Legislature(2005 - 2006)BUTROVICH 205

02/25/2006 09:00 AM RESOURCES


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09:05:18 AM Start
09:05:29 AM SB305
09:07:41 AM Department of Law, Robert Mintz, Assistant Attorney General, Division of Oil, Gas and Mining
09:13:18 AM Dan Dickinson, Cpa, Consultant to Governor Murkowski
09:56:56 AM Department of Revenue, Bill Corbus, Commissioner
10:03:27 AM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Reconvene from 02/24/06 --
= SB 305 OIL AND GAS PRODUCTION TAX
Heard & Held
                    ALASKA STATE LEGISLATURE                                                                                  
              SENATE RESOURCES STANDING COMMITTEE                                                                             
                       February 25, 2006                                                                                        
                           9:05 a.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Senator Thomas Wagoner, Chair                                                                                                   
Senator Ralph Seekins, Vice Chair                                                                                               
Senator Ben Stevens                                                                                                             
Senator Bert Stedman                                                                                                            
Senator Kim Elton                                                                                                               
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                              
Senator Fred Dyson                                                                                                              
Senator Albert Kookesh                                                                                                          
                                                                                                                                
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)       Presentation by Administration                                                                         
02/25/06       (H)       RES AT 10:00 AM SENATE FINANCE 532                                                                   
                                                                                                                                
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
Robert E. Mintz, Assistant Attorney General                                                                                     
Oil, Gas & Mining Section                                                                                                       
Department of Law                                                                                                               
        th                                                                                                                      
1031 W 4 Ave, STE 200                                                                                                           
Anchorage, AK 99501                                                                                                             
POSITION STATEMENT:  Delivered a PowerPoint Presentation on SB                                                                
305.                                                                                                                            
                                                                                                                                
Dan E. Dickinson, CPA                                                                                                           
Consultant to Governor Murkowski                                                                                                
PO Box 110001                                                                                                                   
Juneau AK 99811-0001                                                                                                            
POSITION STATEMENT:  Delivered a PowerPoint Presentation on SB                                                                
305.                                                                                                                            
                                                                                                                                
Commissioner Bill Corbus                                                                                                        
Department of Revenue                                                                                                           
PO Box 110400                                                                                                                   
Juneau, AK  99811-0400                                                                                                          
POSITION STATEMENT:  Summarized SB 305 for the Governor.                                                                      
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
CHAIR  THOMAS  WAGONER  called   the  Senate  Resources  Standing                                                             
Committee meeting to  order at 9:05:18 AM.  Present were Senators                                                             
Kim Elton,  Ralph Seekins, Bert  Stedman, Ben Stevens,  and Chair                                                               
Thomas Wagoner.                                                                                                                 
                                                                                                                                
               SB 305-OIL AND GAS PRODUCTION TAX                                                                            
                                                                                                                                
9:05:29 AM                                                                                                                    
CHAIR THOMAS  WAGONER announced the  committee would  start where                                                               
they left off the previous day on SB 305.                                                                                       
                                                                                                                                
^Department  of Law,  Robert Mintz,  Assistant Attorney  General,                                                             
Division of Oil, Gas and Mining                                                                                               
                                                                                                                                
ROBERT E.  MINTZ, Assistant Attorney  General, Oil, Gas  & Mining                                                               
Section, Department of Law (DOL),  informed the committee that he                                                               
would go  through the  details of  SB 305 that  he didn't  get to                                                               
earlier.                                                                                                                        
                                                                                                                                
Section  1 expresses  legislative intent  with regard  to Section                                                               
11. That  section adds a  few words  to an existing  provision of                                                               
the production  tax act that has  been there for a  long time. It                                                               
deals with the  concept of what is called  "prevailing value." AS                                                               
43.55.020(f) says  where there is a  sale of oil and  gas and the                                                               
price is  below market value,  the department can require  tax to                                                               
be paid on the market value. The  question is what if there is no                                                               
sale at  all, for example, if  the same company that  produces it                                                               
refines  the oil  and gas.  The  department has  always used  the                                                               
concept of  prevailing value  to come up  with the  market value.                                                               
There was  a challenge to this  application a few years  ago that                                                               
was upheld in  a public hearing. While Mr. Mintz  wasn't aware of                                                               
any continuing  live controversy,  if the Legislature  does amend                                                               
the  production tax,  it would  be a  good idea  to clarify  that                                                               
point to avoid future challenges.                                                                                               
                                                                                                                                
