILE WITH]"
CHAIR FRENCH objected for discussion purposes.
SENATOR THERRIAULT explained that this amendment addresses the
issue of actual versus reasonable with regard to transportation
costs. He referred to an e-mail from Ms. Thompson and said her
comments were sent to the drafters. He read the amendment for
her benefit and asked her to speak to the concepts.
12:15:13 PM
NANETTE THOMPSON, Division of Oil & Gas, Department of Natural
Resources, Anchorage, AK, said the first provision addresses a
concern Senator McGuire expressed last night. The intent is to
clarify the exception. Removing the extra "or" does not change
the intent, she said.
SENATOR THERRIAULT confirmed that this addresses Senator
McGuire's concern.
MS. THOMPSON said last night there was debate about deleting the
last sentence in Sec 40. She believes the suggested change
addresses the problem, which is that just having a rate on file
isn't any representation that it's been reviewed by the
regulatory agency. It seems that the committee's intent is to
make sure that whatever tariff rates are allowed are reasonable
ones, she said.
12:18:48 PM
SENATOR THERRIAULT added that this addresses his concern that a
rate must be adjudicated by the regulatory agency.
CHAIR FRENCH asked if the negotiated rates on file would have
any precedential value.
MS. THOMPSON explained that a negotiated rate that's on file
wouldn't have been adjudicated just and reasonable by the
regulatory agency. Therefore it would not be the basis for
calculating this deduction.
CHAIR FRENCH asked the implication of that.
MS. THOMPSON said the concern relates to getting a reasonable
rate rather than just an actual rate. Because of the way rates
are set and reviewed, it's not uncommon for a rate to be on file
and in effect for a period of time before it's reviewed and it
might be too high. TAPS, for example, was on file for 6 years
before a regulatory agency made the decision that it was not the
right rate. The idea here is to create a standard for DOR to use
when determining what reasonable rates are. If a rate has been
reviewed and the appropriate regulatory agency has determined it
is just and reasonable, that should work, she stated.
12:20:48 PM
SENATOR THERRIAULT asked for clarification that if no rate has
been adjudicated just and reasonable, the department would not
be precluded from looking at a negotiated rate.
MS. THOMPSON agreed that DOR could look at a negotiated rate and
determine it is fair. She added that the previous section says
it's the actual rate paid unless one of the exceptions in Sec.
39 applies.
12:21:45 PM
SENATOR WIELECHOWSKI expressed concern about the change on page
27, line 25. Removing the "or" could create a difficult
situation because it could be argued that the market value of
the transportation is whatever the market will bear, he stated.
MS. THOMPSON said the intent is to define the circumstances
where the rate that's paid might not be reasonable.
12:24:09 PM
MR. BULLOCK opined that paragraph (2) is really two conditions.
You start with the contract of transportation of oil or gas and
ask if it's an arms length transaction. If it isn't, that
triggers the use of reasonable rather than actual cost. The
second part is the contract of transportation of oil or gas and
asking if it is representative of the market value. That's a
separate trigger, he said. If the "or" is removed you're only
dealing with a contract for transportation of oil and gas that's
not an arms length contract. Then only the contracts that are
not arms length transaction require payment at market value. He
suggested a rewrite to clarify that it is two conditions. First,
the contract for the transportation of oil or gas is not an arms
length transaction. Then insert a new paragraph that says that
the contract for the transportation of oil or gas is not
representative of the market value of the transportation.
12:25:36 PM
COMMISSIONER GALVIN offered the view that changing the "and" to
"or" makes it a 4 part test. The problem is that the portion
that says, "the contract is not representative of the market
value of that transportation" is the definition of why the other
three conditions are in the list. It's the test that's used to
say it's going to be the actual cost except when there's a
reason to look into it. You would look into it if it's
affiliated, if it's not arms length, or if it's not reasonable
in view of alternative methods, he said.
CHAIR FRENCH asked if his suggestion is to drop the second half
of paragraph (2).
COMMISSIONER GALVIN said his suggestion is to blend that as part
of the arms length test. The purpose of the second portion is to
say if it's not an arms length transaction requiring payment of
market value, you'll look at something other than actual costs.
12:28:04 PM
CHAIR FRENCH asked for clarification that he's now defending the
amendment as it was moved.
COMMISSIONER GALVIN said that's correct.
SENATOR WIELECHOWSKI agree with Mr. Bullock . "If we take out
that "or" we kind of go back to where we were in the first
place," he said . Dropping the "or" changes the entire
interpretation of the test.
