Legislature(2005 - 2006)BUTROVICH 205
03/27/2006 03:30 PM 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 27, 2006
3:42 p.m.
MEMBERS PRESENT
Senator Thomas Wagoner, Chair
Senator Ralph Seekins, Vice Chair
Senator Ben Stevens
Senator Fred Dyson
Senator Bert Stedman
Senator Kim Elton
Senator Albert Kookesh
MEMBERS ABSENT
All members present
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) Heard & Held
03/15/06 (S) MINUTE(RES)
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) <Pending Referral>
03/24/06 (S) RES AT 10:00 AM BUTROVICH 205
03/24/06 (S) Heard & Held
03/24/06 (S) MINUTE(RES)
03/25/06 (S) FIN AT 10:00 AM SENATE FINANCE 532
03/25/06 (S) -- Meeting Canceled --
03/27/06 (S) RES AT 3:30 PM BUTROVICH 205
WITNESS REGISTER
JOE BALASH
Staff to the Legislative Budget & Audit Committee
Alaska State Capitol
Juneau, AK 99801-1182
POSITION STATEMENT: Commented on CSSB 305(RES).
ACTION NARRATIVE
CHAIR THOMAS WAGONER called the Senate Resources Standing
Committee meeting to order at 3:42:20 PM. Present were Senators
Ben Stevens, Stedman, Seekins, Dyson, Kookesh, Elton and Chair
Wagoner.
SB 305-OIL AND GAS PRODUCTION TAX
CHAIR THOMAS WAGONER announced SB 305 to be up for
consideration.
SENATOR STEDMAN moved to adopt CSSB 305(RES), Version I.
SENATOR BEN STEVENS objected.
CHAIR WAGONER said he didn't intend to adopt the CS today anyway
and wanted to go through it thoroughly. He said they needed to
finalize Administrative Amendment 1.
3:45:24 PM
SENATOR STEDMAN moved to adopt Amendment Y [sic].
AMENDMENT Y
OFFERED IN THE SENATE TO CSSB 305(RES), Version24-GS2052\I BY
SENATOR WAGONER
Page 19, line 19-23: delete all material, insert:
the use by another person of a production facility in
which the producer has an ownership interest or the
management by the producer of a production facility
under a management agreement providing for the
producer to receive a management fee;
Page 20, line 2: replace (o) with (n) and after
"2006;" insert:
For purposes of this subsection, if a producer removes
from the state, for use outside the state, an asset
described in this subparagraph, the value of the asset
at the time it is removed is considered a payment
received by the producer for the transfer of the
asset;
Page 22, line 13: insert "(b)," at the beginning of
the line
Page 22, line 14: delete "or(d)(2)(O)"
Page 22, line 16: delete "(d)(2)(N) or (d)(2)(O)" and
insert (e)(3)(A)
Page 22, lines 27 - 28: after due: delete all material
and insert:
If a producer fails to comply with a request under
this paragraph, there shall be added to any
underpayment determined by the department under this
section a penalty in the amount of 5 percent of the
underpayment.
Page 22, line 29, through Page 23, line 11: delete all
material and reorder
Page 23, lines 12 - 14: delete all material and
insert:
(n) For purposes of determining the amount of the
adjustment by subtraction that must be made to a
producer's lease expenditures as a result of the
producer's receiving a payment or credit under
(e)(3)(A) of this section,
Page 23, lines 22 - 26: delete all material and
reorder
SENATOR BEN STEVENS objected for a point of order and asked if
they were adopting an amendment to a work draft that hadn't been
adopted yet.
CHAIR WAGONER said he was correct.
SENATOR STEDMAN withdrew his motion.
SENATOR BEN STEVENS asked if the amendment addressed Version I.
3:46:44 PM
JOE BALASH, staff to the Legislative Budget & Audit Committee,
replied that was correct. "What you have in front of you is
Administrative Amendment 1 as approved and with the references
corrected to correspond to the I version of the CS."
3:47:14 PM
SENATOR BEN STEVENS called a point of order saying that it
looked like Version I already incorporated the changes.
CHAIR WAGONER said that was right even though that wasn't
requested. He asked Mr. Balash if that was his recollection.