9:07:41 AM                                                                                                                    
When  it  comes  to  calculating  gross value  at  the  point  of                                                               
production  in  section  152, the  bill  would  allow  simplified                                                               
formulas to  be used.  In that case,  there probably  wouldn't be                                                               
any  issue about  comparing prevailing  value  to something  else                                                               
anyway. That is covered in Sections 1 and 11.                                                                                   
                                                                                                                                
Sections  2 and  3 amend  the income  tax statute,  AS 43.20,  to                                                               
clarify  that the  production tax  still  remains deductible  for                                                               
income  tax purposes  and is  not added  back to  federal taxable                                                               
income  for income  tax purposes.  This has  always been  the way                                                               
production taxes  have been treated  and because  this production                                                               
tax changes  from gross value  to net  value, it is  important to                                                               
make sure the traditional treatment continues in the future.                                                                    
                                                                                                                                
The tax  laws have strong  confidentiality provisions  to protect                                                               
taxpayer information.  Some exceptions  exist in  connection with                                                               
an official investigation or proceeding  of the department. There                                                               
are few instances when due  process considerations for a taxpayer                                                               
would  argue in  favor of  that  taxpayer having  access to  some                                                               
particular information  that may have been  obtained from another                                                               
taxpayer. An example  of that is prevailing value,  which in some                                                               
cases  is  determined  in  part by  transportation  costs.  If  a                                                               
certain taxpayer is assessed a  tax based on prevailing value and                                                               
the transportation  cost element that went  into that calculation                                                               
is based in part on  transportation costs of other taxpayers, the                                                               
taxpayer whose tax is being determined  may have to find out what                                                               
the basis  of that was  - in order to  have an idea  whether it's                                                               
correct or  if it  should be  challenged. This  part of  the bill                                                               
confirms that  where it's necessary  to determine  the taxpayer's                                                               
liability,  he  can  have  some access  to  information  that  is                                                               
obtained  from  others. The  department  may  allow that  without                                                               
violating confidentiality statutes.                                                                                             
                                                                                                                                
Sections 4  and 16  amend AS 43.05.230  and 43.55.040  to clarify                                                               
rules for  using one taxpayer's information  to determine another                                                               
taxpayer's tax.                                                                                                                 
                                                                                                                                
9:10:25 AM                                                                                                                    
The bill also  says that the department  would impose appropriate                                                               
limitations on  the use of  that information  to make sure  it is                                                               
only used for the purpose of  determining the tax. The bill would                                                               
also  subject   recipients  of  that  information   to  potential                                                               
criminal  penalties,  the  same  penalties that  apply  to  state                                                               
employees who violate the confidentiality provisions.                                                                           
                                                                                                                                
9:11:10 AM                                                                                                                    
Section 5  is the core  of the bill  and was discussed  at length                                                               
the previous  day. Section  6 amends  AS 43.55.017(a)  to conform                                                               
language to the  internal revenue code (IRC) to  which it refers.                                                               
There is no substantive change here.                                                                                            
                                                                                                                                
9:11:59 AM                                                                                                                    
SENATOR BEN  STEVENS asked Mr. Mintz  whether expiration expenses                                                               
were considered development costs.                                                                                              
                                                                                                                                
^Dan Dickinson, CPA, Consultant to Governor Murkowski                                                                         
                                                                                                                                
DAN  DICKINSON,   CPA  and  Consultant  to   Governor  Murkowski,                                                               
responded  the  IRC talks  about  tangible  drilling costs.  Even                                                               
though they propose  to delete the word  "exploration," it really                                                               
refers to using a rig to  create tangible drilling costs and they                                                               
want to  make sure  it corresponds  to the  proper IRC  code. The                                                               
short answer is,  he said, yes it will  still include exploration                                                               
drilling.                                                                                                                       
                                                                                                                                
