Legislature(2005 - 2006)BUTROVICH 205
03/24/2006 10:00 AM Senate RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| SB305 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| = | SB 305 | ||
ALASKA STATE LEGISLATURE
SENATE RESOURCES STANDING COMMITTEE
March 24, 2006
10:06 a.m.
MEMBERS PRESENT
Senator Thomas Wagoner, Chair
Senator Ralph Seekins, Vice Chair
Senator Ben Stevens
Senator Bert Stedman
Senator Kim Elton
Senator Albert Kookesh
Senator Fred Dyson
MEMBERS ABSENT
All present
OTHER MEMBERS PRESENT
Senator Charlie Huggins
Senator Lyda Green
COMMITTEE CALENDAR
SENATE BILL NO. 305
"An Act repealing the oil production tax and gas production tax
and providing for a production tax on the net value of oil and
gas; relating to the relationship of the production tax to other
taxes; relating to the dates tax payments and surcharges are due
under AS 43.55; relating to interest on overpayments under AS
43.55; relating to the treatment of oil and gas production tax
in a producer's settlement with the royalty owner; relating to
flared gas, and to oil and gas used in the operation of a lease
or property, under AS 43.55; relating to the prevailing value of
oil or gas under AS 43.55; providing for tax credits against the
tax due under AS 43.55 for certain expenditures, losses, and
surcharges; relating to statements or other information required
to be filed with or furnished to the Department of Revenue, and
relating to the penalty for failure to file certain reports,
under AS 43.55; relating to the powers of the Department of
Revenue, and to the disclosure of certain information required
to be furnished to the Department of Revenue, under AS 43.55;
relating to criminal penalties for violating conditions
governing access to and use of confidential information relating
to the oil and gas production tax; relating to the deposit of
money collected by the Department of Revenue under AS 43.55;
relating to the calculation of the gross value at the point of
production of oil or gas; relating to the determination of the
net value of taxable oil and gas for purposes of a production
tax on the net value of oil and gas; relating to the definitions
of 'gas,' 'oil,' and certain other terms for purposes of AS
43.55; making conforming amendments; and providing for an
effective date."
HEARD AND HELD
PREVIOUS COMMITTEE ACTION
BILL: SB 305
SHORT TITLE: OIL AND GAS PRODUCTION TAX
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
02/21/06 (S) READ THE FIRST TIME - REFERRALS
02/21/06 (S) RES, FIN
02/22/06 (S) RES AT 3:30 PM BUTROVICH 205
02/22/06 (S) Heard & Held
02/22/06 (S) MINUTE(RES)
02/23/06 (S) RES AT 3:30 PM BUTROVICH 205
02/23/06 (S) Heard & Held
02/23/06 (S) MINUTE(RES)
02/24/06 (S) RES AT 3:30 PM BUTROVICH 205
02/24/06 (S) Heard & Held
02/24/06 (S) MINUTE(RES)
02/25/06 (S) RES AT 9:00 AM BUTROVICH 205
02/25/06 (S) -- Reconvene from 02/24/06 --
02/25/06 (H) RES AT 10:00 AM SENATE FINANCE 532
02/25/06 (S) Heard & Held
02/25/06 (S) MINUTE(RES)
02/27/06 (S) RES AT 3:30 PM BUTROVICH 205
02/27/06 (S) Heard & Held
02/27/06 (S) MINUTE(RES)
02/28/06 (S) RES AT 3:30 PM BUTROVICH 205
02/28/06 (S) Heard & Held
02/28/06 (S) MINUTE(RES)
03/01/06 (S) RES AT 3:30 PM BUTROVICH 205
03/01/06 (S) Heard & Held
03/01/06 (S) MINUTE(RES)
03/02/06 (S) RES AT 1:30 PM BUTROVICH 205
03/02/06 (S) Heard & Held
03/02/06 (S) MINUTE(RES)
03/02/06 (S) RES AT 3:30 PM BUTROVICH 205
03/02/06 (S) Heard & Held
03/02/06 (S) MINUTE(RES)
03/03/06 (S) RES AT 3:30 PM BUTROVICH 205
03/03/06 (S) -- Meeting Canceled --
03/04/06 (S) RES AT 10:00 AM SENATE FINANCE 532
03/04/06 (S) Presentation by Legislative Consultants
03/06/06 (S) RES AT 3:30 PM SENATE FINANCE 532
03/06/06 (S) Heard & Held
03/06/06 (S) MINUTE(RES)
03/07/06 (S) RES AT 3:30 PM BUTROVICH 205
03/07/06 (S) Heard & Held
03/07/06 (S) MINUTE(RES)
03/08/06 (S) RES AT 3:30 PM BUTROVICH 205
03/08/06 (S) -- Meeting Canceled --
03/09/06 (S) RES AT 3:30 PM BUTROVICH 205
03/09/06 (S) -- Meeting Canceled --
03/10/06 (S) RES AT 3:30 PM BUTROVICH 205
03/10/06 (S) -- Meeting Canceled --
03/11/06 (H) RES AT 10:00 AM CAPITOL 106
03/11/06 (H) -- Meeting Canceled --
03/13/06 (S) RES AT 3:30 PM BUTROVICH 205
03/13/06 (S) Heard & Held
03/13/06 (S) MINUTE(RES)
03/14/06 (S) RES AT 3:30 PM BUTROVICH 205
03/14/06 (S) Heard & Held
03/14/06 (S) MINUTE(RES)
03/15/06 (S) RES AT 3:30 PM BUTROVICH 205
03/15/06 (S) -- Testimony <Invitation Only> --
03/16/06 (S) RES AT 3:30 PM BUTROVICH 205
03/16/06 (S) -- Meeting Canceled --
03/17/06 (S) RES AT 3:30 PM BUTROVICH 205
03/17/06 (S) Heard & Held
03/17/06 (S) MINUTE(RES)
03/18/06 (H) RES AT 10:00 AM CAPITOL 124
03/18/06 (H) -- Meeting Canceled --
03/19/06 (S) RES AT 1:00 PM BUTROVICH 205
03/19/06 (S) Heard & Held
03/19/06 (S) MINUTE(RES)
03/20/06 (S) RES AT 3:30 PM BUTROVICH 205
03/20/06 (S) Heard & Held
03/20/06 (S) MINUTE(RES)
03/21/06 (S) RES AT 3:30 PM BUTROVICH 205
03/21/06 (S) -- Meeting Canceled --
03/22/06 (S) RES AT 10:00 AM BUTROVICH 205
03/22/06 (S) -- Testimony <Invitation Only> --
03/23/06 (S) RES AT 10:00 AM BUTROVICH 205
03/23/06 (S) Above Bill continued from 03/22/06 Mtg
03/24/06 (S) FIN AT 9:00 AM SENATE FINANCE 532
03/24/06 (S) RES AT 10:00 AM BUTROVICH 205
WITNESS REGISTER
KIMBERLY CARNOT
Staff to Senator Bert Stedman
Alaska State Capitol
Juneau, AK 99801-1182
POSITION STATEMENT: Commented on amendments to CSSB 305(RES).
DAN DICKINSON, CPA
Consultant to the Governor
Office of the Governor
PO Box 110001
Juneau AK 998811-0001
POSITION STATEMENT: Commented on amendments to CSSB 305(RES).
ROBYNN WILSON, Director
Tax Division
Department of Revenue
PO Box 110400
Juneau, AK 99811-0400
POSITION STATEMENT: Commented on amendments to CSSB 305(RES).
ACTION NARRATIVE
CHAIR THOMAS WAGONER called the Senate Resources Standing
Committee meeting to order at 10:06:59 AM. Present were Senators
Ben Stevens, Bert Stedman, Ralph Seekins, Kim Elton and Chair
Thomas Wagoner.
SB 305-OIL AND GAS PRODUCTION TAX
CHAIR THOMAS WAGONER announced the committee was continuing to
hear SB 305 and today it would consider, in numerical order,
Amendments Y.1 through Y.31 and Amendment Y.42.
SENATOR BEN STEVENS asked the committee to defer consideration
of Amendments Y.1 and Y.2 until last because they deal with
rates and are the most substantive.
CHAIR WAGONER objected.
SENATOR BEN STEVENS moved to combine Amendments Y.1 and Y.2 into
Amendment 1.
CHAIR WAGONER announced that without objection it was so
ordered.
SENATOR BEN STEVENS moved Amendment 1.
