Legislature(2011 - 2012)BUTROVICH 205

02/23/2012 03:30 PM RESOURCES

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03:33:41 PM Start
03:34:21 PM SB192
03:36:58 PM Department of Revenue Presentation: Access to Information and Fiscal Note
05:00:30 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
Access to Information, Fiscal Note Analysis and
Discussion of Committee Questions
Presentation by Bryan Butcher, Commissioner,
Department of Revenue
-- Testimony <Invitation Only> --
Bills Previously Heard/Scheduled
                    ALASKA STATE LEGISLATURE                                                                                  
              SENATE RESOURCES STANDING COMMITTEE                                                                             
                       February 23, 2012                                                                                        
                           3:33 p.m.                                                                                            
MEMBERS PRESENT                                                                                                               
Senator Joe Paskvan, Co-Chair                                                                                                   
Senator Thomas Wagoner, Co-Chair                                                                                                
Senator Bill Wielechowski, Vice Chair                                                                                           
Senator Bert Stedman                                                                                                            
Senator Lesil McGuire                                                                                                           
Senator Hollis French                                                                                                           
Senator Gary Stevens                                                                                                            
MEMBERS ABSENT                                                                                                                
All members present                                                                                                             
OTHER LEGISLATORS PRESENT                                                                                                     
Senator Cathy Giessel                                                                                                           
Senator Joe Thomas                                                                                                              
Senator Dennis Egan                                                                                                             
COMMITTEE CALENDAR                                                                                                            
SENATE BILL NO. 192                                                                                                             
"An Act relating to the oil and gas production tax; and                                                                         
providing for an effective date."                                                                                               
     - HEARD AND HELD                                                                                                           
DEPARTMENT OF REVENUE PRESENTATION: ACCESS TO INFORMATION AND                                                                   
FISCAL NOTE ANALYSIS                                                                                                            
     - HEARD                                                                                                                    
PREVIOUS COMMITTEE ACTION                                                                                                     
BILL: SB 192                                                                                                                  
SHORT TITLE: OIL AND GAS PRODUCTION TAX RATES                                                                                   
SPONSOR(s): RESOURCES                                                                                                           
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WITNESS REGISTER                                                                                                              
BRYAN BUTCHER, Commissioner                                                                                                     
Department of Revenue (DOR)                                                                                                     
Anchorage, AK                                                                                                                   
POSITION STATEMENT: Commented on access to information issues                                                                 
relating to oil and gas taxes.                                                                                                  
JOHANNA BALES, Deputy Director                                                                                                  
Tax Division                                                                                                                    
Department of Revenue                                                                                                           
Anchorage, AK                                                                                                                   
POSITION STATEMENT: Commented on access to information issues                                                                 
relating to oil and gas taxes.                                                                                                  
ACTION NARRATIVE                                                                                                              
3:33:41 PM                                                                                                                    
CO-CHAIR  JOE  PASKVAN  called   the  Senate  Resources  Standing                                                             
Committee meeting  to order at 3:33  p.m. Present at the  call to                                                               
order  were Senators  French, Stedman,  Co-Chair Wagoner  and Co-                                                               
Chair Paskvan.                                                                                                                  
            SB 192-OIL AND GAS PRODUCTION TAX RATES                                                                         
  PRESENTATION: ACCESS TO INFORMATION AND FISCAL NOTE ANALYSIS                                                              
3:34:21 PM                                                                                                                    
CO-CHAIR  PASKVAN   said  that   today,  [during   the  continued                                                               
consideration of  SB 192,] the  committee would learn  more about                                                               
the Department of Revenue's perspective  on access to information                                                               
and taxpayer  confidentiality. This issue first  presented itself                                                               
to him when he read the  December 30, 2011 decision regarding the                                                               
trial  de  novo on  the  assessed  valuation of  the  TransAlaska                                                               
Pipeline  system (TAPS).  In that  decision  Judge Gleason  wrote                                                               
that Alaska  statutes "grant  the division  certain investigative                                                               
powers," but that "there was  no persuasive evidence presented at                                                               
the  trial de  novo that  the division  has ever  exercised these                                                               
powers with respect to the  valuation of TAPS." Additionally, the                                                               
Judge wrote:                                                                                                                    
     The  division  broadly  interprets  what  it  considers                                                                    