CHAIR FRENCH asked if he's making an amendment to the amendment.
12:28:49 PM
SENATOR WIELECHOWSKI said yes and asked Mr. Bullock for help.
MR. BULLOCK suggested the following for the amendment to the
amendment:
After "contract for the transportation of oil or gas"
insert subparagraph (A) "is not an arms length
transaction" or subparagraph (B) "does not require the
payment at market value of that transportation".
SENATOR WIELECHOWSKI agreed that would be acceptable.
MR. BULLOCK added, "You look at a contract. If it is not an arms
length transaction, then that triggers the use of reasonable
rather than actual. If it's a contract for transportation of oil
or gas that does not require the payment at market value, then
that triggers the reasonable over actual."
SENATOR WIELECHOWSKI stated that that is his intent.
MR. BULLOCK explained that paragraphs (1), (2), and (3) were in
the alternative before PPT was enacted. PPT took out the "or"
and made it "and" so that all three paragraphs were required for
reasonable to be substituted for actual.
12:30:22 PM
SENATOR HUGGINS stated that he would be a no vote on the
amendment and the amendment to the amendment because things are
too fluid.
CHAIR FRENCH asked Ms. Thompson to comment on the amendment to
the amendment.
MS. THOMPSON said she believes it resolves the issue she was
attempting to address in the amendment. She has no objection to
the committee taking this approach.
12:31:24 PM
SENATOR THERRIAULT said as the maker of the original amendment
he will support the amendment to the amendment.
A roll call vote was taken. The amendment to the amendment
passed 3:1 with Senator Therriault, Senator Wielechowski, and
Chair French voting yea and Senator Huggins voting nay.
CHAIR FRENCH announced that Amendment 11 is back before that
committee. He asked if there is further discussion.
SENATOR THERRIAULT stated that he believes the language is clear
and he has no further comment.
SENATOR WIELECHOWSKI opined that having the "and" rather than
the "or" has probably cost the state $3 billion. This amendment
will save $160 million per year. "I am a strong supporter of the
amendment," he stated.
CHAIR FRENCH withdrew his objection to Amendment 11 and asked if
there is further objection.
SENATOR HUGGINS maintained his objection to Amendment 11.
A roll call vote was taken. Amendment 11 passed 3:1 with Senator
Wielechowski, Senator Therriault, and Chair French voting yea
and Senator Huggins voting nay.
At ease from 12:33:20 PM to 12:35:22 PM.
CHAIR FRENCH stated that Amendment 12, labeled 25-GS0014\K.10,
by Senator Wielechowski is next.
SENATOR WIELECHOWSKI moved Amendment 12.
25-GS0014\K.10
Bullard/Bullock
A M E N D M E N T 12
OFFERED IN THE SENATE BY SENATOR WIELECHOWSKI
TO: CSSB(JUD), Draft Version "K"
Page 25, following line 16:
Insert a new subsection to read:
"(c) If an understatement of tax under (a) or
(b) of this section is identified as a result of
information provided to the department by a person
about another person's noncompliance with the
provisions of this chapter, there is added an
additional penalty, equal to 10 percent of the
substantial or gross underpayment, to the penalties
established by (a) and (b) of this section."
Reletter the following subsection accordingly.
CHAIR FRENCH objected for discussion purposes.
12:35:55 PM
SENATOR WIELECHOWSKI explained that the amendment relates to the
Qui Tam provision that was added. It ensures that when a
whistleblower notifies the state about a substantial
underpayment of tax, the offender would be required to pay a
penalty equal to 10 percent so that the state treasury wouldn't
be impacted. "Essentially it makes it revenue neutral," he said.
SENATOR THERRIAULT stated that if the amendment were offered
conceptually Mr. Bullock could conform it to the cap. "I
wouldn't want to levy a fine back on the taxpayer that's above
what was actually given out as a reward," he said.
CHAIR FRENCH asked Mr. Bullock if he understands the idea.
MR. BULLOCK asked if the question relates to the Qui Tam award
which is up to 10 percent and the penalty which is 10 percent.
SENATOR THERRIAULT explained the provisions of Amendment 7 that
the committee passed earlier and said he doesn't want to charge
the taxpayer more than the reward that's paid out.
MR. BULLOCK said this treads closely to dedicating funds. It
ought to be treated as a stand alone penalty even though the
intention is to use the penalty as the source for revenue that
could be appropriated to pay the reward, he stated.
12:38:11 PM
SENATOR THERRIAULT asked about saying that the two amounts will
be equal.