24-GS2052\Y.1
24-GS2052\Y.2
Chenoweth
AMENDMENT 1
OFFERED IN THE SENATE BY SENATOR BEN STEVENS
TO: CSSB 305(RES), Draft Version "Y"
Page 4, line 29:
Delete "25 percent"
Insert "20 percent"
Page 10, line 11, following "amount of":
Delete "25 percent"
Insert "20 percent"
CHAIR WAGONER objected.
SENATOR BEN STEVENS said he offered the amendment to return the
tax rate to 20 percent based on the assumption that, in total,
SB 305 is intended to encourage investment and everything he has
learned in school and business indicates that increasing tax
rates is a disincentive to business. He strongly disagreed with
the consultants who indicated that the increase wouldn't be a
disincentive.
10:11:42 AM
SENATOR BERT STEDMAN opposed Amendment 1 and said he agreed with
the consultants who determined that a 25 percent tax rate would
not put undue strain on the state's relationship with producers.
The spread between a 20/20 and a 25/20 tax is 4.3 percent with
an escalator at $40. When oil is at or below $40 per barrel, the
government's take changes by 2.4 percent, not 5 percent because
the state's tax can be deducted from the federal tax. He agreed
with the general concept that increasing taxes suppresses the
economy, but in this case the people of the state own the oil
and gas and so the tax and the royalty mechanism is being used
to sell the commodity into the marketplace.
10:14:35 AM
SENATOR RALPH SEEKINS said that he's hearing that the 25/20-rate
won't negatively influence the investment climate, but observed
that the investment climate is already unacceptable. He said:
We're already seeing a rapid decline in terms of
production in the North Slope oil fields.... We're at
a point where the more we push tax costs up, the more
we discourage free investment. I think that when we
look at almost doubling our severance tax with the
20/20, that we started to get into a position where as
we looked yesterday with the progressivity factor, if
we adopt that progressivity factor at current oil
prices, we're really at a 30/20; we're not at a 25/25.
My way of looking at it is we have pushed this to the
point where we may not have discouraged negatively at
25/20, but I would have to wonder about 30/20 - if we
haven't pushed this to the point where we are
discouraging free investment.... If we price that oil
barrel too high today, in terms of what we take as a
government, how many more or how many less will we
take out of the ground in the future? And I believe
that the 25/20, with the progressivity factors that
we're going to build into it, have put us in a
position where we are going to discourage free
investment in those oil fields - in development and
the continued harvesting of the oil that's in that
area.... I would vote for this amendment because I
think the starting point, if we're going to put
escalators in as the price goes up, is way too high at
25/20....
10:18:36 AM
SENATOR ELTON said he thought the progressivity at current oil
prices was closer to 27 percent than 30 percent.
CHAIR WAGONER mentioned that this is just the start of the
process and other things in this bill also relate to the 25/20,
like credits for exploration and the clawback provision.
10:19:19 AM
SENATOR STEDMAN noted that at $40, the difference between the
20/20 and the 25/20, with the escalator, is 2.4 percent for
total government take. That means the industry shrank. Prices
above $40 are in the abnormally high range and then government
take increases from 2.4 percent to 4.3 percent, which would move
the total government take up to 61.8 percent.
10:21:20 AM
SENATOR SEEKINS remarked that the status quo government take at
current value is 42.8 percent and at 20/20, it would go to 57.5
percent. The 25/20 would add another 4.3 percent. "So, it
depends on where we start the comparison."
10:22:31 AM
SENATOR BEN STEVENS said he appreciated all the economic
analysis and comparisons of Alaska with the rest of the world
done by all the consultants, but those were based on assumptions
in foreign nations and how their economies work; and on
projections in Alaska. "So, an economic forecast is exactly
that. It's based on forecasting of assumptions." He is basing
his decision on what is going to happen in Alaska and stated:
I am convinced that the balance of the bill at 20/20
with the incentives that are in there are going to
make Alaska a more attractive place to invest to stop
the decline of oil and to bridge the oil production at
current rates or, hopefully increasing rates, until
the fact that we can get to a gas economy. I don't
think that the 25/20 gets us that. And when the
consultants are gone - I don't see them here - you
know, they came in and dropped a number on the table
and got on the plane and went back to work. The ones
that are here are the ones who are affected by the
rate that we're talking about - and the future
legislatures are the ones that are going to be
affected by the impact of the rate that we're talking
about. Because if we have an unintended consequence
and that production declines more rapidly as a result
of this bill, it doesn't matter what happens. We could
go to 50/20, but the reality is that the revenue
stream that the state receives is based on production,
not on tax rate. Without a production rate, there is
no tax and I think that this pushes us to a point to
where the potential for a more rapid decline off the
North Slope is possible and I'm not willing to take
that risk for that possibility. Therefore, I'll stay
at 20 and I think 20 is - there is no blood left in
the sponge. It's wrung out.
10:26:03 AM
CHAIR WAGONER countered that they keep talking about the
difference between 25/20 and 20/20 and he heard Angus Walker
testify that at 20/20, BP no longer has any interest in being a
maximum investor on the North Slope, to hold or increase the
production level.
So, I'm not sure that we need to say that at 20/20
we're going to have a robust climate for all the
majors to reinvest in Alaska. I think it takes
additional incentives like we've done with the
clawback to get them to reinvest. Because he was very
emphatic about the fact that he didn't think BP liked
even the 20/20 scenario and would like to see 15/20 or
15/25. So, I'm comfortable where we're at for the time
being.
10:26:59 AM
SENATOR BEN STEVENS said the 20 percent credit has never been an
issue and he wanted to talk about the 25 percent tax rate in the
amendment, which he did as follows:
If this is going to be the floor at what your
progressivity clause comes on with the amendment we
adopted yesterday, it's an important rate and my basis
is that the floor of the tax rate at 25 is an onerous
rate by competition of capital and moving it to 20 may
be too high as well. Twenty is a doubling of the
existing rate. What is disappointing to me, and it
continues to be a disappointment, is that we have
never seen numbers in comparison - in terms of
numbers, which is money of what this impact does and
the revenues streams it generates. It's phenomenal the
amount of money we talk about at 2.5 percent
government take. What is the actual monetary value,
not only to the state, but to the impact to the
Alaskan economy as a whole, not just to the producers?
With that, Mr. Chairman, I call the question.
10:29:00 AM
SENATOR BEN STEVENS called the question. Senators Seekins, and
Ben Stevens voted yea; Senators Stedman, Elton and Wagoner voted
nay; so the motion failed.
CHAIR WAGONER announced Amendment Y.3 to be up for
consideration.
24-GS2052\Y.3
Chenoweth
AMENDMENT Y.3
OFFERED IN THE SENATE BY SENATORS STEDMAN AND
TO: CSSB 305(RES), Draft Version "Y"
BEN STEVENS
Page 3, line 31, through page 4, line 23:
Delete all material.
Renumber the following bill sections accordingly.
Renumber internal references to bill sections in
accordance with this amendment. Below are all
internal bill section references in this bill:
Page 2, line 14
Page 28, line 30
Page 29, lines 1 - 2
Page 29, line 6
Page 29, line 9
Page 29, line 13
Page 29, line 16
Page 29, line 18
Page 29, line 20
Page 29, line 23
Page 30, line 19
Page 30, line 22
Page 30, line 24.
10:29:27 AM
KIMBERLY CARNOT, staff to Senator Bert Stedman, said that
Amendment Y.3 pulled out the Cook Inlet formula as it referred
to ELF (Economic Limit Factor) and it is the same as Substantive
Amendment 1, which has been taken care of.
CHAIR WAGONER noted that it hadn't been adopted yet. He said
they would next consider Amendment Y.4.
24-GS2052\Y.4
Chenoweth
AMENDMENT Y.4
OFFERED IN THE SENATE BY SENATORS STEDMAN AND
TO: CSSB 305(RES), Draft Version "Y"
BEN STEVENS
Page 5, lines 6 - 9:
Delete all material and insert:
"(1) the rate of tax levied on oil and gas
produced is five percent;"
MS. CARNOT explained that the amendment dealt with page 5, lines
6 - 9, which pulled out the 1.5 percent for Cook Inlet, and is
the same as Substantive Amendment 4. She didn't know if the
sponsors still wanted a discussion.
SENATOR BEN STEVENS said he didn't want to discussion Y.4, but
he did have a substitute amendment for Y.5.