     taxpayer  confidential   information  under  applicable                                                                    
     statutes and will not disclose  such information to the                                                                    
     municipality  specifically  or  public  generally.  The                                                                    
     division  considers all  information  that it  receives                                                                    
     from a  taxpayer and taxpayer  confidential even  if it                                                                    
     does not  contain the  particularities of  a taxpayer's                                                                    
     business  affairs and  is  obtainable  from the  public                                                                    
CO-CHAIR PASKVAN  said there  is more in  the decision  about the                                                               
issue  of confidentiality  and it  has been  discussed in  detail                                                               
during a prior hearing, but  today is the Department of Revenue's                                                               
3:35:42 PM                                                                                                                    
SENATOR STEVENS joined the committee.                                                                                           
^Department of  Revenue Presentation:  Access to  Information and                                                               
Fiscal Note                                                                                                                     
3:36:58 PM                                                                                                                    
BRYAN BUTCHER,  Commissioner, Department  of Revenue  (DOR), said                                                               
he would  start out  with describing  how the  assessment process                                                               
works, and then dig into  relevant confidentiality statutes, then                                                               
how the department  gathers in formation and talk  a little about                                                               
the State  Assessment Review Board (SARB),  subpoena power, joint                                                               
and administrative  agreements, municipal codes and  the benefits                                                               
of  confidentiality. He  said that  the  confidentiality laws  in                                                               
Alaska are  not a lot  different than  any state or  IRS taxpayer                                                               
applications. He asked Ms. Bales to go through those details.                                                                   
CO-CHAIR PASKVAN listed the department  members available on line                                                               
and thanked the commissioner for  his hard work in assembling the                                                               
3:38:06 PM                                                                                                                    
SENATOR MCGUIRE joined the committee.                                                                                           
3:38:50 PM                                                                                                                    
JOHANNA  BALES,  Deputy  Director, Tax  Division,  Department  of                                                               
Revenue, introduced  herself and  said she  would start  off with                                                               
the assessment process since  the confidentiality presentation is                                                               
driven by the SARB and property tax assessment process.                                                                         
She  said  the  preliminary  assessment  is  done  by  the  state                                                               
assessor who puts  the property tax roll  together. Taxpayers are                                                               
required  to  provide  the  division   with  their  property  tax                                                               
renderings  by January  1, each  year. Then  the Tax  Division is                                                               
required  to value  all  the  property and  send  a property  tax                                                               
statement to each taxpayer by March  1, a pretty quick process. A                                                               
copy of  the assessment  at that  time is  also provided  to each                                                               
municipality in  which the property  is located so that  they are                                                               
given notice  of the  assessed value. Taxpayers  have 20  days or                                                               
until March 21  to appeal the assessment. The  division must then                                                               
look at  that and  issue an  informal conferenced  decision (ICD)                                                               
and  look at  any additional  information that  is provided,  and                                                               
that is due on March 31, within 10 days of that appeal.                                                                         
3:40:35 PM                                                                                                                    
She said taxpayers  and municipalities that don't  agree with the                                                               
final assessment can appeal to the  SARB and that is due by April                                                               
20. SARB must  conduct a hearing and finalize  its proceedings no                                                               
later  than May  31 and  the certified  assessment based  on that                                                               
hearing is due on June 1; tax payments are due June 30.                                                                         
3:41:16 PM                                                                                                                    
She went  next to  how confidentiality  fits into  the assessment                                                               
process. One of the two  confidentiality statutes is AS 43.05.230                                                               
(where  all tax  statutes are  located). It  says basically  that                                                               
it's "unlawful  for a  current or former  employee or  officer or                                                               
agent  of  the   state  to  divulge  the  amount   of  income  or                                                               
particulars  set out  or disclosed  in  a report  or return  made                                                               
under  this  title." This  is  information  about the  income  or                                                               
particulars  set out  in  a  report or  return  and they  receive                                                               
reports from companies that are not necessarily taxpayers.                                                                      
CO-CHAIR PASKVAN asked if that is  a report on income or a return                                                               
on income.                                                                                                                      
MS. BALES replied that the  statutes aren't clear on whether it's                                                               
just a  report or a return.  Some reports are not  related to tax                                                               
return  calculations.   For  example,  under  the   oil  and  gas                                                               