MR. BALASH replied that two references were corrected in Version
I from revised Administrative Amendment 1 on lines 3 - 8 without
direction. The rest of the items the committee did not take
action on were not addressed in the course of drafting. He said
the page and lines are different, but the text is the same.
SENATOR BEN STEVENS said he needed time to comprehend what had
been done.
3:53:19 PM
CHAIR WAGONER said the amendment he was offering was similar to
Senator Stevens' amendment that he offered on March 24. The only
difference is he inserted the following language:
If the commissioner completes a detailed fiscal
analysis and determines that an election by a producer
under this subsection would serve the long-term fiscal
interests of the state.
He said it leaves the RSAs [royalty settlement agreements] in
the process and goes back to the language in the governor's
bill.
SENATOR BEN STEVENS compared page 14, line 7 of Version I, with
line 9 of the amendment and said that language in (1) and (2)
seemed redundant.
CHAIR WAGONER said he tried to use the text in Senator Stevens'
amendment [Y.23].
SENATOR ELTON said he didn't think they could amend an amendment
to a bill they hadn't adopted.
CHAIR WAGONER explained that Senator Stevens asked for a review
of the amendments.
SENATOR STEDMAN said his amendment, I.2, addressed the
progressivity formula and that, "if the ANS West Coast price per
barrel of oil during the month exceeds $40" was the trigger for
the escalator. That language clarifies that it's an average
price per month. Line 13 had a drafting error in the definition
of what the PPT is and said "property tax" instead of "profit
tax".
4:04:42 PM
SENATOR SEEKINS asked if the motion is to adopt this as a
working document, not a final document.
CHAIR WAGONER replied yes, and then they would put the two
amendments into it. That would be part of the final
presentation.
SENATOR STEDMAN went to page 21, line 8, [of Version I] that
referenced the 55,000 barrels, and asked the committee to
carefully consider the formula on line 14. He asked them to
remember that the escalator calculation imbedded on line 14 is
an after tax rate. So members should make sure that the bill
doesn't create an ability to get a double deduction on the
escalator portion, because it's already built into the formula.
CHAIR WAGONER said he had found another problem and they would
talk about it on Wednesday.
SENATOR SEEKINS called the question on adopting the working
draft.
SENATOR BEN STEVENS objected. Senators Dyson, Stedman, Elton,
Kookesh, Seekins, and Wagoner voted yea; Senator Ben Stevens
voted nay; so CSSB 305(RES), Version I, was adopted as a working
draft.
4:09:03 PM
SENATOR SEEKINS moved to adopt amendment I.1.
24-GS2052\I.1
Chenoweth
AMENDMENT I.1
OFFERED IN THE SENATE BY SENATOR WAGONER
TO: CSSB 305(RES), Draft Version "I"
Page 14, lines 3 - 27:
Delete all material and insert:
"(d) Under regulations adopted by the
department, if the commissioner completes a detailed
fiscal analysis and determines that an election by a
producer under this subsection would serve the long-
term fiscal interests of the state, 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 on
(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 factors
such 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.
SENATOR BEN STEVENS moved a friendly amendment to delete lines 9
and 10 on page 1 of Amendment I.1 because they are redundant and
then renumber appropriately. There were no objections and the
motion carried.
CHAIR WAGONER noted there was no further discussion and he
removed his objection to Amendment I.1. Without further
objection Amendment I.1 am was adopted.
4:11:53 PM
SENATOR SEEKINS moved Amendment I.2.
24-GS2052\I.2
Chenoweth
AMENDMENT I.2
OFFERED IN THE SENATE BY SENATOR STEDMAN
TO: CSSB 305(RES), Draft Version "I"
Page 4, lines 15 - 23:
Delete all material and insert:
"(g) In addition to the taxes levied under (e)
and (f) of this section, if the average ANS West Coast
price per barrel of oil during a month exceeds $40,
there is levied on 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)]]
x (total taxable barrels of oil at the point of
production)
where
(1) "ANS wellhead price" means the
prevailing value for oil produced in the Alaska North
Slope area; and
(2) the PPT, or production property tax, rate is 25
percent."
CHAIR WAGONER objected for discussion.