10:30:32 AM
SENATOR STEDMAN noted that there may be some timing elements
with the amendments.
CHAIR WAGONER announced Amendment Y.5 to be up for
consideration.
24-GS2052\Y.5
Chenoweth
AMENDMENT Y.5
OFFERED IN THE SENATE BY SENATORS STEDMAN AND
TO: CSSB 305(RES), Draft Version "Y"
BEN STEVENS
Page 5, lines 27 - 29:
Delete all material and insert:
"(4) the commissioner shall determine the
rate applicable to the lessor's royalty interest on
private lease holdings on leases that are entered into
after the effective date of this subsection."
MS. CARNOT said the intent of Amendment Y.5 was to have
Subsection 2 and 3 apply to leases prior to the effective date
of the act on page 5. It was addressed a little bit in Technical
Amendment 1.
10:31:13 AM
SENATOR BEN STEVENS moved his substitute amendment for Y.5.
10:32:06 AM at ease 10:34:24 AM
SENATOR BEN STEVENS restated his motion to adopt Amendment Y.40,
his substitute for Y.5, as follows:
24-GS2052\Y.40
Chenoweth
AMENDMENT Y.40
OFFERED IN THE SENATE BY SENATOR BEN STEVENS
TO: CSSB 305(RES), Draft Version "Y"
Page 5, line 6, following "produced":
Insert "from a lease that is in effect on the
effective date of this subsection"
Page 5, line 7:
Delete "from"
Insert "in"
Page 5, line 20:
Delete "except as otherwise provided in (4) of
this subsection,"
Page 5, lines 27 - 29:
Delete all material and insert:
"(4) the commissioner shall recommend to
the legislature the rate of tax applicable to the
lessor's royalty interest on private lease holdings on
leases that are entered into after the effective date
of this subsection."
CHAIR WAGONER objected for discussion purposes.
SENATOR BEN STEVENS explained that this amendment says the
private royalty interest rates that were adopted yesterday will
apply to all leases that are in production on the effective
date. That is the context of all the changes in the amendment.
It deletes the material on lines 27 - 29, on page 5, from the
original CS and inserts:
the commissioner shall recommend to the legislature
the rate of tax applicable to the lessor's royalty
interest on private lease holdings on leases that are
entered into after the effective date of this
subsection.
He said this essentially means the rates approved yesterday for
any agreement or leases that are in effect now for a private
royalty holder are in perpetuity, but future leases are open to
analyses.
10:37:32 AM
CHAIR WAGONER said he supported this amendment.
SENATOR ELTON said he supported it as well, but suggested they
might not want to put this section in a gasline contract,
because any change to the PPT would have to be negotiated in the
context of the gasline contract.
CHAIR WAGONER withdrew his objection and the motion carried.
10:38:49 AM
SENATOR BEN STEVENS moved Amendment Y.6.
24-GS2052\Y.6
Chenoweth
AMENDMENT Y.6
OFFERED IN THE SENATE BY SENATORS STEDMAN AND
TO: CSSB 305(RES), Draft Version "Y"
BEN STEVENS
Page 5, line 31, through page 6, line 1:
Delete "United States Gulf Coast price for that
month of West Texas Intermediate crude oil"
Insert "Alaska North Slope wellhead price for
that month"
Page 6, lines 6 - 17:
Delete all material.
CHAIR WAGONER objected for discussion.
SENATOR BEN STEVENS said this has to do with the trigger point
on the transition period. So, it may not be needed. He withdrew
Amendment Y.6.
MS. CARNOT suggested that Amendment Y.7 be withdrawn also, since
its subject was dealt with in Substantive Amendment 1. She said
that Amendment Y.8 dealt with the quarterly true up, which was
also addressed by Technical Amendment 1.
SENATOR BEN STEVENS noted that Amendment Y.8 was withdrawn.
MS. CARNOT explained that Amendment Y.9 dealt with page 7, line
27, through page 8, line 11, and clarified the change the
governor made in his formula for royalty share determination.
24-GS2052\Y.9
Chenoweth
AMENDMENT Y.9
OFFERED IN THE SENATE BY SENATORS STEDMAN AND
TO: CSSB 305(RES), Draft Version "Y"
BEN STEVENS
Page 7, line 27, through page 8, line 11:
Delete all material and insert:
"* Sec. 12. AS 43.55.020(d) is amended to read:
(d) In making settlement with the royalty owner with
respect to oil or gas that is taxable under
AS 43.55.011, the producer may deduct the amount of
the tax paid on taxable royalty oil and [OR] gas, or
may deduct taxable royalty oil or gas equivalent in
value at the time the tax becomes due to the amount of
the tax paid. Unless otherwise agreed between the
producer and the royalty owner, the amount of the tax
paid on taxable royalty oil and gas for a month is
considered to be the quantity of that taxable royalty
oil and gas produced during the month multiplied by
the quotient of the producer's total tax liability for
the month of production under AS 43.55.011 divided by
the producer's total quantity of taxable oil and gas,
other than royalty oil and gas, produced from all
leases and properties in the state during the month.
For purposes of the product calculated under this
subsection, 6,000 cubic feet of gas is considered to
be equivalent in amount to one barrel of oil."
10:41:03 AM
SENATOR BEN STEVENS questioned whether this had been taken care
of in the technical amendment or not. This sets two different
points of production.
DAN DICKINSON, CPA, Consultant to the Governor, explained that
Amendment Y.9 is a formula dealing with overriding private
royalty interests. Senator Stevens was referring to some
material in Cook Inlet and that was deleted yesterday; this
refers to something different.
CHAIR WAGONER said he had a note that said it referred to
Section 9 of the governor's original bill.
MS. CARNOT backed him up saying it was on page 4 of the original
bill.
MR. DICKINSON explained that the change has to do with portions
of the tax that are being used in a settlement between a private
royalty owner and the producer that paid that tax. He said:
I believe the difference between the governor's bill
and the CS would be that technical difference - line
29 of the CS, you will notice there is an (e) after
43.55.011 and in the amendment there is not.... And
then on page 8 in the CS, there is a slightly
different structure.
10:43:59 AM
SENATOR BEN STEVENS thanked Mr. Dickinson for his explanation
and said this amendment goes back to the original language.
MR. DICKINSON said after he had talked with AOGA, he made those
additional changes and stated:
I believe that if we're trying to technically bring
all those shareholders, stakeholders, in, including
the administration in, we should look at whether this
amendment does that precisely. I think it simply
restores the language that was in the governor's bill.
We may have further thoughts on that.
10:46:16 AM
SENATOR BEN STEVENS said the original bill deals with the whole
Subchapter 55.011, (a) through (d), (e) or (f). He was concerned
about adding the additional level because Mr. Dickinson said
that (e) applies to (a). The original bill applies the PPT in
(a), not in (e).
MR. DICKINSON said that Senator Stevens made an accurate point,
which would be one focus. The second focus he wanted to clarify
is the formula on lines 11 - 16 that was proposed by the
administration is based on a volumetric division. However, he
said, "In talking with AOGA and some of the private royalty
owners, the notion is that maybe a slightly more complex formula
that dealt with valuation would be a better way of doing it."
10:48:25 AM
CHAIR WAGONER asked if they wanted to vote on the amendment.
SENATOR BEN STEVENS said the base question is if taxes for
everybody are going to be based on volume or value and whatever
it is, it should be consistent.
MR. DICKINSON pointed out that the changes in line 5 represent
one thing and the changes in lines 10 - 16 address Senator
Stevens' concern. The current CS has a division based on value.
The proposed amendment is a division based on volume.
10:50:43 AM
SENATOR SEEKINS asked if there is a reason for preferring one
system over the other or is this an attempt to establish
consistency.
SENATOR BEN STEVENS replied that the CS was based on value and
that was changed to volume in the amendment. He was looking for
consistency, because he didn't see a significant impact on the
revenue stream to either party.
10:51:55 AM
MR. DICKINSON added that this would not impact the state's
revenue stream and deals only with the relationship between a
private royalty owner and a producer who must pay the taxes on
it.
10:52:12 AM
SENATOR BEN STEVENS remarked, "I understand that; we get it one
way or the other; it just depends on how it's measured." He said
he supported simplicity and consistency.
10:52:39 AM
MR. DICKINSON clarified that the amendment would go back to
volumetrics and they could carve that issue out of the amendment
at line 5.
10:53:00 AM
SENATOR KOOKESH arrived.