production  the   division  gets  monthly  reports   for  revenue                                                               
forecasting. Those  aren't tax returns but  they are confidential                                                               
and  they come  from taxpayers  and other  explorers who  are not                                                               
She related  that AS 40.25.100(a),  the public  records statutes,                                                               
says information  that comes  to the  Department of  Revenue that                                                               
discloses the particulars of a  business or affairs of a taxpayer                                                               
or  other person  is  not  a matter  of  public  record and  that                                                               
information is confidential.                                                                                                    
CO-CHAIR PASKVAN asked what "particulars" are.                                                                                  
MS. BALES replied  that she interprets that very  broadly to mean                                                               
that information provided  by any taxpayer or other  person is to                                                               
remain  confidential. She  noted that  they receive  hundreds and                                                               
thousands of  documents every year  and it wouldn't  be practical                                                               
for them to  make a determination on every  document. Besides, if                                                               
it discloses information about a  taxpayer or another person that                                                               
information should be held confidential.                                                                                        
SENATOR FRENCH asked if she  thought the state's statutes need to                                                               
be changed  given how inclusive it  is. For example, if  he asked                                                               
her if  ConocoPhillips filed  a tax return  last year,  she would                                                               
not be able answer that question.                                                                                               
MS. BALES said she couldn't disclose  whether or not they filed a                                                               
return and  that their  mission is to  collect taxes  and keeping                                                               
information  confidential assists  them  in their  ability to  do                                                               
3:45:48 PM                                                                                                                    
CO-CHAIR  PASKVAN  asked  if  they  receive  production  forecast                                                               
MS. BALES answered yes.                                                                                                         
CO-CHAIR PASKVAN asked why that information is confidential.                                                                    
MS.  BALES  replied  because  it  would  be  considered  business                                                               
COMMISSIONER  BUTCHER  added  that   reserves  of  companies  are                                                               
historically very  tightly kept as  an affair of  that particular                                                               
business. As they  are working with companies to  put together an                                                               
accurate production forecast  it would have a  chilling effect if                                                               
a company  thought their reserve  and estimates  information were                                                               
going to be shared on a company-by-company basis.                                                                               
CO-CHAIR PASKVAN  said he received  specific information  from BP                                                               
about their reserves and identified  six specific categories. So,                                                               
the commissioner  is saying  they treat  that information  with a                                                               
high  level   of  confidentiality   but  it   was  unhesitatingly                                                               
disclosed yesterday.                                                                                                            
COMMISSIONER  BUTCHER replied  that he  didn't know  if that  was                                                               
just a  snapshot and  that a  company can  decide to  provide any                                                               
information in  any context  it likes. But  it wouldn't  like the                                                               
department doing that.                                                                                                          
3:49:30 PM                                                                                                                    
SENATOR  STEDMAN  said  he  thought the  state  should  know  the                                                               
resource wealth in  its ownership at least in  the aggregate; the                                                               
department should  know that  and the  legislature needs  to know                                                               
that to set public policy.                                                                                                      
COMMISSIONER  BUTCHER  said  DNR  and  the  Alaska  Oil  and  Gas                                                               
Conservation Commission  (AOGCC) do  know aggregate  totals based                                                               
on  their   information,  but  it's  fairly   broad  because  the                                                               
specifics  don't exist  until an  area is  actually explored  and                                                               
SENATOR MCGUIRE  said the kind  of data taxpayers  should provide                                                               
is  a valid  conversation, but  the  broader question  is if  the                                                               
Department of  Revenue should be  the place it goes.  Maybe AOGCC                                                               
or  DNR would  be  a better  choice. She  suspected  the IRS  has                                                               
similar requirements.                                                                                                           
CO-CHAIR PASKVAN  commented that an  order from the  court, dated                                                               
December 29, 2011, addresses this issue. Page 2 says:                                                                           
       This court order that for all fields with three or                                                                       
         more producers or explorers the categories of                                                                          
     production  in that  field including  under development                                                                    
     and under  evaluation would be public.  For fields with                                                                    
     less  than three  or more  producers or  explorers only                                                                    
     the total production would be public.                                                                                      
3:52:39 PM                                                                                                                    
MS. BALES responded  that their internal policy is  just that; if                                                               
they can aggregate information of  three or more taxpayers and be                                                               
