Legislature(2005 - 2006)BUTROVICH 205
03/29/2006 03:00 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 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
SENATE RESOURCES STANDING COMMITTEE
March 29, 2006
3:20 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
OTHER LEGISLATORS PRESENT
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."
MOVED CSSB 305(RES) OUT OF COMMITTEE
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) Heard & Held
03/04/06 (S) MINUTE(RES)
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
03/27/06 (S) Heard & Held
03/27/06 (S) MINUTE(RES)
03/29/06 (S) FIN AT 9:00 AM SENATE FINANCE 532
03/29/06 (S) RES AT 3:00 PM BUTROVICH 205
WITNESS REGISTER
JOE BALASH
Staff to the Legislative Budget and Audit Committee
Alaska State Capitol
Juneau, AK 99801-1182
POSITION STATEMENT: Commented on SB 305.
MARY JACKSON
Staff to the Senate Resources Committee
Alaska State Capitol
Juneau, AK 99801-1182
POSITION STATEMENT: Commented on SB 305.
ROBYNN WILSON, Director
Tax Division
Department of Revenue
PO Box 110400
Juneau, AK 99811-0400
POSITION STATEMENT: Answered questions related to SB 305.
ACTION NARRATIVE
CHAIR THOMAS WAGONER reconvened the 3/27/06 Senate Resources
Standing Committee meeting on 3/29/06 at 3:20:46 PM. Present at
the call to order were Senators Ben Stevens, Stedman, Seekins,
Dyson, Elton and Chair Wagoner.
SB 305-OIL AND GAS PRODUCTION TAX
CHAIR WAGONER announced that the committee would continue
working on CSSB 305(RES), work draft Version I and that
Amendment Y.18 was up for consideration.
SENATOR BEN STEVENS said he received an email message saying the
committee wasn't going to discussion amendments today.
CHAIR WAGONER clarified that the committee wouldn't discuss new
amendments. He reminded Senator Stevens that he had asked to
have Y.18 and Y.24 held for today's meeting so he was extending
a courtesy.
3:23:20 PM
SENATOR BEN STEVENS explained that Amendment Y.18 relates to
Version Y and the cross reference in Version I is found on page
10, lines 25-27, and page 18, lines 26-29. It relates to the
March 19, 2006 memo Mr. Balash circulated from Don Shepler.
SENATOR BEN STEVENS moved Amendment Y.18.
24-GS2052\Y.18
Chenoweth
AMENDMENT Y.18
OFFERED IN THE SENATE BY SENATORS STEDMAN AND
TO: CSSB 305(RES), Draft Version "Y"
BEN STEVENS
Page 12, line 20:
Delete ";"
Insert "."
Page 12, lines 21 - 29:
Delete all material.
CHAIR WAGONER objected.
SENATOR BEN STEVENS explained that Mr. Shepler's memo relates to
the ability to use tax credits against investments in a FERC
regulated asset. He had two concerns with the language. The
first has to do with existing assets on the North Slope that are
FERC or RCA regulated. If the new language were inserted, those
facilities could not use the tax credit in the future. He said
Mr. Shepler's memo is inconclusive; it says that "FERC may take
into consideration the credits or they may not." He thought
about that and came to the conclusion that by putting the
language in, the state would never be able to benefit from the
credit methodology that's in place. He reasoned that all
infrastructure on the North Slope is eligible for a credit
except for the pieces that are regulated.
Now, we know that FERC uses cost methodology; they
take the capital asset, the cost of the asset, the
amount to operate and then they derive a tariff. And
the tariff is deducted back to the wellhead value,
which royalty oil is derived from as well as what
taxable oil is derived from. So if we say to
ourselves, just to use an instance, a $10 million
pipeline, FERC will say it cost $10 million to build
and it costs so much to operate and they derive the
tariff. But if we say you've got a credit mechanism
and if, in fact, FERC says okay you've only got $8
million in that line and costs to operate, the tariff
will go down. Therefore our value will go up; royalty
oil value will go up and tax value will go up because
you have less of a deduction. But if we, in fact,
enact this legislation and this language, we'll never
be able to do that. The state would never be able to
benefit, because that's really the only way we ever
benefit from the credit - is by saying the tariff is
lower and the value of oil is higher. And because Mr.