10:53:08 AM
SENATOR ELTON said he didn't necessarily disagree with the maker
of the amendment, but he thought it should be set aside until
they could hear what led the administration to the CS version.
MR. DICKINSON said that could be undertaken during the noon
break.
CHAIR WAGONER said okay to that and set Amendment Y.9 aside.
10:54:07 AM
MS. CARNOT said that Amendment Y.10 deals with the Cook Inlet
formula and that had been addressed.
10:54:40 AM
MS. CARNOT explained that Amendment Y.11 deals with changes on
pages 9 and 29.
CHAIR WAGONER and SENATOR BEN STEVENS pointed out that issue had
been taken care of by 5,000-barrel credit.
10:55:20 AM
MS. CARNOT went on to Amendment Y.12 saying its sponsors wanted
the credit to apply to the adjusted PPT and the statutory
reference in the CS seemed to apply it to just the base amount
so it didn't incorporate the transition expenses.
CHAIR WAGONER said that maybe this was a good place to recess.
10:56:30 AM Recess 2:04:39 PM
CHAIR WAGONER called the meeting back to order at 2:04.
2:05:10 PM
SENATOR BEN STEVENS moved Amendment Y.12.
24-GS2052\Y.12
Chenoweth
AMENDMENT Y.12
OFFERED IN THE SENATE BY SENATORS STEDMAN AND
TO: CSSB 305(RES), Draft Version "Y" BEN STEVENS
Page 10, lines 11 - 16:
Delete all material and insert:
"(b) A producer may elect to take a tax credit in the
amount of 25 percent of a carried-forward annual loss.
A credit under this subsection may be applied against
a tax for which a credit may be elected under (a) of
this section and may be applied irrespective of
whether the producer also claims a deduction of
transitional investment expenditures authorized by
AS 43.55.160. For purposes of this subsection, a
carried-forward annual loss is the amount of a
producer's adjusted lease expenditures under
AS 43.55.160 for a previous calendar year that was not
deductible in any month under AS 43.55.160(a) and
(b)."
CHAIR WAGONER objected for an explanation.
MS. CARNOT explained that Y.12 addresses an issue on page 10,
lines 11 - 16, of the CS that apply expenses to the adjusted PPT
rate to apply to incorporate transition expenses. It is a
statutory reference change.
SENATOR BEN STEVENS said this amendment was drafted before
adoption of the 2 for 1 clause.
2:07:03 PM
SENATOR FRED DYSON asked if this amendment would increase the
credit from 20 to 25 percent.
SENATOR BEN STEVENS said he understands that the loss carried-
forward and credit are now based on the tax rate, not the credit
rate.
2:08:19 PM
MS. CARNOT said the new language in Amendment Y.12 picks up on
line 15, page 10, of the CS and says:
A credit under this subsection may be applied against
a tax for which a credit may be elected under (a) of
this section and may be applied irrespective of
whether the producer also claims a deduction of
transitional investment expenditures authorized by AS
43.55.160.
ROBYNN WILSON, Director, Tax Division, Department of Revenue,
commented that she discussed this with Mr. Dickinson and they
suggested adding "or explorer" after "producer" on lines 3 and 8
of Amendment Y.12.
SENATOR BEN STEVENS explained:
This just takes into consideration the calculation of
the loss carried forward and the transition carry
forward and if you recall, the references on lines 9
and 10 are reference to the sections that the tax
payer can't use any of these exemptions to take their
liability below zero. It just incorporates the credit
that's used for a carry forward in the transition. It
can't be used to take it below zero.
SENATOR BEN STEVENS made adding "or explorer" after "producer"
on lines 3 and 8 a friendly amendment.
CHAIR WAGONER maintained his objection and asked for a roll call
vote. Senator Ben Stevens, Elton, Kookesh, Dyson, Stedman and
Wagoner voted yea; so the motion carried.
CHAIR WAGONER announced that Amendment Y.9 was back before the
committee.
2:14:32 PM
SENATOR BEN STEVENS moved to adopt Amendment Y.9.
24-GS2052\Y.9
Chenoweth
AMENDMENT Y.9
OFFERED IN THE SENATE BY SENATORS STEDMAN AND
TO: CSSB 305(RES), Draft Version "Y"
BEN STEVENS
Page 7, line 27, through page 8, line 11:
Delete all material and insert:
"* Sec. 12. AS 43.55.020(d) is amended to read:
(d) In making settlement with the royalty owner
with respect to oil or gas that is taxable under
AS 43.55.011, the producer may deduct the amount of
the tax paid on taxable royalty oil and [OR] gas, or
may deduct taxable royalty oil or gas equivalent in
value at the time the tax becomes due to the amount of
the tax paid. Unless otherwise agreed between the
producer and the royalty owner, the amount of the tax
paid on taxable royalty oil and gas for a month is
considered to be the quantity of that taxable royalty
oil and gas produced during the month multiplied by
the quotient of the producer's total tax liability for
the month of production under AS 43.55.011 divided by
the producer's total quantity of taxable oil and gas,
other than royalty oil and gas, produced from all
leases and properties in the state during the month.
For purposes of the product calculated under this
subsection, 6,000 cubic feet of gas is considered to
be equivalent in amount to one barrel of oil."
CHAIR WAGONER objected for discussion purposes.
MS. WILSON explained that the first sentence is consistent with
the previous language that says the tax on the private royalty
amount will be passed on it. The second sentence, the guts of
the amendment, says if the tax is not lease-specific, then, in
the absence of an agreement otherwise, there is a formula to
allocate that. She noted that the ratio on line 10 of the
amendment is quantity of that tax royalty over the denominator
on line 12 of total quantity. She compared that to what was in
the CS, which is gross value in both places. She understood that
the administration has had conversations with AOGA and in
general the preference is to use the language in the CS now -
gross value.
2:16:13 PM
SENATOR BEN STEVENS maintained his motion to adopt Amendment
Y.9.
CHAIR WAGONER maintained his objection.
SENATOR DYSON said he wanted more explanation of what difference
the amendment would make.
MS. WILSON explained that it may potentially make no difference,
but there is concern that in using the quantity of the taxable
royalty the difference in net value will be slightly different.
It doesn't recognize the differences in value from a particular
lease. The CS uses a ratio of the gross value, so it's not a
question of taxing both net and gross; it is saying once you
figure out what the tax is, it will be allocated based on a
ratio looking back at gross value rather than the taxable
royalty in the amendment. There is concern about a possible
mismatch.
SENATOR DYSON asked what AOGA's view was on this issue.
MS. WILSON replied their preferred language was in the current
CS, which talks about gross value.
SENATOR DYSON asked Senator Stevens why he supports this
language.
SENATOR BEN STEVENS explained that this amendment takes language
back to the original SB 305. He emphasized:
It's important to understand that this is a payment
that the producer is making on behalf of the royalty
owners, which is a very minimal impact. The difference
is one is the original bill as well as the amendment
calculates that payable tax based on volumetric
calculation. The CS as well as AOGA, which I believe
AOGA submitted the language for the CS, wants it based
on valuation. So this takes it back to the original
volumetric measurement, which is based on a formula
calculated under this subsection - it essentially sets
6,000 cf of gas equivalent to the amount of one barrel
of oil in statute.
2:20:03 PM
SENATOR KIM ELTON asked Ms. Wilson if she suggested that lines 1
- 7 of the amendment are non-substantive and don't change the
intention of the section and that the substantive changes are
from line 8 on.
MS. WILSON replied that she didn't mean to say there were no
substantive changes. She focused on what sentence 1
accomplished. She noted (e) is removed on line 5 of the
amendment, so it would then apply to all taxes.
SENATOR BEN STEVENS clarified there is no (e) in the original
version; it is created with the CS.
CHAIR WAGONER asked for a roll call vote. Senators Stedman, Ben
Stevens and Dyson voted yea; Senators Elton, Kookesh, and
Wagoner voted nay; and the amendment failed.
2:22:45 PM
SENATOR STEDMAN moved to adopt Amendment Y.13.
SENATOR BEN STEVENS said that Amendments Y.13, Y.14, and Y.15
had been dealt with already.
2:24:20 PM
MS. CARNOT explained that Y.16 is a return to the governor's
language, because the CS excluded heavy oil and some gas ELF
adjustors. They couldn't figure out why the CS took some
sections out of page 7 of the original bill and were looking for
an explanation.
SENATOR BEN STEVENS moved Amendment Y.16.