9:13:18 AM                                                                                                                    
Section  8 is  a  conforming  change that  gets  the grammar  and                                                               
syntax  consistent with  the  changes. Section  9  deals with  an                                                               
issue  that only  applies to  small production.  The overwhelming                                                               
bulk of oil  and gas produced in Alaska comes  from state oil and                                                               
gas leases and  the royalty share of those leases  belongs to the                                                               
state and  is tax  exempt. The  issue that  Section 9  deals with                                                               
only applies  to a small  minority of production, which  does not                                                               
come from state oil and gas leases.                                                                                             
                                                                                                                                
In case  of leases  on private land,  such as  Native Corporation                                                               
Land, the  royalty share is taxable.  The tax is accessed  on the                                                               
producer  but  the producer  can  charge  back  that tax  to  the                                                               
royalty owner.  The bill  provides a  default definition  of what                                                               
the  value is  for tax  purposes. If  the royalty  owner and  the                                                               
lessee want  to create an  agreement for royalty tax  share, they                                                               
can. The  default definition basically takes  the total statewide                                                               
tax  of the  producer divided  by the  non-royalty barrel,  which                                                               
gives  the tax-per-producer  barrel  and then  multiply that  tax                                                               
rate times the number of private royalty barrels.                                                                               
                                                                                                                                
9:16:09 AM                                                                                                                    
MR. DICKINSON explained the formula with two examples:                                                                          
The scenario is  a producer with two leases -  one a state lease,                                                               
the other  a private lease.  Each lease produces 100  barrels and                                                               
both  of the  royalty  shares  are 12.5  percent.  After all  the                                                               
netback, the  value of the  wellhead is 10 dollars.  To calculate                                                               
the taxes, take  the private royalties where all  the barrels are                                                               
taxable. In  the state  lease, only  the non-royalty  barrels are                                                               
taxable.                                                                                                                        
                                                                                                                                
9:19:39 AM                                                                                                                    
MR. DICKINSON explained the problem  with the formula is that the                                                               
private producer and  the royalty owner need to  work things out.                                                               
In the absence of that, Section 9 creates the rule.                                                                             
                                                                                                                                
SENATOR  BEN  STEVENS  asked  Mr.   Mintz  the  amount  of  state                                                               
production that falls under Section 9.                                                                                          
                                                                                                                                
MR. MINTZ  said he  did not  know but speculated  it was  a small                                                               
percentage.  The only  significant  private  lease production  is                                                               
Arctic Slope Corporation and Cook Inlet Region Incorporated.                                                                    
                                                                                                                                
MR.  DICKINSON  added  there are  additional  federal  royalties,                                                               
which are exempt  just like the state. The  private royalty share                                                               
is under one  percent currently. As the  exploration pushes west,                                                               
the percentage could increase.                                                                                                  
                                                                                                                                
SENATOR BEN STEVENS asked whether  private royalty share includes                                                               
both private landowners and federal land.                                                                                       
                                                                                                                                
MR.  DICKINSON said  they  are different.  Federal  land is  like                                                               
state land and is not taxable.                                                                                                  
                                                                                                                                
9:21:57 AM                                                                                                                    
MR. MINTZ  said Section 10  repeals and reenacts  AS 43.55.020(e)                                                               
to simplify the  three-tiered system where flared  gas was either                                                               
tax  free, taxed,  or  subject  to a  penalty.  The bill  changes                                                               
flared gas  to two  categories; if the  flaring is  authorized it                                                               
would not  be taxable,  if it  were not  authorized, it  would be                                                               
taxable and  treated with the same  formula as all the  other oil                                                               
and gas to  find the net value. There is  already and would still                                                               
be a penalty on flared gas that is wastefully prepared.                                                                         
                                                                                                                                
MR. DICKINSON  added Section 10 attempts  to bring administrative                                                               
simplicity to the  tax. Much time is spent  cross tracing records                                                               
and tracking down the tax and this makes it cleaner and simpler.                                                                
                                                                                                                                
9:24:38 AM                                                                                                                    
MR. MINTZ  continued Section  12 is the  tax credit  section that                                                               
was discussed previously. He asked Mr. Dickinson to comment.                                                                    
                                                                                                                                