Shepler's conclusion is non-conclusive; it says FERC
may do it, but then again, they may not do it. They
may roll in reduced rates to the tariff or to the
ratepayer, but then again, they may not. But this will
say we'll never be able to get it.
3:27:38 PM
SENATOR KOOKESH arrived.
3:27:57 PM
SENATOR BEN STEVENS opined if the state is going to give credit
mechanisms, it ought to be able to benefit from it in the future
through lower tariffs and therefore, higher royalty value and
higher taxable value.
SENATOR BEN STEVENS said the second piece of language he
objected to is outlined in the first statement of Mr. Shepler's
memo, which says:
You asked whether proposed net profits tax credits and
deductions associated with investments in a North
Slope Gas Treatment Plant (GTP) would be flowed-
through to customers who ship gas through the plant.
SENATOR BEN STEVENS said he has always been in the position that
this bill should focus on existing production, facilities that
are going to be built to enhance current production in oil and
gas and not take something in the future into consideration. He
said:
Because in the future, we'll see the whole picture; we
don't see that picture now. And so we've taken
something from the front and we put something into
this picture and said you can't do that, but we don't
know what it means. And for those reasons I would move
that Y.18 strikes the language in Y version [Version
I] on page 10, at the bottom, lines 25-27 and again on
page 18, lines 26-29.
3:29:11 PM
SENATOR STEDMAN asked if the reference is to Version I.
CHAIR WAGONER answered yes Version I.
3:29:42 PM
SENATOR STEDMAN said he had a similar concern with the paragraph
because he didn't want to preclude that credit in the future. He
noted that this committee hadn't talked a whole lot about the
effect of the tariff and how it plays in with the credits so he
would suggest that they avoid a tactical error by modifying it
and dealing with it at a later date.
3:31:05 PM
SENATOR ELTON said his concern is if that is taken out and FERC
does not consider the credit in setting the tariff, what they
have essentially done is set up a system in which the taxpayer
gets a double benefit. They would get the increased tariff plus
the credit. He said it's easier to leave the language in and if
it becomes a problem address it then rather than assume the flip
side.
3:31:54 PM
SENATOR SEEKINS said it's a policy decision and it doesn't have
anything to do with how FERC will treat that in the end. If FERC
ignores the credit and takes 100 percent of the value of the
asset and rolls it into the tariff, he understands that the
state would own 20 percent of the pipe.
So, in effect, the people of the State of Alaska would
get 20 percent of the tariff over a long term. So,
there's some income stream that comes to the people of
the State of Alaska there. However, where we cut off
where that gathering system is before it gets into the
main pipe itself, that adds some incentive to being
able to construct that facility, construct the
collections process, get it to the gas treatment plant
and do that, I think that's a worthwhile investment as
well - because we basically give a 20 percent credit
against that capital investment and it's an incentive
to get that process moving. I'm not so sure that the
oil companies - I think that the State of Alaska by
doing this doesn't really have that much to risk in
being able to give that credit as far down-line as we
want to regardless of how FERC treats it. And I'd be
in favor of striking the language.
3:33:52 PM
SENATOR STEDMAN said after listening to Senator Elton's
comments, he believes there is some confusion.
If there's a credit applied to some infrastructure
that there's going to a tariff charged on, the tariff
is charged on the equity position, not on the debt.
And if we, the state, give a credit to lower the
equity position, we should in turn see a lowering of
the tariff....
3:34:38 PM
SENATOR ELTON countered that may be true if the state has an
equity position, but if it's a FERC-regulated asset that the
state doesn't have an equity position in, then that wouldn't be
the case.
3:35:05 PM
SENATOR STEDMAN said even if the state had no equity interest
and it grants credits, it wouldn't be advantageous to the state
to grant credits and not get a movement in the tariff
calculation.
3:35:45 PM
SENATOR ELTON said he appreciated the byplay, but:
If FERC doesn't set the tariff in a manner that
reflects the credit, the royalty product that is going
through that the state owns is going to be paying the
higher credit. At the same time, the taxpayer is able
to use the credit to lower their payments to the
state. So, the state could end up giving a credit for
a tariff that doesn't reflect the credit and end up
paying more for the transportation of the product the
state owns going through that pipe.
3:36:27 PM
SENATOR SEEKINS expressed the opinion that it could happen, but
it isn't likely.