24-GS2052\Y.16
Chenoweth
AMENDMENT Y.16
OFFERED IN THE SENATE BY SENATORS STEDMAN AND
TO: CSSB 305(RES), Draft Version "Y"
BEN STEVENS
Page 11, lines 28 - 29:
Delete "AS 43.55.011(e) and 43.55.017 -
43.55.160"
Insert "AS 43.55.011 - 43.55.160"
CHAIR WAGONER objected for discussion purposes.
SENATOR BEN STEVENS asked members to look at page 11, lines 28
and 29, of the CS that read: "The tax liability of the applicant
under AS 43.55.011(e) and 43.55.017 - 43.55.160". He began to
see the CS eliminated .013, which is an adjustment in rates, the
ELF factor, which is being repealed; .016 is the gas production
tax and .017 is all taxes related to others. Now that the
committee repealed the Cook Inlet provisions along with the oil
and gas ELF, this amendment is no longer needed. So, he withdrew
Amendment Y.16.
2:27:02 PM
SENATOR BEN STEVENS moved Amendment Y.17.
24-GS2052\Y.17
Chenoweth
AMENDMENT Y.17
OFFERED IN THE SENATE BY SENATORS STEDMAN AND
TO: CSSB 305(RES), Draft Version "Y"
BEN STEVENS
Page 12, lines 9 - 15:
Delete all material.
Renumber the following paragraphs accordingly.
CHAIR WAGONER objected for an explanation.
SENATOR BEN STEVENS explained this is an addition to the
original bill and has to do with deductions under lease
expenditures and assets previously placed in service in the
state. It falls under what is and what is not eligible for a tax
credit. The original bill did not require this provision. He
argued there are regulations in place with extensive
requirements on what qualifies for credit or reduction and this
may be redundant.
MS. WILSON explained that the provision this amendment seeks to
delete is not a transfer pricing issue and is in Section 12 of
the original bill. This provision prevents churning of assets so
two entities on the North Slope can't just rotate assets amongst
themselves and generate credits that wouldn't normally be there.
That's why "placed in service" is key language.
SENATOR BEN STEVENS asked her if current regulations outline
what is a lease expense and what isn't.
MS. WILSON replied no, not for this specific issue. Current
language exists for lease expenditures and transfer pricing.
SENATOR BEN STEVENS asked if there was any statutory or
regulatory language.
MS. WILSON replied no.
SENATOR BEN STEVENS withdrew Amendment Y.17.
2:34:44 PM
SENATOR BEN STEVENS withdrew Amendment Y.18, saying it had been
taken care of already.
2:34:57 PM
SENATOR BEN STEVENS asked to go back to Y.18 and asked if lines
25 - 30 on page 12 were removed.
CHAIR WAGONER replied that they removed lines 22 - 30. He said
that would be checked.
2:36:09 PM
SENATOR ELTON recollected that they made some changes, but said
"successor regulatory body" rather than "similar".
SENATOR BEN STEVENS went back to Technical Amendment 1 at the
bottom of the page and said that Senator Elton was correct. He
withdrew Amendment Y.18 under the assumption that part was
already adopted.
2:38:03 PM
SENATOR BEN STEVENS withdrew Amendment Y.19.
2:38:26 PM
SENATOR BEN STEVENS moved Amendment Y.20.
24-GS2052\Y.20
Chenoweth
AMENDMENT Y.20
OFFERED IN THE SENATE BY SENATORS STEDMAN AND
TO: CSSB 305(RES), Draft Version "Y"
BEN STEVENS
Page 14, line 24, following "gas":
Insert ", unless relieved from this requirement
in whole or in part by the department"
CHAIR WAGONER objected for an explanation.
SENATOR BEN STEVENS explained that this puts original language
back that the CS removed. The original section gave the
department the discretion to relieve someone from filing.
MS. WILSON added that he was correct.
SENATOR ELTON followed up that this doesn't relieve the taxpayer
of the necessity of providing it if the department deems so.
CHAIR WAGONER withdrew his objection; so Amendment Y.20 was
adopted.
2:42:27 PM
SENATOR BEN STEVENS moved Amendment Y.21 and objected for an
explanation.
24-GS2052\Y.21
Chenoweth
AMENDMENT Y.21
OFFERED IN THE SENATE BY SENATORS STEDMAN AND
TO: CSSB 305(RES), Draft Version "Y" BEN STEVENS
Page 15, lines 29 - 30:
Delete all material and insert:
"(ii) the use of the information to use for
that purpose;"
SENATOR BEN STEVENS said that page 15, lines 29 - 30 say: (ii)
the use of the information to use for the purpose of determining
or contesting the producer's tax obligation;" and has to do with
the powers of the department when deciding what's reported in
the filings. This takes language back to the original version.
He thought that the CS used language that is redundant.
MS. WILSON concurred with his explanation.
SENATOR BEN STEVENS withdrew his objection; and without further
objection, Amendment Y.21 was adopted.
SENATOR BEN STEVENS withdrew Amendment Y.22.
2:44:56 PM
SENATOR STEDMAN said he concurred with all the withdrawn
amendments because his name is also on them.
2:45:25 PM
SENATOR BEN STEVENS moved Amendment Y.23.
24-GS2052\Y.23
Chenoweth
AMENDMENT Y.23
OFFERED IN THE SENATE BY SENATORS STEDMAN AND
TO: CSSB 305(RES), Draft Version "Y" BEN STEVENS
Page 16, line 30, through page 17, line 23:
Delete all material and insert:
"(d) Under regulations adopted by the
department, the department may allow a producer,
subject to limitations prescribed by the department as
to the frequency of making elections, to elect
prospectively to calculate the gross value at the
point of production of oil or gas based in whole or
part upon
(1) a royalty value determined under a
royalty settlement agreement between the producer and
the state, with adjustments if appropriate;
(2) a formula prescribed by the department
that uses, with adjustments if appropriate, a royalty
value or valuation methodology accepted by the
(A) Department of Natural Resources under
AS 38.05, in the case of oil and gas produced from a
lease issued by the Department of Natural Resources or
produced from a lease or property that is part of a
unit approved by the Department of Natural Resources;
or
(B) United States Department of the
Interior under applicable federal oil and gas leasing
statutes, in the case of oil and gas produced from a
lease issued by the United States Department of the
Interior that is not part of a unit approved by the
Department of Natural Resources, or produced from a
lease or property that is part of a unit approved by
the United States Department of the Interior but not
approved by the Department of Natural Resources; or
(3) another formula prescribed by the
Department of Revenue that reasonably estimates a
value for the oil or gas at a specific geographical
location such as the point of tender or delivery into
a common carrier pipeline; the formula may use such
factors as published price indices for oil or gas in
or outside the state, quality differentials for oil or
gas, transportation costs between markets, and
inflation adjustments."
CHAIR WAGONER objected for discussion purposes.
SENATOR BEN STEVENS explained that this amendment goes back to
original language and would change Substantive Amendment 5 [that
hasn't been adopted]. He said this amendment would give a tool
to the department that would allow a producer, subject to
limitations, to apply royalty settlement agreements when
calculating price or a tax valuation. It would simplify a
ratepayer's calculation. The CS does not allow royalty
settlement agreements to be used except if it is accepted by the
Department of Natural Resources or the Department of Interior,
and Substantive Amendment 5 doesn't allow it to be used at all.
2:49:43 PM
SENATOR ELTON said he didn't like using royalty value for a
couple of reasons. He felt that using it, in general, would mean
that the value would be less than the other two prescribed ways.
It would also encourage people to contest royalty value for two
reasons. They could cut their liabilities if royalty value was
lower and under this they would be able to cut their production
tax as well. Further, he said:
I don't' think we want to encourage that kind of
system and then I'm still bothered by the fact in the
same field, two different operators or two different
entities participating in the same field, would have
two different tax rates. So, I don't favor using
royalty value as one of the three methods of
evaluation.
2:50:49 PM
CHAIR WAGONER said that's the main problem he has also. He said
will plans to vote against this, but he wasn't going to bring up
Substantive Amendment 5 either. He wanted to look at a clean CS
first.
2:51:14 PM
SENATOR DYSON asked where the administration stood on Amendment
Y.23.
MS. WILSON replied that the administration supports the ability
to use royalty values for a simplification. The department has
two sets of auditors, one on one floor and one on another,
looking at the same data and that isn't very efficient from an
overall state standpoint. She said the administration did not
view this as a critical piece to the PPT and didn't have a
strong feeling about it.