assured  that  no  particular   information  about  a  particular                                                               
taxpayer can be ascertained, then they  can do that and have done                                                               
so.  They  have  some  concern  in areas  with  less  than  three                                                               
3:53:13 PM                                                                                                                    
SENATOR WIELECHOWSKI joined the committee.                                                                                      
MS. BALES explained  further that AS 43.05.230(g)  allows them to                                                               
aggregate information  if the particulars of  a specific taxpayer                                                               
can't  be ascertained.  They would  start  with information  from                                                               
three businesses  as the aggregation  point, but if  they believe                                                               
someone else  could figure out  what information came  from which                                                               
company they are also required to insure that doesn't happen.                                                                   
3:54:33 PM                                                                                                                    
CO-CHAIR PASKVAN  asked why  the court's order  as to  the public                                                               
nature of these  documents having already been decided  is not in                                                               
effect at this time.                                                                                                            
MS.  BALES answered  that it's  possible that  they had  three or                                                               
more  but the  second  provision  kicked in  and  they felt  that                                                               
information could be  figured out for a  particular taxpayer. For                                                               
instance,  if you  have  three steady  years  of production  with                                                               
three  companies and  another  one comes  in  and the  production                                                               
spikes, that would be indicative of specifics.                                                                                  
CO-CHAIR PASKVAN said they are  talking about production data and                                                               
when one looks  at spring 2011 and  fall 2011 there is  a loss of                                                               
nearly 80,000 barrels in that  six-month gap. What data would the                                                               
department receive that  would eliminate 79,000 barrels  of oil a                                                               
day?  It's troubling.  And it  would  now seem  under this  court                                                               
order that the data is public.                                                                                                  
3:56:44 PM                                                                                                                    
COMMISSIONER BUTCHER  replied that he  would look at that  to see                                                               
if it  fits under the  operating guidelines. The Gleason  case is                                                               
active and  open the  Department of  Law has  advised not  to get                                                               
into details of a case that is currently being litigated.                                                                       
CO-CHAIR PASKVAN concurred that was  a prudent position, but they                                                               
are talking about  underlying data and source  documents that can                                                               
produce  dramatic   swings  in  the  production   forecast  in  a                                                               
relatively  short period  of  time  - and  has  now been  ordered                                                               
MS.  BALES  said the  aggregation  data  amounts not  the  actual                                                               
underlying data.                                                                                                                
CO-CHAIR PASKVAN said it appears the court resolved that issue.                                                                 
3:58:49 PM                                                                                                                    
MR. BALES said  their internal policy right now is  that they can                                                               
aggregate data  from three  or more taxpayers  and give  a single                                                               
number and  don't disclose  who they are.  They also  ensure that                                                               
they   don't   violate   any   part   of   AS   43.05.230   about                                                               
unintentionally disclosing a particular taxpayer's information.                                                                 
3:59:13 PM                                                                                                                    
CO-CHAIR PASKVAN remarked that a court order trumps your policy.                                                                
COMMISSIONER BUTCHER said  they understand what he  is saying and                                                               
in  this case  Ms. Bales  is trying  to point  out that  is their                                                               
policy. The reason  why the aggregation is of  three companies is                                                               
because if  it were  two companies, company  A knowing  what they                                                               
are producing would immediately know what Company B was doing.                                                                  
4:00:21 PM                                                                                                                    
SENATOR   FRENCH   went   back    to   his   hypothetical   about                                                               
ConocoPhillips filing  a tax  return last year  and asked  if the                                                               
statute lets them publish a list of delinquent taxpayers.                                                                       
MS.  BALES replied  yes, but  only if  they are  publishing those                                                               
lists to engage in collection activities.                                                                                       
SENATOR FRENCH asked if the  delinquency exception is strictly to                                                               
get them to pay their taxes.                                                                                                    
MS.  BALES replied  yes, but  it's twofold.  They must  have some                                                               
focused collection  activity. And just because  a taxpayer hasn't                                                               
filed a return doesn't necessarily mean he is delinquent.                                                                       
4:01:53 PM                                                                                                                    
SENATOR FRENCH  asked if they filed  a tax return and  didn't pay                                                               
their taxes would they be delinquent.                                                                                           
MS. BALES responded yes.                                                                                                        
SENATOR  FRENCH asked  if they  could  file a  tax check  without                                                               