3:36:37 PM
SENATOR BEN STEVENS referred members to Mr. Shepler's
"Conclusion" on the final page of his memo that says:
I have not found any clear binding precedent that
answers the question you posed. However, since FERC
bases rates on the costs incurred to provide the
services, the fact that project sponsors received
quantifiable state tax credits and deductions as a
direct result of investing in a GTP suggests that FERC
would be inclined to require those benefits be flowed
through to the shippers who make use of the GTP. This
would be the result I would expect.
SENATOR BEN STEVENS closed his argument saying he thought the
bill should focus on projects that would enhance existing oil
production or gas associated with that production. He thought
they should leave the questions about FERC and the GTP to a date
when it is in front of them.
CHAIR WAGONER maintained his objection.
A roll call vote was taken and the motion to adopt Amendment
Y.18 passed with 5 yeas and 2 nays. Senator Dyson, Senator
Stedman, Senator Ben Stevens, Senator Seekins and Senator
Wagoner voted in favor and Senator Elton and Senator Kookesh
voted against.
SENATOR BEN STEVENS asked, as a point of order, if the reference
was with both sections in the bill.
CHAIR WAGONER replied, "Right." He announced that Amendment Y.24
was before the committee.
3:39:25 PM
SENATOR BEN STEVENS withdrew amendment Y.24 and Senator Stedman
concurred.
SENATOR BEN STEVENS spoke to the reason he withdrew the
amendment, which relates to Section 43.55.160 (d)(2)(M) costs
that are not to be included when determining value. He said he
agrees with Mr. Chenoweth's memo indicating that the section is
unwieldy and he intends to recommend that the next committee
break it into subsections instead of subparagraphs.
CHAIR WAGONER agreed. He asked Mr. Balash to present Amendment
1B.
SENATOR SEEKINS moved Amendment 1B.
AMENDMENT 1B
OFFERED IN THE SENATE TO: CSSB 305(RES), draft version 24-
GS2052\I. BY SENATOR WAGONER
Page 19, lines 19-23: delete all material, insert
(1)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 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
3:43:02 PM
SENATOR BEN STEVENS objected.
JOE BALASH, staff to the Legislative Budget and Audit Committee,
explained that Amendment 1B is the product of an effort between
the committee's tax counsel, Mr. Marvin Kirsner, and his partner
Carolyn Fanaroff, with the firm of Greenberg Traurig along with
the Department of Law and Department of Revenue to make sure
everything is captured correctly in Section 43.55.160, Section
22 of the bill. Mr. Kirsner had raised a few areas in his
analysis of the governor's legislation which he thought could be
tightened to reduce potential write offs for deduction purposes
in the PPT. This section deals with those deductions.
He said the first part of the amendment, page 19, lines 19-23,
deals with the scenario where a company is receiving revenue
from a different company for production facilities' use and Mr.
Kirsner recommended that that be broadened to include the type
of event where somebody divests themselves of that asset and
then receives a management fee - that that be counted as well.
After discussion on the phone, Mr. Mintz and Mr. Kirsner worked
out this agreeable language for easier reading.
MR. BALASH said language on page 20 fits in with another section
of the amendment to reorder language so that it's more efficient
in the application and administration of the statute. It takes
care of the situation where somebody purchases an asset,
collects the deduction, and then moves that asset out of state
for use out of state. It requires that value to be recaptured by
the state.
The third item on page 22, line 13, requests insertion of (b).
That was a technical administrative point the department
requested and it doesn't make any substantive changes.
MR. BALASH said that language on page 22, line 14, deals with
subsection (m) and directs the agency to look at determinations
of cost that occur in (d)(2)(N) for the purposes of making
subtractions. That language is in the lease adjustments in
subsection (e). To get language to read properly on page 14, the
words "or (d)(2)(O)" are deleted. Then on line 16, the very
first words, "(d)(2)(N) or (d)(2)(O)" need to be deleted and
replaced with "(e)(3)(A)".
Further down page 22, lines 27-28, is clarifying language that
the department requested. It sets a penalty in the event that a
taxpayer fails to comply with a request for information by the
department. In previous versions of this amendment, it was at 20
percent and the chair requested that it reflect 5 percent to
match with similar civil penalties on tax forms.
MR. BALASH said beginning on page 22, line 29, through page 23,
line 11, subsection (n) is going to be deleted entirely. It is
an area that duplicated an item in the (d)(2) list of things
that are excluded from direct costs.