2:53:14 PM
SENATOR STEDMAN asked if there had been problems in the past on
this issue.
MS. WILSON said it's not a critical piece, but it would
streamline accounting.
2:53:49 PM
SENATOR BEN STEVENS gave his final argument saying it gives the
department another tool to use for ratepayers if they have
royalty settlements, if they agree to use that methodology in
accounting the formula for their tax liability. It's a tool for
efficiency.
2:54:56 PM
SENATOR ELTON didn't disagree, but he suggested for that one
efficiency, they would be introducing new inefficiencies.
Allowing royalty oil to be one of the three methods of
evaluation would probably put a lot more pressure on attorneys,
because, he suspected, if a producer could save two ways, both
on the royalty side and the production tax side, the state would
be encouraging them to do that. He wasn't sure how well the
department would exercise its judgment and he thought it was the
legislature's policy call.
CHAIR WAGONER maintained his objection and asked for a roll call
vote. Senators Ben Stevens and Stedman voted yea; Senators
Kookesh, Dyson, Elton, and Wagoner voted nay; and the amendment
failed.
2:58:18 PM
SENATOR BEN STEVENS moved Amendment Y.24.
24-GS2052\Y.24
Chenoweth
AMENDMENT Y.24
OFFERED IN THE SENATE BY SENATORS STEDMAN AND
TO: CSSB 305(RES), Draft Version "Y" BEN STEVENS
Page 20, line 24:
Delete ";"
Insert "."
Page 20, line 25, through page 21, line 15:
Delete all material.
Page 22, lines 1 - 2:
Delete "the provisions of (l) and (n) of this
section apply to an asset that is subject to this
subparagraph;"
Page 23, line 29, through page 24, line 13:
Delete all material.
Reletter the following subsections accordingly.
Page 24, line 19:
Delete "(1)"
Page 24, lines 21 - 23:
Delete
"(A) direct cost under (d)(2)(M) of this
section, as a purchase of assets by the producer; and
(B)"
Page 24, line 24:
Delete ";"
Insert "."
Page 24, lines 25 - 27:
Delete all material.
Page 25, lines 2 - 5:
Delete
"(A) the principle set out in (l) of this
section, as interpreted and implemented by the
regulations of the department authorized by (l)(1) of
this section, applies; and
(B)"
CHAIR WAGONER objected for discussion purposes.
SENATOR BEN STEVENS said the committee had already spent a lot
of time working through this extremely complex provision.
Language on page 19, line 27, section (d) defines direct costs.
His amendment deleted surcharges levied under the 470 Fund (L)
[page 20, line 25, of the CS]. It also deleted dismantlement and
abandonment as a direct cost in section (M), because it was a
surcharge.
MS. WILSON elaborated that those charges would not be subject to
a credit because they are not exploration or capital, but they
could arguably be a deduction and that would be a policy call.
3:05:02 PM
CHAIR WAGONER said if this section weren't done right, it could
put the state back on the hook for a lot of abandonment expenses
it doesn't want to be on the hook for.
3:05:30 PM
SENATOR DYSON wondered if they should wait until they get a
clean CS to work with.
SENATOR BEN STEVENS said he wanted to work on simplifying the
issue.
MS. WILSON reviewed the concerns she brought up last Saturday,
[March 18]. Page 23, line 29, through page 24, line 1, of the CS
has a clear misreference and she said she believed the intent in
(l) was to deal with non-arm's length transactions and also talk
about transfer pricing in that context. Deleting sections on
page 20 would not be talking about arm's length transactions,
but about making surcharges deductible and abandonment
deductible. They are two different problems. Part of her concern
with this amendment goes to page 24, line 14, section (m), which
addresses purchases of businesses. She said, "We don't want to
make, just because somebody purchased a business with a lot of
assets, that it be available for credit." She cautioned the
committee to be mindful of that piece.
3:09:51 PM
SENATOR BEN STEVENS said line 12 of the Amendment Y.24 deletes
section (l), but it leaves section (m) in. He reviewed that
abandonment on lines 20 - 23 of the amendment was a policy call;
lines 12 - 14 covered company-to-company transactions or
purchases; lines 12 - 13 covered arm's length transactions and
transfer pricing.
3:14:42 PM
SENATOR DYSON wanted to know how the state had been handling
these issues in the past.
3:14:57 PM
SENATOR ELTON asked if the new CS would have correct references
and then it would pick up this amendment that accomplishes what
Senator Stevens' amendment tries to accomplish.
CHAIR WAGONER responded that the CS would have to be amended to
have correct references.
3:16:30 PM
MS. CARNOT suggested that Ms. Wilson could articulate what
changes she would make and the committee could make a conceptual
amendment to allow that to take place.
SENATOR BEN STEVENS withdrew the amendment with the
understanding that they would look at a clean CS to see if it
resolved the issue.
3:17:06 PM At ease 3:18:29 PM
CHAIR WAGONER announced that Amendment Y.25 [clawback provision]
had been taken care of.
3:19:29 PM
SENATOR BEN STEVENS moved Amendment Y.26 and objected for
discussion purposes.
24-GS2052\Y.26
Chenoweth
AMENDMENT Y.26
OFFERED IN THE SENATE BY SENATORS STEDMAN AND
TO: CSSB 305(RES), Draft Version "Y" BEN STEVENS
Page 21, line 10:
Delete "(l)"
Insert "(k)"
Page 21, line 14:
Delete "(l) and (m)"
Insert "(k) and (l)"
Page 22, line 1:
Delete "(l) and (n)"
Insert "(k) and (m)"
Page 22, line 30:
Delete ", as determined under (h) of this section,"
Page 22, lines 30 - 31:
Delete ", as adjusted for inflation under (h) of this
section"
Page 23, lines 1 - 14:
Delete all material.
Reletter the following subsections accordingly.
Page 24, line 25:
Delete "(l)"
Insert "(k)"
Page 24, line 27:
Delete "(l)(1)"
Insert "(k)(1)"
Page 25, line 2:
Delete "(l)"
Insert "(k)"
Page 25, line 3:
Delete "(l)(1)"
Insert "(k)(1)"
SENATOR BEN STEVENS said this contained some technical
corrections in (l) and (m) that related back to page 24.
3:23:03 PM
SENATOR BEN STEVENS removed his objection.
CHAIR WAGONER said they should divide the question.
3:23:46 PM
SENATOR BEN STEVENS divided the question to delete the escalator
on page 1, lines 18 - 21.
MS. WILSON said her understanding is that the amendment has to
do with an escalator that is about the $40 a barrel on
transition deductions.
SENATOR BEN STEVENS stood corrected and restated that the
division would start on page 1, lines 19 - 23, of Amendment
Y.26.
SENATOR ELTON asked if the amendment before the committee
deleted (h) on page 23 of the CS [page 1, lines 13 - 23 of the
amendment].
SENATOR BEN STEVENS replied yes.
CHAIR WAGONER labeled that Amendment 26A.
SENATOR BEN STEVENS and withdrew his objection.
CHAIR WAGONER indicated that Senator Stedman agreed and without
further objection, Amendment 26A was adopted.
3:27:08 PM
[Amendment Y.27 was withdrawn.]
3:28:22 PM
SENATOR BEN STEVENS moved Amendment Y.28 and objected for
discussion purposes.
24-GS2052\Y.28
Chenoweth
AMENDMENT Y.28
OFFERED IN THE SENATE BY SENATORS STEDMAN AND
TO: CSSB 305(RES), Draft Version "Y" BEN STEVENS
Page 25, line 27, through page 26, line 7:
Delete all material and insert:
"* Sec. 27. AS 43.55.201(b) is amended to read:
(b) The surcharge imposed by (a) of this section
is in addition to the tax imposed by AS 43.55.011 and
shall be paid in the [SAME] manner described in
AS 43.55.020. The surcharge [AS THE TAX IMPOSED BY
AS 43.55.011 - 43.55.150; AND] is in addition to the
surcharge imposed by AS 43.55.300 - 43.55.310.
* Sec. 28. AS 43.55.201(c) is amended to read:
(c) A producer of oil shall make reports of
production in the same manner and under the same
penalties as required under AS 43.55.011 - 43.55.160
[AS 43.55.011 - 43.55.150]."
Renumber the following bill sections accordingly.