MR. BULLOCK said this is a penalty imposed on the taxpayer for
not doing something that they were supposed to do. It's not
imposed because an informant was involved. To base it on
something that's out of the taxpayer's control, particularly
with the flexible penalty, doesn't change the nature of the bad
act.
SENATOR WIELECHOWSKI asked if he has concerns about the
constitutionality of the provision.
MR. BULLOCK said the penalty is stand alone and it's okay as
written. It essentially amounts to a penalty against an employer
for hiring a whistleblower.
SENATOR WIELECHOWSKI withdrew Amendment 12.
12:40:55 PM
SENATOR THERRIAULT drew attention to language on page 27, lines
17-18, that says state employees are not eligible for the reward
under this section. He asked if the language is broad enough to
ensure that contract auditors wouldn't be eligible for the
reward.
MR. BULLOCK said it's not broad enough to cover contractors or
agents of the state.
At ease from 12:42:05 PM to 12:44:43 PM.
SENATOR THERRIAULT moved conceptual Amendment 13 as follows:
AMENDMENT 13
Page 27, line 18, following "employee":
Insert "or an agent of the state"
SENATOR THERRIAULT said this highlights the issue that people
who are hired and compensated to do a job shouldn't be rewarded
for doing their job.
CHAIR FRENCH announced that without objection Amendment 13 is
adopted.
At ease from 12:45:38 PM to 1:12:30 PM.
CHAIR FRENCH reconvened the hearing and announced that Amendment
14, labeled 25-GS0014\K.12 is next.
SENATOR WIELECHOWSKI moved Amendment 14.
25-GS0014\K.12
Bullard/Bullock
A M E N D M E N T 14
OFFERED IN THE SENATE BY SENATOR WIELECHOWSKI
TO: CSSB 2001(JUD), Draft Version "K"
Page 25, following line 16:
Insert a new subsection to read:
"(c) In addition to the penalties imposed under
(a) or (b) of this section, a person who has made a
substantial or gross underpayment of tax is liable to
the state for the reasonable costs of the state's
enforcement action, including auditing costs, under
this section."
Reletter the following subsection accordingly.
CHAIR FRENCH objected for discussion purposes.
SENATOR WIELECHOWSKI explained that the amendment addresses the
situation where there's a substantial or gross underpayment of
tax. In that event the liability for the auditing costs is
assigned to the offender. He noted that a slight change is
necessary.
CHAIR FRENCH asked if he's offering an amendment to the
amendment.
1:13:23 PM
SENATOR WIELECHOWSKI said yes and moved an amendment to the
amendment as follows: [Mr. Bullock offered punctuation]
Line 6
Delete "under this section."
Line 5 following "costs":
Delete ","
Insert ".""
SENATOR WIELECHOWSKI asked Mr. Bullock if that accurately
reflects his understanding.
At ease from 1:14:26 PM to 1:19:19 PM due to microphone
problems.
MR. BULLOCK recapped the amendment.
CHAIR FRENCH announced that without objection the amendment to
the amendment carries and Amendment 14 is before the committee.
CHAIR FRENCH asked if there are other areas of law where costs
are assigned to a wrongdoing party.
SENATOR WIELECHOWSKI replied this isn't out of the ordinary.
MR. BULLOCK recalled that the utility regulation is an example.
MS. THOMPSON confirmed that enforcement costs sometimes show up
in rate cases with a proposal to pass them on.
1:21:16 PM
SENATOR WIELECHOWSKI pointed out that if you don't pay your
credit card you'll be subject to penalties, interest and various
fees. "It's very standard and very common," he said.
CHAIR FRENCH said that's his understanding as well. He's simply
building a record. He withdraw his objection to Amendment 14.
Finding no further objection, he announced that Amendment 14
passes.
CHAIR FRENCH said the last amendment embodies the concept of
Amendment 5. He understands that it's been thoroughly worked
over by the maker, legislative legal, and the commissioner.
At ease from 1:23:02 PM to 4:15:00 PM.
CHAIR FRENCH reconvened the hearing and announced that Amendment
15 by Senator Wielechowski is next.
4:15:14 PM
SENATOR WIELECHOWSKI moved Amendment 15 as follows:
AMENDMENT 15
OFFERED IN THE SENATE
TO: CSSB 2001(JUD) Draft Version "K"
Section 10
Page 9, line 17
Following "Revenue," insert "and the Department of
Natural Resources"
Section 51
Page 38, line 14:
Following "Revenue," insert "and no more than two oil
and gas revenue audit manager positions to be created
in the Department of Natural Resources."
CHAIR FRENCH objected for discussion purposes.