MR. DICKINSON gave a brief  explanation of Section 12. Subsection                                                               
(a)  allows  the  annualizing  as  well  as  looking  at  monthly                                                               
actuals.   Subsection  (b)   deals   with  loss   carry-forwards.                                                               
Subsection (c)  talks about non-refundable credits.  He said they                                                               
tried to create  a situation where the market  could be developed                                                               
and credits  could be traded  but the state  would not be  in the                                                               
position of refunding or paying out for the use of the credits.                                                                 
                                                                                                                                
CHAIR  WAGONER  asked whether  there  was  danger of  creating  a                                                               
market  flood of  credits. He  asked  at what  point the  credits                                                               
cease to be sold.                                                                                                               
                                                                                                                                
MR. DICKINSON responded  at high and moderate  prices, the market                                                               
would not be  flooded. At low prices, there would  be a danger of                                                               
falling demand.                                                                                                                 
                                                                                                                                
CHAIR WAGONER  asked what would happen  to all of the  credits if                                                               
production were to stop. He  asked whether the state would become                                                               
liable to fund the credits.                                                                                                     
                                                                                                                                
9:28:53 AM                                                                                                                    
MR. DICKINSON responded  the credits would not  be refundable. In                                                               
fifty years, there may well be an overhang of unused credits.                                                                   
                                                                                                                                
CHAIR WAGONER asked whether that would  then result in a bonus to                                                               
the state.                                                                                                                      
                                                                                                                                
MR. DICKINSON said perhaps.                                                                                                     
                                                                                                                                
9:29:22 AM                                                                                                                    
SENATOR KIM ELTON  asked whether a discussion  was held regarding                                                               
time limits for the credits.                                                                                                    
                                                                                                                                
MR.  DICKINSON said  yes.  They  wanted to  limit  the number  of                                                               
restrictions  on the  credits so  as  to allow  them to  monetize                                                               
close  to  the  value  with  an eye  on  protecting  the  state's                                                               
revenue. A  limit on  the use  of credits was  imposed but  not a                                                               
limit on time.                                                                                                                  
                                                                                                                                
SENATOR  ELTON  said it  has  been  noted  that  it would  be  an                                                               
unstable situation  if the  state reimbursed  for the  credits at                                                               
100  percent. He  asked whether  that was  a larger  problem than                                                               
having the state not collect revenues at some point.                                                                            
                                                                                                                                
MR. DICKINSON  said yes  and no:  financially dollar  for dollar,                                                               
no. Paying out  a dollar or not receiving a  dollar has the exact                                                               
same effect on  the state treasury. If the  Department of Revenue                                                               
falls  short of  its projections,  and  it were  paid out,  there                                                               
would have  to be  a specific  authorization. In  the event  of a                                                               
price crash  and huge  pressures on  the budget,  the Legislature                                                               
would  be   approached  with  a   supplemental  bill   asking  to                                                               
supplement  the credits,  which would  probably not  be the  best                                                               
scenario.  One scenario  would require  an appropriation  and the                                                               
other would not.                                                                                                                
                                                                                                                                
SENATOR  ELTON  said  he  assumed that  scenario  would  be  less                                                               
beneficial to  the smaller companies  and more beneficial  to the                                                               
larger ones since the major  companies will be buying tax credits                                                               
that the smaller producers accumulate.                                                                                          
                                                                                                                                
9:32:51 AM                                                                                                                    
MR. DICKINSON said that was correct with some exceptions.                                                                       
                                                                                                                                
CHAIR WAGONER commented it would  still be very beneficial to the                                                               
smaller producers and explorers.                                                                                                
                                                                                                                                
MR. DICKINSON agreed.  He said what Senator Elton  was saying was                                                               
the restrictions  on them  would harm the  sellers more  than the                                                               
purchasers.                                                                                                                     
                                                                                                                                
SENATOR  ELTON said  the smaller  companies would  be getting  90                                                               
cents on the dollar instead of 100  cents on the dollar and so it                                                               
could  be more  beneficial to  the smaller  producers to  get 100                                                               
cents on the dollar.                                                                                                            
                                                                                                                                