Page 28, line 30:
Delete "24 - 35"
Insert "24 - 36"
Page 30, line 19:
Delete "sec. 42"
Insert "sec. 43"
Page 30, line 22:
Delete "36 - 40"
Insert "37 - 41"
Page 30, line 24:
Delete "sec. 41"
Insert "sec. 42"
SENATOR BEN STEVENS explained that this amendment deletes the
470 Fund surcharge in the CS and inserts original language. The
rates are referred to in Amendment Y.29.
3:29:48 PM
SENATOR ELTON said the net effect is to go back to the original
language, but Amendment Y.29 suggests a new amount.
SENATOR BEN STEVENS said the new amount was correct.
3:30:41 PM
SENATOR ELTON asked what amount was in the governor's bill.
MS. WILSON said Amendment Y.28 looked like the same language
that was in the CS. She said she would appreciate clarification
in case she missed something.
SENATOR BEN STEVENS explained that it changes the reference on
page 25, line 31 of the CS that says "Surcharge levied." He said
the language is the same, but the reference is different.
3:32:45 PM
MS. CARNOT explained that Amendment Y.28 goes back to the
original language, which had a surcharge of $.02; the CS has it
at $.01. Amendment Y.29 affects the CS on page 26, line 12, by
changing the $.05 in 43.55.300 back to the $.03. She explained
that the combination of the two amendments goes back to the
original that says there will be a 4 percent surcharge and $.02
of it is deductible.
3:36:41 PM
MS. CARNOT said the original reference in the original bill is
on page 17, section 22 and, "The request made to the drafter for
the CS was simply on page 25, line 29, delete $.01 and reinsert
$.02. What you have here is all the language that is in the
governor's bill. It just put it back in."
3:37:18 PM
SENATOR DYSON asked if they were correcting a drafting error.
SENATOR BEN STEVENS replied no.
SENATOR DYSON asked why $.01 was put in to the CS.
CHAIR WAGONER remarked that he is the one who put it in.
3:38:11 PM at ease 3:40:25 PM
CHAIR WAGONER said he asked the co-chair of the Senate Finance
Committee, Senator Wilken, why the changes were in the CS and he
was directed by him to ask the Department of Environmental
Conservation. He related that the department had been asking the
Finance Committee for more funds and so he asked for an
accounting of how the funds had been used in the past. He was
going to have that report forwarded to the Finance Committee
when it came through.
3:41:29 PM
SENATOR BEN STEVENS said he appreciated that and that he also
wanted to know why the funds were drained and why the DEC wanted
to change its distribution.
SENATOR DYSON said that the Finance Committee has been asked in
the last couple of weeks for funds for activities that have been
funded from the 470 Fund and "the pot's dry." It feels like the
money is being used inappropriately or the contribution is not
enough.
CHAIR WAGONER said they would find out when the report comes in.
He figured the fund generated $15 million a year.
3:44:48 PM
SENATOR ELTON asked the maker of the amendment if a secondary
change would make a portion of the surcharge eligible for a
credit.
SENATOR BEN STEVENS replied no and that those charges are
already exempt in statute.
CHAIR WAGONER asked if the governor's bill allowed the surcharge
to be deducted.
MS. WILSON replied yes; but added that in the CS the surcharges
are specifically not deductible.
SENATOR BEN STEVENS removed his objection.
CHAIR WAGONER objected for a roll call vote.
3:48:08 PM
SENATOR BEN STEVENS explained that the two rates in current
statute charge are $.02 for 55.210 - the proposed amendment
keeps it at $.02, whereas the CS takes it to $.01 - and the
other surcharge in 55.300, which is currently $.03 and the CS
takes that to $.05; whereas the amendment takes it to $.04.
CHAIR WAGONER said that was not the amendment that was before
the committee.
SENATOR BEN STEVENS said he stood corrected.
CHAIR WAGONER asked again for a roll call vote. Senator Ben
Stevens voted yea; Senators Dyson, Stedman, Elton, Kookesh, and
Wagoner voted nay; so, Amendment Y.28 failed.
3:50:06 PM
SENATORS BEN STEVENS and STEDMAN withdrew Amendment Y.29
SENATOR BEN STEVENS said that Amendment Y.30 had to do with
repealers that were related to some of the corrections in the
technical amendments and he withdrew Amendment Y.30. Senator
Stedman concurred.
3:50:49 PM
SENATOR BEN STEVENS moved to adopt Amendment Y.31.
24-GS2052\Y.31
Chenoweth
AMENDMENT Y.31
OFFERED IN THE SENATE BY SENATORS STEDMAN AND
TO: CSSB 305(RES), Draft Version "Y" BEN STEVENS
Page 30, following line 3:
Insert a new bill section to read:
"* Sec. 39. Section 37 of this Act is repealed
April 1, 2012."
Renumber the following bill sections accordingly.
Page 30, line 19:
Delete "sec. 42"
Insert "sec. 43"
Page 30, line 22:
Delete "36 - 40"
Insert "36 - 41"
Page 30, line "24:
Delete "sec. 41
Insert "sec. 42"
CHAIR WAGONER objected for an explanation.
SENATOR BEN STEVENS explained that it had to do with the
transition provision in section 37.
CHAIR WAGONER withdrew his objection.
SENATOR BEN STEVENS withdrew the Amendment Y.31.
SENATOR STEDMAN concurred.
3:52:27 PM at ease 4:01:25 PM
CHAIR WAGONER announced Amendment Y.42 to be up for
consideration.
SENATOR STEDMAN moved to adopt Amendment Y.42.
24-GS2052\Y.42
Chenoweth
AMENDMENT Y.42
OFFERED IN THE SENATE BY SENATOR STEDMAN
TO: CSSB 305(RES), Draft Version "Y"
Page 5, line 30, through page 6, line 5:
Delete all material and insert:
"(g) In addition to the taxes levied under (e)
and (f) of this section, there is levied upon the
producer of oil a tax for oil produced during that
month from each lease or property in the state, less
any oil the ownership or right to which is exempt from
taxation. The tax levied under this subsection is
equal to
((ANS West Coast price - $40) x .002) x ANS wellhead
price x (1 - PPT rate)
where
(1) "ANS wellhead price" means the
prevailing value for oil produced in the Alaska North
Slope area; and
(2) the PPT, or production property tax,
rate is 25 percent."
Page 6, line 10:
Delete "West Texas Intermediate"
Insert "Alaska North Slope"
Page 6, lines 11 - 12:
Delete "West Texas Intermediate"
Insert "Alaska North Slope"
Page 6, lines 16 - 17:
Delete "United States Gulf Coast price of West
Texas Intermediate"
Insert "price of Alaska North Slope"
CHAIR WAGONER objected for an explanation.
SENATOR STEDMAN said this corrects a drafting error in
yesterday's amendment that used ANS instead of WTI, but
inadvertently used the wellhead price as a base figure to
subtract the trigger from. It formerly read, ANS, West Coast
price less $40 [the trigger]. He pointed out that when the West
Coast ANS price moves up towards the wellhead, it picks up $6 or
$7 and that the amendment also puts in the multiplier number
that was adopted yesterday [.002].
4:04:02 PM
SENATOR DYSON said he thought Senator Stedman was correcting a
mistake he talked him into making.
4:04:59 PM
SENATOR STEDMAN admitted he should have picked it up because the
second half of the equation is correct. "When you set your
benchmark number or your trigger number, you should use ANS West
Coast, which would be like the price in Los Angeles."
SENATOR DYSON asked if this would increase the state's take.
SENATOR STEDMAN replied yes.
4:06:11 PM
SENATOR BEN STEVENS objected for same reasons he objected
yesterday. If a tax is being placed on ANS oil and the PPT is
based on ANS wellhead because that is the point of production,
and then there is a trigger mechanism for the progressivity that
is based on a valuation that is higher than that - "It's a
premature trigger."
4:06:53 PM
SENATOR STEDMAN clarified that the formula has basically two
parts. One is the trigger price, which benched off the ANS West
Coast price multiplied by a factor of .002. The tax calculation
part uses the ANS wellhead price x 1, minus the PPT tax rate,
which is .25.
So, I feel that it does not prematurely trigger it.
There's two separate issues here, because the tax in
question here is deductible against the PPT and that's
why it's structured like this and we went over the
complexities of that, pros and cons, yesterday. So, I
won't take the committee time today. But there are two
separate pieces to this and then they are multiplied
together.
4:08:13 PM recessed 4:09:20 PM
CHAIR WAGONER called the meeting back to order at 4:09.
