Legislature(2005 - 2006)BUTROVICH 205

03/24/2006 10:00 AM RESOURCES


Download Mp3. <- Right click and save file as

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

Document Name Date/Time Subjects