SENATOR WIELECHOWSKI explained that under version "M", every
auditor who was classified was moved into exempt service. The
goal of the amendment is to protect the bargaining unit members
and give the department the flexibility to hire the super
auditors that are needed to protect the state treasury.
4:17:33 PM
COMMISSIONER GALVIN said the administration appreciates the
effort to balance the various concerns. "We believe that with
the amendments provided and with the language in the CS that we
can meet our requirements and what we're trying to get on the
audit side," he stated.
SENATOR WIELECHOWSKI asked the administration to clarify that
there is no intent to strip members from the classified service.
COMMISSIONER GALVIN said, "The language in the legislative
intent matches our intent, which is that there would be four
positions that would be created within the Department of
Revenue, two within the Department of Natural Resources."
4:19:05 PM
CHAIR FRENCH removed his objection. Finding no further
objection, he announced that Amendment 15 is adopted.
CHAIR FRENCH said Amendment 16, labeled 25-GS0014\K15, is the
last amendment to be offered.
SENATOR WIELECHOWSKI moved Amendment 16.
25-GS0014\K.15
Bullock
A M E N D M E N T 16
OFFERED IN THE SENATE BY SENATOR WIELECHOWSKI
TO: CSSB 2001(JUD), Draft Version "K"
Page 30, line 28, through page 31, line 30:
Delete all material and insert:
"* Sec. 43. AS 43.55.165(b) is amended to read:
(b) For purposes of (a) of this section,
(1) direct costs include
(A) an expenditure, when incurred, to
acquire an item if the acquisition cost is otherwise a
direct cost, notwithstanding that the expenditure may
be required to be capitalized rather than treated as
an expense for financial accounting or federal income
tax purposes;
(B) payments of or in lieu of
(i) property taxes for properties on which
oil and gas exploration, development, or production is
taking place; and
(ii) [,] sales and use taxes, motor fuel
taxes, and excise taxes related to transactions or
activities involving oil or gas exploration,
development, or production;
(C) supplies to be used for oil or gas
exploration, development, or production [A REASONABLE
ALLOWANCE, AS DETERMINED UNDER REGULATIONS ADOPTED BY
THE DEPARTMENT, FOR OVERHEAD EXPENSES DIRECTLY RELATED
TO EXPLORING FOR, DEVELOPING, AND PRODUCING OIL OR GAS
DEPOSITS LOCATED WITHIN LEASES OR PROPERTIES OR OTHER
LAND IN THE STATE];
(D) purchased fuel;
(E) routine maintenance;
(F) the wages and benefits of employees who
are directly participating in exploration,
development, or production operations; and
(G) other direct costs as may be
established in regulations adopted by the department;
(2) in determining whether costs are lease
expenditures, the department may consider, among other
factors, the
(A) typical industry practices and
standards in the state that determine the costs, other
than items listed in (e) of this section, that an
operator is allowed to bill a producer that is not the
operator, under unit operating agreements or similar
operating agreements that were in effect before
December 2, 2005, and were subject to negotiation with
at least one producer with substantial bargaining
power, other than the operator; and
(B) standards adopted by the Department of
Natural Resources that determine the costs, other than
items listed in (e) of this section, that a lessee is
allowed to deduct from revenue in calculating net
profits under a lease issued under
AS 38.05.180(f)(3)(B), (D), or (E) [AN ACTIVITY DOES
NOT NEED TO BE PHYSICALLY LOCATED ON, NEAR, OR WITHIN
THE PREMISES OF THE LEASE OR PROPERTY WITHIN WHICH AN
OIL OR GAS DEPOSIT BEING EXPLORED FOR, DEVELOPED, OR
PRODUCED IS LOCATED IN ORDER FOR THE COST OF THE
ACTIVITY TO BE A COST UPSTREAM OF THE POINT OF
PRODUCTION OF THE OIL OR GAS]."