SENATOR STEDMAN explained how the intent was to clarify what was
already in the bill, so they could focus on the escalator, its
trigger and slope. He said line 3 of the amendment inserts new
language that says, "if the average ANS West Coast price per
barrel of oil during a month exceeds $40," and the $40 is the
trigger. Also the formula had some potential differences of
opinion on what it applied to; so, on line 9 the formula was
added after the dollar amount of tax was calculated, so one can
see exactly what it applies to, which is total taxable barrels
of oil at the point of production. Brackets were added so that
mathematics were cleaner. A drafting error on line 13 was
corrected where the word "property" was inadvertently used in
the definition of PPT instead of "profit".
SENATOR SEEKINS stated for the record that his motion included
inserting "profit" instead of "property" on line 13 and that he
was voting for the amendment to establish the formula, not
necessarily to establish the values on lines 4, 8, and 13.
SENATOR STEDMAN said that they were working on the structure and
clearly until the bill is finished the tax rate, the trigger
dollar amount and the slope were all open for discussion.
SENATOR BEN STEVENS maintained his objection because line 8 used
the ANS wellhead price as the taxation on the PPT rate versus
the ANS West Coast price. He argued, "Again if we're going to
use a tax derived from a tax, it should be based on the same
valuation methodology." He also opposed continuing to calculate
the progressivity clause as tax deductible, but there is no
provision written in the amendment or bill that makes the
additional tax derived under Section 011(g) tax deductible from
the PPT.
SENATOR STEDMAN said on line 8 it says "(1-PPT rate)"; that is
where you get the effect of the tax deductibility. In other
words it is imbedded in the formula; so it can't be deducted
again.
SENATOR BEN STEVENS said he didn't interpret it that way; he saw
the formula was calculated to say that it is deductible, but the
director of the Tax Division stated on Friday that it wasn't
deductible. He still maintained his objection, which he said he
had registered earlier.
4:17:37 PM
SENATOR SEEKINS said he wanted someone from the Department of
Revenue to assure him that deductibility was being accounted for
in the formula.
SENATOR SEEKINS moved to table the amendment until Wednesday.
Senators Ben Stevens and Seekins voted yea; Senators Elton,
Kookesh, Dyson and Stedman voted nay; so the motion failed.
CHAIR WAGONER said the voted didn't preclude that from happening
and he would get someone to do that.
4:20:17 PM
CHAIR WAGONER asked if there was further discussion on Amendment
I.2. He asked for a roll call vote. Senators Kookesh, Dyson,
Stedman, Elton, and Wagoner voted yea; Senators Ben Stevens and
Seekins voted nay; so Amendment I.2 was adopted.
4:22:00 PM
CHAIR WAGONER said that Senator Ben Stevens asked to bring up
Amendments Y.18 and Y.24 at a later date. He noted that Y.18 is
on page 10, line 25-27 of Version I and in conjunction with
that, a memo from Don Shepler dated March 19.
SENATOR BEN STEVENS noted, as a point of procedure, the date of
the memo is March 19 and this is the first time anyone has seen
it.
CHAIR WAGONER responded that's why he thought they might want to
wait and take this amendment up with the administrative
amendment.
SENATOR BEN STEVENS said again that he needed more time to
absorb this language.
CHAIR WAGONER said it would be okay to set Amendment Y.18 aside
until Wednesday.
SENATOR SEEKINS tried to understand the question, which he
thought was if the construction costs of the gas treatment plant
are allowed to be deducted under the PPT, could those same costs
be used in establishing a tariff on the downstream construction
of a pipeline provided that the same entity owns the pipe and is
the builder of the gas treatment plant that was applying for a
tariff rate from FERC.
4:26:45 PM
SENATOR BEN STEVENS agreed with Senator Seekins' understanding
of the question, but he thought section (h) needed clarification
on page 10, line 11. It said:
(h) A producer or explorer may not elect to take a tax
credit under this section for a lease expenditure
under AS 43.55.160 that is an expenditure incurred for
- directly related to a pipeline facility or assets
that's regulated by either FERC or the RCA."