SENATOR STEDMAN withdrew Amendment Y.42 and moved to rescind the
committee's action yesterday on Substantive Amendment 3, the
escalator portion. There were no objections.
SENATOR STEDMAN moved to adopt Amendment Y.42.
24-GS2052\Y.42
Chenoweth
AMENDMENT Y.42
OFFERED IN THE SENATE BY SENATOR STEDMAN
TO: CSSB 305(RES), Draft Version "Y"
Page 5, line 30, through page 6, line 5:
Delete all material and insert:
"(g) In addition to the taxes levied under (e)
and (f) of this section, there is levied upon the
producer of oil a tax for oil produced during that
month from each lease or property in the state, less
any oil the ownership or right to which is exempt from
taxation. The tax levied under this subsection is
equal to
((ANS West Coast price - $40) x .002) x ANS wellhead
price x (1 - PPT rate)
where
(1) "ANS wellhead price" means the
prevailing value for oil produced in the Alaska North
Slope area; and
(2) the PPT, or production property tax,
rate is 25 percent."
Page 6, line 10:
Delete "West Texas Intermediate"
Insert "Alaska North Slope"
Page 6, lines 11 - 12:
Delete "West Texas Intermediate"
Insert "Alaska North Slope"
Page 6, lines 16 - 17:
Delete "United States Gulf Coast price of West
Texas Intermediate"
Insert "price of Alaska North Slope"
CHAIR WAGONER objected for discussion, but there were no
questions. So, he withdrew his objection and Amendment Y.42 was
adopted.
4:10:46 PM
SENATOR BEN STEVENS moved to adopt Amendment Y.43.
24-GS2052\Y.43
Chenoweth
AMENDMENT Y.43
OFFERED IN THE SENATE BY SENATOR BEN STEVENS
TO: CSSB 305(RES), Draft Version "Y"
Page 4, lines 28 - 30:
Delete "The tax is equal to 25 percent of the
production tax value of the taxable oil and gas as
calculated under AS 43.55.160."
Insert "The tax applicable to
(1) oil is equal to the sum of 25 percent
of the production tax value of the taxable oil as
calculated under AS 43.55.160 and an amount determined
by the formula
((ANS wellhead price - $40) x .0015)
in which "ANS wellhead price" means the prevailing
value for oil produced in the Alaska North Slope area;
and
(2) gas is equal to the sum of 25 percent
of the production tax value of the taxable gas as
calculated under AS 43.55.160."
Page 5, line 30, through page 6, line 5:
Delete all material.
Reletter the following subsection accordingly.
Page 6, line 6:
Delete "(g)"
Insert "(e)(1)"
Page 6, line 10:
Delete "West Texas Intermediate"
Insert "Alaska North Slope"
Page 6, lines 11 - 12:
Delete "West Texas Intermediate"
Insert "Alaska North Slope"
Page 6, lines 16 - 17:
Delete "United States Gulf Coast price of West
Texas Intermediate"
Insert "price of Alaska North Slope"
CHAIR WAGONER objected for discussion.
SENATOR BEN STEVENS explained that this amendment tries to
address a couple of things that haven't been addressed in
adopting the new Amendment Y.42 or the progressivity formula as
introduced. First, it has no CPI indicator for the trigger, but
more importantly it doesn't have a CPI indicator for costs. So,
it doesn't take into consideration the future escalation of
costs of production and other costs to the industry. It also
doesn't address the difference between the progressivity clause
on gas versus oil. It does trigger an increase on the PPT on gas
based on an oil price, which is a flaw in Y.42.
He said that two other issues are addressed in Amendment Y.43
and one is a significant policy call - that the progressivity
clause is exempt from the taxation. He exclaimed, "For the life
of me, I haven't quite figured out the justification of a
progressivity tax is exempt from a production tax on which it's
derived from!" He said that progressivity should be simple to
understand and apply.
SENATOR BEN STEVENS said the progressivity component in Y.43 is
based on net, not gross. He reasoned:
Logic tells me an increase in a tax based on net
production should be based on net production. So, this
is an attempt to simplify the formula, because it
removes the exemption, it includes a percentage to be
added to the existing PPT rate.
4:15:36 PM
SENATOR BEN STEVENS further explained that it removed gas from
the formula and put the progressivity clause on oil. He inserted
ANS wellhead price in the formula and lowered the slope from .2
to .15. He recalled under the prior formula, the progressivity
clause was exempt, therefore the effective rate of the taxation,
instead of a real increase, was about half a percent. He
reasoned further:
Since the effective rate of the tax exemption is a
half a percent less, why do we need to do that? Just
lower the slope; take away the tax exemption and you
have a simpler method of progressivity to understand
based on net profits, exempting gas....
4:17:42 PM
SENATOR ELTON said he looks at it a little differently. He sees
it as now having two relatively simple taxes - the PPT, which is
a tax on net value, and a progressivity tax, which is a tax on
gross. The proposed amendment mixes a net tax with a gross tax
and makes one tax that is more complex rather than two taxes
that are simple.
4:18:20 PM
SENATOR STEDMAN said he thought Senator Stevens' basic premise
of having two taxes could be discussed in the Finance Committee.
One of the cons of having two separate taxes is you have one tax
that can be used for "whatever purposes." The issue of imbedding
it in the same paragraph is that the PPT tax creates more
complexity. The concept needs to be reviewed. He said he would
ask Econ One to see if it could come up with another way of
accomplishing the same thing.
4:20:28 PM
SENATOR DYSON said he wanted to think about it and asked if "tax
exempt tax" was a term of art.
MS. WILSON replied that she wouldn't classify it as a term of
art, but thought they were considering whether a windfall
profits surcharge should be deductible for purposes of the PPT.
When the department talks about exempt from tax, it's referring
to the state and federal royalty piece that is exempt from tax.
SENATOR DYSON remarked that it's really a deductible tax.
MS. WILSON replied that was correct and whether or not it's
deductible would be a policy call.
4:22:14 PM
SENATOR BEN STEVENS said he hadn't seen anything from Econ One
that hasn't confused them to death. He took issue with the fact
that it's a gross tax combined with a net tax.
It takes a tax on gross and converts the progressivity
to a net tax system that we're embracing and enacting
in this bill - because it takes the section out. There
is no longer a section (g) based on gross revenue.
It's now a part of section (a) that changes it. It
says the oil is the sum of 25 percent plus the
formula. So, it's not any longer based on gross.
Again, we can have analysts run it and we can have
everybody understand it, but whether it's labeled a
windfall tax or a progressive tax or a ratcheted
progressive tax, or a high value tax on prices of oil,
it's still a tax. A tax is something that the
government takes. Why have one portion of the
government take deductible from another portion. We
just had a conversation on whether the 470 Funds
should be deductible from the fund. So, here we're
talking about let's debate whether 470s are
deductible, well let's debate whether this tax is
deductible or that tax is deductible or this
surcharge. So, the concept of deductible surcharges or
deductible windfalls - to me it doesn't make sense. If
we're looking at government take increase, lets look
at it as a whole and say this is what we're going to
do. That's what I'm trying to do.
4:24:50 PM
SENATOR BEN STEVENS also encouraged members to consider that gas
is escalated on the price of oil now, which is a flaw and needs
to be addressed. The costs associated with production of oil and
gas in the future, because there is no CPI adjuster, is an issue
that needs to be addressed, but it is addressed by taking under
the net instead of the gross. He wound up his argument saying
that he hoped the issue wouldn't die with the vote about to take
place.
CHAIR WAGONER said he didn't think it should die and should be
followed up. He asked if there was further discussion.
4:26:25 PM
SENATOR STEDMAN said he intended to look at this in the next
committee of referral.
MS. WILSON said she had heard discussion about net versus gross
and she couldn't see that Amendment Y.42 said it's a tax on
gross.
SENATOR STEDMAN said it looked to him like the tax was
calculated on the market value of the asset or commodity, not
the gross or the net.
CHAIR WAGONER maintained his objection and called for a roll
call vote. Senator Ben Stevens voted yea; Senators Stedman,
Elton, Kookesh, Dyson and Wagoner voted nay; so, the motion
failed.
4:29:43 PM Recess 4:32:M
CHAIR WAGONER called the meeting back to order and announced
that he would hold Administrative Amendment 1 and Amendments
Y.24 and Y.18. There being no further business to come before
the committee, he adjourned the meeting at 4:34:59 PM.
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