filing a return.                                                                                                                
MS. BALES  answered yes, but they  would be subject to  a failure                                                               
to file penalty  if their tax liability changed. A  penalty is up                                                               
to 25 percent  of the additional tax due. They  don't get a whole                                                               
lot of taxpayers not filing.                                                                                                    
4:02:54 PM                                                                                                                    
She noted there are some  significant penalties, up to $5,000 for                                                               
each   breach  of   confidentiality,   for  disclosing   taxpayer                                                               
information in  addition to  potentially two  years in  prison or                                                               
CO-CHAIR PASKVAN noted that Senator Thomas was in the audience.                                                                 
MS.  BALES  pointed  out that  during  ACES  legislation  several                                                               
legislators voiced  concerns about the Tax  Division's ability to                                                               
keep taxpayer  information confidential and  discussed increasing                                                               
penalties for breaches of it.  Although their internal policy has                                                               
been what  she stated for 19  years, they actually didn't  have a                                                               
written policy until December 2007.  The policy is very broad and                                                               
outlines some exceptions for sharing information.                                                                               
4:04:43 PM                                                                                                                    
MS.  BALES  said she  would  next  talk about  their  information                                                               
gathering procedures, things they do  with all tax types focusing                                                               
on  property tax.  Basically, they  compel  taxpayers to  provide                                                               
information  in  various ways.  They  are  required to  file  tax                                                               
returns and  in the  case of  property tax  they are  required to                                                               
send in their property renderings;  they are required to sign the                                                               
tax  returns   either  under  penalty   of  perjury   or  unsworn                                                               
falsification.  They   also  receive  information   for  economic                                                               
research  and forecasting  purposes  in  the producers'  reports;                                                               
those aren't signed.                                                                                                            
CO-CHAIR PASKVAN asked if she  was aware of information regarding                                                               
about reserves  being retained as  confidential by  the operators                                                               
that is not disclosed.                                                                                                          
MS. BALES replied she was not  aware of that. They have something                                                               
different than what they have provided?                                                                                         
CO-CHAIR PASKVAN replied  yes and that the use  of subpoena power                                                               
could provide them to the department.                                                                                           
MS. BALES  acknowledged that  and went  back to  the presentation                                                               
saying taxpayers and municipalities  can appeal to Superior Court                                                               
if  they  disagree  with  the SARB  decision.  The  property  tax                                                               
assessment is based on information  obtained during the year that                                                               
the property  was rendered. When the  companies or municipalities                                                               
appeal to the  Superior Court it happens a couple  of years later                                                               
and often the information the  court is looking at is information                                                               
that wasn't in existence at the time the assessment was done.                                                                   
4:08:37 PM                                                                                                                    
CO-CHAIR  PASKVAN said  he thought  the  information existed  but                                                               
wasn't  obtained  by the  department.  The  parties obtained  the                                                               
information that was in existence through the subpoena power.                                                                   
MS.  BALES  replied  that  it   was  possible  that  all  of  the                                                               
information   wasn't  in   existence  specifically   relating  to                                                               
production plans  and fields under  evaluation (and  reserves for                                                               
the valuation  of the  pipeline); they are  talking about  a 2007                                                               
assessment year that didn't go to court until 2011.                                                                             
4:10:11 PM                                                                                                                    
SENATOR  STEDMAN said  Judge Gleason  referenced 7  to 8  billion                                                               
barrels and  the AOGCC referenced 4  billion and asked if  he was                                                               
following along correctly.                                                                                                      
CO-CHAIR  PASKVAN  replied they  were  talking  about the  spread                                                               
between  those   two  numbers,  and  the   in-house  confidential                                                               
documents  that  were obtained  through  the  court process  that                                                               
leads to the court relying on  the internal documents saying 7 to                                                               
8 billion as compared to the other documents.                                                                                   
COMMISSIONER BUTCHER  said he thought  Ms. Bales was  saying when                                                               
the case went to court any  information that could be gathered in                                                               
2011 was  at use  in the case  whereas when they  came up  with a                                                               
TAPS evaluation or  an estimate of reserves it was  made in 2007,                                                               
2008 or  2009. They  were really  getting to  the point  of going                                                               
into what  the Department of  Law had asked  them not to  do, the                                                               
details of the case.                                                                                                            