He wanted to know how many assets on the North Slope are
currently under FERC or the RCA and if in inserting this
provision the state is excluding a large part of the
infrastructure that is already there or will be built for future
oil production from the 20 percent credit.
That's why I have concern over this - if we're going
to exclude facilities from the 20 percent credit. I
don't have the answer to that because it's my
understanding that there are several feeder lines from
satellite fields that are regulated under the RCA for
existing production. And if they are there for
existing production, then they will probably be there
if we bring on new satellite fields for oil and not
just oil, but also gas....
SENATOR SEEKINS added that reflected his concern as well. He
wanted to determine where the PPT starts and stops as well as
where the tariff starts. He wasn't sure which assets fell in the
category under lines 25-27 on page 10 [Version I].
CHAIR WAGONER said the other amendment was Y.24 and that was now
on page 18, line 10 of Version I.
SENATOR BEN STEVENS said in Version I, Amendment Y.24 deals with
language that is inserted all the way down to page 24, line 8
where the 470 Fund begins. He said the new version has
substantial new language and he would like time to see it -
specifically new language in section (i) on page 21, line 20,
and sections (n) and (o) on pages 22 and 23.
SENATOR DYSON asked Senator Stevens to summarize what he
intended to accomplish with this amendment.
SENATOR BEN STEVENS replied his intent was to take the
provisions back to the original version of SB 305, which says
the costs for third-party transactions or arm's length
transactions are allocated under ordinary and necessary costs
provided under the U.S. IRS provision. The current limitation
says there is already a system in place that says how arm's
length transactions are dealt with. The evolving language is all
about arm's length transactions and relates to some IRS code and
it's more restrictive and he questioned whether it was more
effective.
He highlighted again that (n) on page 22 and (o) on page 23 had
been substantially changed and the definition of "necessary and
ordinary in section (p) had been entirely removed. He stated
that Mr. Chenoweth's memo said (p) was removed from the bill,
but in reality, language on page 16, line 12, allows necessary
and ordinary costs for exploring for gas deposits, but not for
producing. "Again there is some delineation between costs
associated with production versus costs associated with ongoing
development or production."
4:36:19 PM
CHAIR WAGONER related a thumbnail sketch of why the legislature
went through the process it did. One of the legislature's hired
tax consultants said that these changes were necessary in order
to give the administration another tool in its toolbox to stop
any gaming in the tax area of different processes they can go
through for pieces of equipment et cetera.
4:36:59 PM
SENATOR DYSON said it was his intention for the legislature to
do the best it can to give incentives for new production and new
exploration and not allow producers to write off work they do
that just maintains old production.
4:38:38 PM
CHAIR WAGONER said the administration sent a letter to the
legislature that addressed that and he distributed it in the
last meeting. He felt the changes just allowed the
administration more tools in the toolbox to avoid that from
happening and it was the legislature's policy call.
SENATOR DYSON recalled it was the administration's intent to not
give incentives for maintaining existing production.
CHAIR WAGONER said he couldn't say one way or the other.
SENATOR BEN STEVENS said his interpretation of the bill is that
investments for maintaining production do qualify. There is no
difference between enhanced oil recovery production, a
development of an existing field or exploration for the 20
percent credit.
SENATOR SEEKINS agreed with Senator Stevens' interpretation.
SENATOR BEN STEVENS went back to page 20, line 31, through page
21, lines 1 - 3 and said it was his understanding that was going
to be deleted. He explained that it was a limitation on the $40
in the transition.
CHAIR WAGONER replied yes, he was right. On another note, he
said the report came back from DEC showing what the different
funding levels do in the 470 Fund.
4:43:35 PM
SENATOR ELTON said he had a feeling that Y.18 and Y.24 were
going to be offered again and asked if the committee could have
the new line references on Wednesday.
CHAIR WAGONER agreed.
SENATOR BEN STEVENS said the entire sections of (h) through (o)
in Version Y are changed substantially in Version I. He said his
amendments would address the previous version, since Version I
hadn't been adopted, and would take the bill back to the
original version.
CHAIR WAGONER noted there was no further discussion and recessed
the meeting at 4:45:40 PM to a call of the chair on Wednesday.
| Document Name | Date/Time | Subjects |
|---|