On page 23, lines 12-14, is language that Mr. Mintz at the
Department of Law recommended to make it clearer and easier to
understand. It says subsection (n) because the previous
subsection (n) is going to be deleted and that helps with the
reordering.
Finally, on page 23, lines 22-26, is the recapture mechanism for
the transfer of assets outside the state. It was added into
(e)(3)(A) and is no longer needed in the new subsection (n).
3:50:40 PM
SENATOR STEDMAN referenced the last sentence of the second
paragraph of the second page of the Kirsner/Fanaroff memo and
asked if there is some lack of support from the department on
some of the insertions.
3:50:48 PM
MR. BALASH replied:
The one area which we covered in the teleconference
which the department continued to maintain its
objection to or failed to agree with Mr. Kirsner on
the need for, were the audit powers - and in the I
version, that appears as subsection (m) where a
standard is set for how to treat transactions that are
not at arm's length. It directs the department to
adopt regulations that would incorporate the audit
powers of section 482 of the Internal Revenue Code.
These are audit powers, which the department feels may
not be necessary. Our tax counsel continues to think
that they would potentially be.
SENATOR STEDMAN asked to hear from the department on that issue.
3:51:16 PM
ROBYNN WILSON, Director, Tax Division, Department of Revenue
(DOR), referenced a letter from the department that says
insertion isn't critical. She said if, on the advice of counsel,
the committee includes that's okay, but if doing so it somehow
derails the main point of the legislation then the department is
more neutral.
3:52:13 PM
CHAIR WAGONER asked if another way of saying it is that it isn't
needed, but including it would provide a tool that could be used
at some point.
Ms. WILSON replied yes. Under the rules of ordinary, necessary
and direct she would argue that something in excess of fair
market value is not necessary or direct or ordinary. However,
she noted, an attached legal memo counters that argument so that
discussion could take place at a later time. If the committee
elects to leave it out, DOR will argue for ordinary and
necessary. If the committee elects to leave it in, it would be
an additional tool. She acknowledged that IRS Section 482 audits
are cumbersome, but the benefit is that they provide ranges and
guidance for arm's length values for particular kinds of
services, assets and so forth. She reiterated it doesn't have to
be included if it distracts from the main point of the
legislation.
CHAIR Wagoner asked if there was further discussion or
objection.
SENATOR BEN STEVEN maintained his objection.
A roll call vote was taken and the motion to adopt Amendment 1B
passed with 6 yeas and 1 nay. Senator Stedman, Senator Elton,
Senator Kookesh, Senator Seekins, Senator Dyson, and Senator
Wagoner voted in favor and Senator Ben Stevens voted against.
CHAIR WAGONER asked Ms. Jackson to outline the changes between
Version Y and Version I.
SENATOR SEEKINS asked for clarification that Version I had been
adopted as the working document.
CHAIR WAGONER said yes. [work draft Version I was adopted during
the 3/27/06 meeting.]
3:55:28 PM
MARY JACKSON, staff to the Senate Resources Committee, outlined
the changes in work draft Version I from Version Y.
Page 1 includes title changes, which are the result of deletions
such as the Cook Inlet feature, and insertions such as the new
claw back and progressivity.
Page 2, Section 1, line 12, references Section 11 of AS
43.55.020(f) and Version Y referenced Section 14.
Page 2, Sections 2, 3 and 4, have no changes.
Page 3, Section 5, pertains to private royalty and
Progressivity. In Version Y that section contained the Cook
Inlet provision, which was deleted from Version I.
Page 3, line 25, contains the new phrase, ".... from a lease
that is in effect on the effective date of this subsection." It
is the result of adopting Amendment Y.40.
Page 4, line 6, the phrase, "except as otherwise provided in (4)
of this subsection," was deleted. Page 4, lines 12, 13, and 14
is a new subsection (4). Ms. Jackson said that is a result of
adopting Amendment Y.40.
The new progressivity features on page 4 and the top of page 5
were corrected by the committee and replaced on Monday as a
result of adopting Amendment I.2.
3:59:14 PM
SENATOR SEEKINS referenced page 4, line 23, and asked if that
was amended from property tax to profits tax.
MS. JACKSON said yes, there were several of those amendments. It
was done again in Amendment I.2
Page 5, Section 6, is a Cook Inlet section in Version Y that was
eliminated. She said this is basically Section 9 of Version Y.