4:11:54 PM                                                                                                                    
MS. BALES reminded them of  the short timeframe in the assessment                                                               
process  between the  time property  is rendered,  the assessment                                                               
goes out and the informal  conference decision. All the available                                                               
information is looked at at that time.                                                                                          
4:12:37 PM                                                                                                                    
She   said  that   SARB   was  created   under   Title  43,   the                                                               
confidentiality  statutes,  However  in  1983  there  was  an  AG                                                               
opinion  saying  the SARB  proceedings  are  public, because  the                                                               
information SARB provides at the  hearings is simply the property                                                               
and its  value. The value of  the property at that  time was just                                                               
the cost  since TAPS was  relatively new.  Now they are  into the                                                               
situation  where the  value  of  TAPS is  based  on reserves  and                                                               
things like  that. One of the  things the opinion stated  is that                                                               
any  other taxpayer  information or  other information  about the                                                               
affairs of the taxpayer must be held confidential.                                                                              
CO-CHAIR PASKVAN asked her to fill  out a little more who sits on                                                               
the State Assessment Review Board.                                                                                              
MS. BALES  answered that SARB  is created  within the DOR;  it is                                                               
made  up of  five members  with certain  qualifications primarily                                                               
from the municipal property tax  appraisers. So the board is made                                                               
up  of municipal  property tax  appraisers throughout  the state;                                                               
their qualifications are generally  in real estate appraisal. The                                                               
municipal appraising  process is  public as  well, but  you can't                                                               
see money  that was  put into  the property. That  is one  of the                                                               
difficulties in having  public hearings in SARB. To  do that type                                                               
of evaluation  for TAPS specific taxpayer  information, reserves,                                                               
plans of production and things like that are brought in.                                                                        
She  said the  board conducts  public hearings  and meets  once a                                                               
year on  May 21. One  of the issues is  that it doesn't  hold the                                                               
taxpayer information confidential. They  believe this is a public                                                               
hearing and  therefore it's  all public  information, but  the AG                                                               
opinion  says it  must  be  held confidential  even  at the  SARB                                                               
CO-CHAIR PASKVAN remarked that they  are in a situation where she                                                               
said SARB information is considered  public, but the department's                                                               
policy is  that information is  confidential and asked if  any of                                                               
the   parties  appearing   before   SARB   have  asserted   their                                                               
MS. BALES replied yes. Some of  the oil companies have asked that                                                               
their  information  be protected  and  SARB  issued a  protective                                                               
order, but SARB believes they don't  have the ability to do that.                                                               
She believes that is where there is a disconnect.                                                                               
She explained that  one of the concerns of  the municipalities in                                                               
a hearing a  couple of weeks ago was that  they weren't receiving                                                               
all the  information they needed  for the SARB hearings  and that                                                               
would be  true, because  those hearings are  open to  the public.                                                               
And  the  department  didn't   provide  the  information  because                                                               
taxpayer information would be disclosed.  SARB has told them they                                                               
wouldn't  issue protective  orders even  though industry  and the                                                               
department have both requested them.                                                                                            
4:19:16 PM                                                                                                                    
CO-CHAIR   PASKVAN  said   paragraph   8  in   the  court   order                                                               
specifically  addresses this  issue. The  SARB body  in its  2010                                                               
decision indicated with respect  to this taxpayer confidentiality                                                               
that "the  process is  close to  broken and  headed in  the wrong                                                               
MS. BALES  said she was aware  of that statement, but  this is an                                                               
area she couldn't discuss because of ongoing litigation.                                                                        
COMMISSIONER  BUTCHER  said  he  didn't  know  specifically  what                                                               
detail  was broken,  but clearly  the  process by  which SARB  is                                                               
running its meetings is broken in  that it is limiting the amount                                                               
of  data  that  is  assessed  because of  the  policy  of  making                                                               
confidential information public. It is  very difficult to have as                                                               
rounded a discussion  as could occur if it  would actually follow                                                               
state law in keeping confidential information confidential.                                                                     
SENATOR FRENCH asked  if anyone had begun a  legal action against                                                               
SARB to hold them in violation of AS 43.05.230(f).                                                                              
MS. BALES replied  because they know that SARB will  not hold the                                                               
information confidential,  the department hasn't provided  it. So                                                               
there has  been a  violation of  the statute.  That is  where the                                                               