Page 32, lines 14 - 16:
Delete
"(8) costs of arbitration, litigation, or
other dispute resolution activities that involve the
state or concern the rights or obligations among
owners of interests in, or rights to production from,
one or more leases or properties or a unit;"
Insert
"(8) costs of arbitration, litigation, [OR
OTHER] dispute resolution activities, lobbying, public
relations, advertising, or policy advocacy [THAT
INVOLVE THE STATE OR CONCERN THE RIGHTS OR OBLIGATIONS
AMONG OWNERS OF INTERESTS IN, OR RIGHTS TO PRODUCTION
FROM, ONE OR MORE LEASES OR PROPERTIES OR A UNIT];"
Page 32, lines 23 - 24:
Delete
"(12) for a transaction that is an internal
transfer or is otherwise not an arm's length
transaction, expenditures incurred that are in excess
of fair market value;"
Insert
"(12) an expenditure otherwise deductible
under (b) of this section that is a result of [FOR A
TRANSACTION THAT IS] an internal transfer, a
transaction with an affiliate, or a transaction
between related parties, or is otherwise not an arm's
length transaction, unless the producer establishes to
the satisfaction of the department that the amount of
the expenditure does not exceed the [EXPENDITURES
INCURRED THAT ARE IN EXCESS OF] fair market value of
the expenditure;"
Page 35, line 12, following "processed":
Insert ";
(21) costs relating to office buildings,
fixtures and equipment, and real property that are not
located in the state;
(22) overhead, office, or administrative
expenses, and all other indirect costs of oil or gas
exploration, development, or production"
CHAIR FRENCH objected for discussion purposes.
SENATOR WIELECHOWSKI thanked Mr. Bullock for his help in
clarifying the intent, which is to tighten the lease expenditure
provision. This gives the taxpayers clear guidance about what
can be deducted and it gives the administration flexibility to
create regulations regarding direct costs.
CHAIR FRENCH asked Mr. Bullock if he had anything to add.
4:20:31 PM
MR. BULLOCK explained that the amendment has two parts. Sec. 43,
page 1, line 3 of the amendment addresses AS 43.55.165(b). The
significant change from what was proposed earlier starts on page
2, he said. Essentially it deletes language in paragraphs (8)
and (12) of AS 43.55.165(e) and adds paragraphs (21) and (22).
SENATOR WIELECHOWSKI highlighted page 2, line 7. Version "K"
says the department "shall" consider certain factors and this
says the department "may" consider the factors, which is less
constrictive.
CHAIR FRENCH asked Commissioner Galvin to give his perspective.
COMMISSIONER GALVIN said Amendment 16 reflects the direction the
administration is trying to go in terms of clarifying what are
and are not allowable deductions. The ACES intent is to provide
clear rules and Amendment 16 moves in that direction. "We will
be looking more closely at the language as it moves into the
next committee to ensure that it matches what we would need to
be able to implement," he added.
CHAIR FRENCH removed his objection. Finding no further
objection, he announced that Amendment 16 is adopted.
4:22:42 PM
SENATOR THERRIAULT stated that he asked Senator McGuire to move
the language in Amendment 8, which relates to in-state use of
gas. He said he would like to be shown as a sponsor of Amendment
8 along with Senator McGuire.
CHAIR FRENCH said he has no objection to him being named as a
co-sponsor with Senator McGuire on Amendment 8.
CHAIR FRENCH asked Commissioner Galvin if the fiscal note with
the component number 2476 was keyed off the bill as it was
drafted last night.
COMMISSIONER GALVIN said we anticipated the retroactivity
provision so that is reflected.
At ease from 4:24:22 PM to 4:28:22 PM.
CHAIR FRENCH said he wanted to make sure that the draft fiscal
note reflects the most current thinking of the Department of
Revenue with respect to the fiscal impacts of the bill.
COMMISSIONER GALVIN stated:
The draft fiscal note…does reflect the bill as it
currently stands with the retroactive effective date
of the fiscal terms. The main thing to point out is
the change is going to show up on the last page that
shows the projected revenues and in particular to key
it off the current forecasted price for FY 2008 of $71
would result in an increase in FY 08 revenue of about
$800 million. Because it's going back into fiscal year
2007, there's a note at the top that…says there's a
$400 million addition to the FY 07 timeframe that is
also attributable to the retroactive. And so that's
where the…$1.2 billion comes from-a combination of
those two.
4:29:39 PM
SENATOR WIELECHOWSKI referred to page 1 and read, "the
progressivity surcharge is raised to an index of .4%" and asked
if that's the ceiling on the progressive rate.
COMMISSIONER GALVIN said that's correct.
SENATOR WIELECHOWSKI asked if Personal Services on page 2 will
reflect the changes the committee made today.
COMMISSIONER GALVIN said they will clarify that those are four
new positions.
4:30:13 PM
SENATOR WIELECHOWSKI motioned to pass CSSB 2001, version "K" as
amended, from the judiciary committee with attached fiscal notes
[and individual recommendations].
CHAIR FRENCH announced that without objection CSSB 2001(JUD)
moves to the next committee.
The committee adjourned at 4:30:39 PM.
| Document Name | Date/Time | Subjects |
|---|