Section 9.
Page 5, Section 7, contains technical changes on lines 25-30. It
was an insert that reads, "after the last day of the third month
following the calendar quarter of production, as described in
this subsection, ..." She said it's clean-up language that is
needed because of the true up. It is Version Y, Section 10.
Page 6, Section 9, has no changes. It is the Version Y, Section
12.
Page 6, Section 10, has no changes. It is Version Y, Section 13.
Page 6, Section 11, line 28, inserts the terms, "produced but"
and "produced and" so that both sides of the phrase were
captured with the term "produced". That is a result of adopting
Amendment Y.34, Ms. Jackson said.
Page 7, Section 12, is required for private royalty reference.
It is Version Y, Section 15.
Page 7, Section 13, has tax credits for which there were a
number of changes. Unfortunately, there were also a number of
changes that were not made. The 5,000-barrel amendment replaced
the $73 million standard deduction and the Cook Inlet provision.
Mr. Mintz drew up the amendment and neglected to remove all of
the Cook Inlet provisions so some show up here. For instance,
page 7, lines 15-19 relating to 20 percent and 30 percent should
have been removed and was not. She suggested to the chair that
this would be a good time advise the committee that there is an
amendment that clears the language up.
4:03:31 PM
CHAIR WAGONER explained the amendment. On page 7, line 14, after
"amount of" insert "20 percent of that expenditure." and delete
all of lines 15-19.
SENATOR BEN STEVENS asked if that includes development,
production, and exploration.
CHAIR WAGONER said it includes all three.
4:04:14 PM
MS. JACKSON continued.
Page 7, line 25, contains drafting changes. Also, subparagraph
(B) on line 30 contains some of the 30 percent provision that
was to be deleted. She noted that the amendment that members had
would delete page 7, lines 30-31 and page 8, lines 1-2.
Page 8, lines 10-18, is also language related to the 30 percent
that should have been deleted and was not. It is subsection (b)
and (c). Ms. Jackson noted that those are included in the new
amendment.
Page 8, line 19, reads "A producer may elect..." Ms. Jackson
said the committee amended Amendment Y.12 to insert "or
explorer" after "A producer" on page 8, line 19 and "or
explorer's" after "A producer's" on line 24. She said she didn't
have that on her sheet so it wasn't included in this draft, but
it does need to be inserted. Page 2, lines 19-26, is the new
language from Amendment Y.12.
Page 9, lines 17-27, reflect the changes made in Technical
Amendment 1.
Page 10, line 26, inserted "economically" so it reads,
"economically regulated".
CHAIR WAGONER advised that that language was removed in
Amendment Y.18.
MS. JACKSON acknowledged that.
4:08:27 PM
Page 11, Section 14, has no changes. It is Version Y, Section
18. She noted that Version Y, Section 14 was deleted in the new
5,000 barrel.
Page 11, Section 15, has no changes. It is Version Y, Section
19.
Page 12, Section 16, contains new language as a result of
adopting of Technical Amendment 1. The language is relevant to
the true up.
Page 12, Section 17, language is the same except on page 13,
lines 2-3, which was changed as a result of adoption of
Amendment Y.21. The Version Y language read, "the use of the
information to use for the purpose of determining or contesting
the producer's tax obligation;"
Page 13, Section 18, has no changes. It is Version Y, Section
22.
Page 13, Section 19, has no changes. It is Version Y, Section
23.
Page 13, Section 20, line 30, the word "or" was deleted.
Page 14, Section 21, line 2, has slight nomenclature changes. It
previously read, "new subsections" and now it reads, "a new
subsection". She noted that this section was amended as a result
of adopting Amendment I.1 on Monday, March 27, 2006.
Page 14, Section 22, page 15, lines 4-6, subsection (2) is an
insert from Substantive Amendment 2.
Page 15, line 28 "under (g)(3)" is a revision under Substantive
Amendment 2.
Page 15, line 31 through page 16, line 5, is new language that
the administration requested.
Page 17, lines 11-14, is new language from the administration
that was adopted as a result of Administrative Amendment 1.
Page 17, line 22, the language "of capital assets" was deleted.
Page 18, lines 17-24, contains new language. The administration
identified sub-subparagraph (i), which relates to proportionate
allocation of costs for abandonment, as a problematic. Ms.