CHAIR WAGONER said that is not going to happen.                                                                                 
                                                                                                                                
SENATOR STEDMAN said  it was more about cash  flow and protecting                                                               
the state's  interest. Allowing the smaller  and larger companies                                                               
to trade the credits allows the  market to set the value. He said                                                               
the state should  move in the direction of  a free-flowing market                                                               
that would allow them to trade the credits back and forth.                                                                      
                                                                                                                                
9:35:09 AM                                                                                                                    
MR. DICKINSON  summarized subsection  (e) referred to  the eighty                                                               
percent  limit on  uses of  credit  certificates. Subsection  (f)                                                               
refers to the  ability of the department to  investigate or audit                                                               
a  tax  credit  claim  after   the  drilling  season.  The  audit                                                               
adjustment goes  to the seller  of the credit. Subsection  (h) is                                                               
very important and defines "qualified capital expenditure."                                                                     
                                                                                                                                
9:37:51 AM                                                                                                                    
MR. MINTZ  turned the  committee's attention  to Sections  13, 14                                                               
and 15 and  said they mainly conform the  tax return requirements                                                               
to  the changes  in  the production  tax. The  $25  a day  filing                                                               
penalty  is  repealed.  There  was  at least  one  case  where  a                                                               
producer  with  a  very  small  interest in  a  field  whose  tax                                                               
payments were supposedly being taken  care of by the operator but                                                               
weren't.  Over time  the penalties  added up  to several  million                                                               
dollars, so there is a limited discretion to waive the penalty.                                                                 
                                                                                                                                
9:40:07 AM                                                                                                                    
Section  17 amends  AS 43.55.080  to conform  the statute  to the                                                               
Alaska State Constitution. Sections 18  and 19 conform and update                                                               
language for  AS 43.55.135  and .150(a).  Section 20  regards the                                                               
change  in calculating  the gross  value of  oil and  gas at  the                                                               
point of production.                                                                                                            
                                                                                                                                
9:41:25 AM                                                                                                                    
Section  21 is  another  core  part of  the  bill  and refers  to                                                               
determination of  net value on  which the tax is  based. Sections                                                               
22  through  29  amends  AS 43.55.200  and  43.55.300  concerning                                                               
conservations surcharges.  The two  substantive changes  are that                                                               
the  conservation surcharges  could be  taken as  credits against                                                               
the production  tax only to the  extent that there is  a positive                                                               
tax. There  wouldn't be any  refunds. Second, for  the production                                                               
tax  purposes, gas  is  currently tax-free  if it  is  used on  a                                                               
leaser property and  the bill would make oil tax-free  if used on                                                               
a  leaser   property  and  it   would  also  be  free   from  the                                                               
conservation surcharge.                                                                                                         
                                                                                                                                
MR. DICKINSON explained  because of the change  in the definition                                                               
of  oil and  gas,  the  natural gas  liquids  that are  currently                                                               
defined as gas would now be defined as oil.                                                                                     
                                                                                                                                
9:43:48 AM                                                                                                                    
MR.  MINTZ  continued  Section  30  and  32  provide  for  a  new                                                               
definition of  "gas." Section  31 redefines  "gross value  at the                                                               
point of production."  The point of production is  intended to be                                                               
downstream of  gas processing and  upstream of gas  treatment and                                                               
so the two need to be defined.                                                                                                  
                                                                                                                                
Section  33 defines  "gas processing"  and  "gas treatment."  Gas                                                               
processing  is   the  physical   process  of   extracting  liquid                                                               
hydrocarbons  from a  gaseous stream.  Gas treatment  is removing                                                               
non-hydrocarbon  substances and  conditioning gas  for the  sales                                                               
line.                                                                                                                           
                                                                                                                                
MR.  DICKINSON  explained a  diagram  regarding  well fluids  and                                                               
mechanical separation.                                                                                                          
                                                                                                                                
9:48:24 AM                                                                                                                    
MR. MINTZ continued  Section 34 repeals ELF.  Sections 35 through                                                               
40 are complicated due to  applicability and timing. The month of                                                               
production  determines   everything  under  the   production  tax                                                               
statute.                                                                                                                        
                                                                                                                                
Transition  provisions  relate  to several  provisions  that  are                                                               
based on a full calendar year but  SB 305 is designed to start on                                                               
July  1, 2006  so  adjustments  have to  be  made  toward a  half                                                               
calendar year.                                                                                                                  
                                                                                                                                
9:51:08 AM                                                                                                                    
CHAIR WAGONER asked the reason the  bill was so different when it                                                               
was previously  presented by the governor's  office. He expressed                                                               
concern  over the  gap in  revenues  during the  change of  start                                                               
dates.                                                                                                                          
                                                                                                                                
MR. DICKINSON  replied that changes  should be made in  a forward                                                               
manner so that companies can plan  ahead for the change in taxes.                                                               
The changes  reflect that Governor  Murkowski was looking  at the                                                               
bigger picture, he said.                                                                                                        
                                                                                                                                
9:54:37 AM                                                                                                                    
SENATOR  ELTON  observed  that Mr.  Dickinson's  argument  seemed                                                               
against the claw-back provision.  He said, "We're forward looking                                                               
when we  start the tax and  we're backward looking when  we apply                                                               
the credits."                                                                                                                   
                                                                                                                                
MR. DICKINSON  argued long-term  investments generally  take past                                                               
things into account.                                                                                                            
                                                                                                                                
9:55:27 AM                                                                                                                    
MR.  MINTZ  noted  the  provisions  that  have  to  do  with  the                                                               
production tax begin  on July 1, 2006 and  other provisions would                                                               
take  effect immediately.  As a  transition item,  the department                                                               
may develop  and adopt PPT implementing  regulations immediately.                                                               
The  term  "alternative  credit"  would  begin  to  be  used.  He                                                               
concluded the presentation.                                                                                                     
                                                                                                                                
^Department of Revenue, Bill Corbus, Commissioner                                                                             
                                                                                                                                
9:56:56 AM                                                                                                                    
BILL CORBUS,  Commissioner, Department of Revenue  (DOR), wrapped                                                               
up  the   presentation  and  advised   the  committee   that  the                                                               
administration strongly encourages timely  enactment of the bill.                                                               
He gave  a list of  reasons that Governor Murkowski  supports the                                                               
move.  It  will  replace  a   broken  ELF  based  severance  tax,                                                               
encourage  badly  needed  oil  and  gas  production  investments,                                                               
provide special incentives for small  explorers, and will provide                                                               
enhanced revenues for the state.                                                                                                
                                                                                                                                
9:58:46 AM                                                                                                                    
COMMISSIONER CORBUS explained Governor  Murkowski had two targets                                                               
for  Dr.  Pedro  van  Mures in  preparing  the  PPT  legislation,                                                               
increased state  revenues based on  what producers are  paying in                                                               
similar  oil  producing  regimes,  and  increased  incentives  to                                                               
explore and  invest in the  50 to  150 million barrel  range. His                                                               
final proposal  was a 25  percent tax rate  and a 20  percent tax                                                               
credit. The Governor  wanted to tilt toward  more exploration and                                                               
investment  and  so  he  reduced  the tax  rate  to  20  percent.                                                               
Governor Murkowski  feels that more  exploration would  mean more                                                               
money to the state over time than the 25 percent tax rate.                                                                      
                                                                                                                                
10:00:58 AM                                                                                                                   
MR.  CORBUS   reminded  the  committee  that   the  Governor  has                                                               
negotiated a good thing for the  State of Alaska. The tax rate of                                                               
the producers  will be  increased 100  percent and  the producers                                                               
have agreed to build the gas line.                                                                                              
                                                                                                                                
10:01:41 AM                                                                                                                   
CHAIR  WAGONER   thanked  Commissioner   Corbus  and   asked  Mr.                                                               
Dickinson for a report of investment dollars.                                                                                   
                                                                                                                                
MR. DICKINSON  responded he would  get together with  Ms. Jackson                                                               
to cover all  of the requests they have received  and get back to                                                               
the committee on Monday, February 27, 2006.                                                                                     
                                                                                                                                
There being  no further  business to  come before  the committee,                                                               
Chair Wagoner adjourned the meeting at 10:03:27 AM.                                                                           

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