Jackson said she forwarded the requested language to legislative
legal and it was inserted instead of making it an amendment. She
advised the committee that it could leave the language or delete
it, but it was a request from the administration.
4:13:28 PM
Page 18, lines 25-29, reflect changes as a result of Amendment
Y.18.
Page 18, line 31, was changed to read, "amounts incurred," at
the request of the administration.
Page 19, lines 5-6, language was changed to read, "whether or
not the transaction is treated as an asset sale for federal
income tax purposes." Ms. Jackson noted that the language was
previously adopted in an administrative amendment.
Page 19, line 7-18, inserts new language so it reads, "certain
payments or credits received by the producer, as provided in
this subsection. If one or more ..." The administration
requested the language.
Page 20, line 14, contains the new April 1, 2001 date to conform
to the new claw back.
Page 20, line 19, "on or after January 1, 2003" was deleted to
conform the new times and dates for the new claw back.
Page 20, line 21, "multiplied by" was deleted.
Page 20, lines 22-30, is the new claw back section.
Page 20, line 31 through page 21, line 3 needs to be deleted. It
has to do with the transitional investments.
4:16:58 PM
Page 21 relates to the new 5,000 barrel that replaces the $73
million deduction.
Page 22, lines 14-16, and line 26 contain changes the drafter
made.
Page 23, line 5, changes reference to "(d)(2)(O)". The drafter
made the correction.
Page 24, Section 22, at the end of the section the term
"ordinary" needs to be reinserted. That is in the amendment, Ms.
Jackson said; the drafter deleted it.
Page 24, Section 23, has no changes. It is Version Y, Section
27.
Section 24 has no changes. It is Version Y, Section 28.
Page 25, Section 26, has no changes. It is Version Y, Section
30.
Page 25, Section 27, has no changes. It is Version Y, Section
32.
Page 25, Section 28, has no changes.
Page 26, Section 29, has no changes. It is Version Y, Section
33.
Section 30, contains a new (17) definition for the Cook Inlet
basin. It references back to the private royalty provisions that
were inserted. There are no changes in subsections (18) or (19).
Page 27, Section 31, contains the repealers reflecting the
revisions that were made.
Page 27, Section 32, is the applicability. It contains the dates
that apply to the specific sections.
Page 27, Section 33, contains the transitional provisions.
Page 27, line 31, and page 28, lines 1-3, needs to be deleted.
It's a continuation of the 30 percent credit that wasn't picked
up.
4:21:18 PM
SENATOR ELTON asked for verification that the language on page
18, lines 17-24, was added by the drafter and not as the result
of an amendment or direction from the committee.
MS. JACKSON said yes. The administration raised the question of
how to tell the proportionate costs with abandonment before and
after the bill. The administration provided the language and due
to a miscommunication with the drafter, it was inserted into the
work draft instead of written as an amendment.
4:22:58 PM
SENATOR ELTON asked if the net effect of the language is that
abandonment becomes a cost that can be used to reduce tax margin
after the effective date of the bill but not before. He
questioned the impact that might have because previous
discussion assumed that abandonment would not be allowed. He
called it a significant policy shift simply because the drafter
inserted it in the bill.
MS. JACKSON responded that provision was already included.
4:23:41 PM
BEN STEVENS said it is still a part of (d)(2)(M) and all the
subsections are exclusions from the deduction.
CHAIR WAGONER clarified they are excluded from allowable
deductions.
4:24:51 PM at ease 4:26:12 PM
SENATOR SEEKINS moved Amendment 2B.
AMENDMENT 2B
OFFERED IN THE SENATE TO CSSB 305(RES), draft version 24-
GS2052\I (dated 3/27/06) BY SENATOR WAGONER
Page 7, line 14, after "amount of" insert:
"20 percent of that expenditure."
Page 7, lines 16 - 19, delete all material.
Page 7, line 30 - page 8, line 18, delete all
material.
Page 10, lines 26-27, following "Federal Energy
Regulatory Commission," insert:
"the"
Page 18, line 25, following "a pipeline, facility"
insert:
"other asset"
Page 18, line 28, following "successor" insert:
"regulatory"
Page 20, lines 12 - page 21, lines 3, delete all
material and insert deleted materials into Section 13
on page 10, line 28 as new subsection (i)
Page 10, line 28, renumber accordingly.
Page 20, line 31 - page 21, line 3: delete all
material.
Page 24, line 5: Insert new (s):
"(2) "ordinary and necessary" has the meaning given
"ordinary and necessary" in 26 U.S.C. 162 (Internal
Revenue Code) and regulations adopted under that
section;
Page 24, line 5, renumber accordingly.
Page 27, lines 31-32, and page 28, lines 1-3, delete
all material.
CHAIR WAGONER objected for discussion purposes and asked Ms.
Jackson to go through the amendment.
MS. JACKSON read Amendment 2B. Explanations, questions,
comments, discussion and motions follow.
Page 7, lines 15-19, relate to correcting the 30 percent
provision.
Page 7, line 30, through page 8, line 18, relates to correcting
the 30 percent provision.
SENATOR SEEKINS moved to amend Amendment 2B to delete lines 8-9
of. There being no objection, Amendment 1 to Amendment 2B
passed.
4:28:32 PM
MS. JACKSON asked that Senator Seekins' amendment delete lines
8-16.
SENATOR SEEKINS moved Amendment 2 to Amendment 2B to delete
lines 10-15. There being no objection, Amendment 2 to Amendment
2B passed.
4:30:33 PM
Page 20, line 12 through page 21, line 3, the purpose of
deleting the material is to move the subsection out of Section
22 and insert it in tax credits in Section 13.
CHAIR WAGONER explained that is to allow a 20 percent credit
instead of a 25 percent deduction.
4:31:44 PM
SENATOR BEN STEVENS asked if the correction is made so the new
section can be calculated against the determination.
CHAIR WAGONER said that hasn't been addressed, but he would
assume so. Basically it was transferred from the determination
of production tax value in Section 22 to tax credits in Section
13. If the language remained in Section 22 it would allow a
deduction of 25 percent instead of a credit of 20 percent under
Section 13.
BEN STEVENS expressed confusion because he thought the 25
percent was for loss carried-forward and he didn't believe that
producers that would exercise the transitional expenditures have
a loss carried-forward.
CHAIR WAGONER reminded him they discussed this last week and he
thought they reached concurrence.
SENATOR BEN STEVENS replied he concurs it shouldn't be a 25
percent rate. He mentioned the loss carried-forward on page 8,
line 19, and said he'd look it over and get back if he had
concerns.
ROBYNN WILSON said the 25 percent credit referred to on page 8,
line 19, talks about loss carried-forward, but it is a special
section within the general credit section. It starts on page 7,
line 9, and it gives a 20 percent credit. She said she believes
the 25 percent Senator Stevens referred to applies to loss
carried-forward and the general credit amount is 20 percent.
In Version I it is a deduction so with the 25 percent tax rate
it's worth 25 percent. Moving it into the credit section would
give a benefit of 20 percent rather than 25 percent. She said
she understands that to be the intention.
SENATOR BEN STEVENS said his understanding is that the only time
you get 25 percent credit is when there is a loss carried-
forward and he wouldn't classify a transition as a loss.
4:37:35 PM
Page 20, line 31 through page 21, line 3, relates to the
transition that wasn't removed.
Page 27, line 31 through page 28, lines 1-3 relates to the 30
percent deduction that should have been deleted.
CHAIR WAGONER asked if there were further questions or
discussion on Amendment 2B.
4:40:26 PM
SENATOR DYSON asked why the 30 percent deduction for exploration
was removed.
CHAIR WAGONER explained that was part of an earlier Cook Inlet
provision that called for a 20 percent tax and a 30 percent
credit. When it was changed to 5,000 barrels both were to be
removed. For some reason, reference to the 30 percent credit has
appeared in subsequent drafts.
CHAIR WAGONER removed his objection. Finding no further
objection he announced that Amendment 2B was adopted.
SENATOR SEEKINS moved CSSB 305(RES), Version I as amended, from
committee with individual recommendations and attached fiscal
notes.
SENATOR BEN STEVENS objected.
A roll call vote was taken and the motion to move CSSB 305(RES)
from committee passed with 5 yeas and 2 nays. Senator Elton,
Senator Kookesh, Senator Dyson, Senator Stedman, and Senator
Wagoner voted for and Senator Ben Stevens and Senator Seekins
voted against.
4:43:25 PM at ease 4:47:09 PM
There being no further business to come before the committee,
Chair Wagoner adjourned the meeting at 4:47:21 PM.
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