process is broken.                                                                                                              
4:23:00 PM                                                                                                                    
SENATOR  FRENCH  asked relative  to  her  second bullet  if  they                                                               
intend to  not release confidential  information or that  they in                                                               
fact had released confidential information  and if it's the later                                                               
where did it come from.                                                                                                         
MS. BALES  replied SARB has  told the department they  won't hold                                                               
the  information confidential.  She  wasn't sure  there wasn't  a                                                               
period where they released information  and said she would check.                                                               
In that  case, the taxpayer  would have  to take issue  with that                                                               
and to her knowledge no one had ever asked for a proceeding.                                                                    
SENATOR FRENCH absolved  her of a follow up  saying he understood                                                               
the current lay of the land.                                                                                                    
CO-CHAIR  PASKVAN noted  that she  had identified  the 1983  AG's                                                               
opinion saying this is an open  public process and asked if there                                                               
is another AG opinion saying it is not.                                                                                         
MS. BALES  answered no and  explained that the 1983  opinion says                                                               
that  SARB can  hold  the proceedings  publicly  because at  that                                                               
time, 29  years ago, the  information being used in  property tax                                                               
assessments was  not the reserves  data, plans of  production and                                                               
things like  that. It was  simply the  cost of the  pipeline. Now                                                               
the TAPS  assessment is based  on reserves information,  plans of                                                               
production  and  future  activity  of the  pipeline.  So  the  AG                                                               
opinion  says  two  things:  one  it can  be  open  because  that                                                               
information isn't disclosed, but  if that information is provided                                                               
and used it must be protected. That's where the disconnect is.                                                                  
CO-CHAIR  PASKVAN asked  if  the reason  SARB  is requesting  the                                                               
reserve  information is  because  the legislature  said it  needs                                                               
this information to come up  with a full and accurate assessment.                                                               
Statute says SARB  needs to get this information,  the process is                                                               
a public one, and the DOR is withholding it from SARB.                                                                          
COMMISSIONER BUTCHER said he had  some discussions about the SARB                                                               
proceeding, but  he was unaware  of the legislative  directive to                                                               
SARB  at  the  time  to gather  more  information.  However,  the                                                               
Department  of Law's  opinion that  confidential  data should  be                                                               
kept confidential  would trump  a SARB directive  in the  eyes of                                                               
the department, anyway.                                                                                                         
4:27:38 PM                                                                                                                    
MS. BALES said their concern is  that SARB is reading one part of                                                               
the AG  opinion but  not the  second part  and that  contains the                                                               
reason why the department doesn't provide that information.                                                                     
CO-CHAIR  PASKVAN said  AS 43.56.060(e)(2)  talks about  the SARB                                                               
process  and using  proven reserves  for its  assessment and  the                                                               
Department of  Revenue in implementing  that in 15  AAC 56.110(c)                                                               
says that  the full and  true value  of the pipeline  property is                                                               
based  upon  the  estimated  life of  the  proven  reserves  then                                                               
technically,  economically  and  legally  deliverable.  Both  the                                                               
legislature and the DOR said  they need the information regarding                                                               
reserves  and SARB  is  saying  there is  a  broken process  with                                                               
respect to how TAPS is being valued.                                                                                            
COMMISSIONER BUTCHER said the Gleason  case is still open and not                                                               
everything in  the decision is  accurate. He wouldn't  agree with                                                               
SARB's opinion on this issue.                                                                                                   
MS.  BALES  said one  of  the  municipalities' concerns  is  that                                                               
information isn't provided during  the SARB proceedings, but they                                                               
would be  willing to  provide it  to all parties  if it  was held                                                               
confidential in  accordance with  the statutes the  department is                                                               
governed by.                                                                                                                    
CO-CHAIR  PASKVAN  asked  how  you   have  a  public  hearing  if                                                               
everything that is said can't be public.                                                                                        
MS. BALES  replied that  is not different  than a  Superior Court                                                               
hearing that  is public,  but the court  has closed  sessions for                                                               
confidential items. It happens.                                                                                                 
4:32:18 PM                                                                                                                    
MS.  BALES said  AS 43.05.040(a)  grants the  department subpoena                                                               
power, but they  are time consuming and expensive -  and they can                                                               
be appealed  - making the  short timeframes between  rendering of                                                               
property, the  initial assessment value,  the ICD and  the appeal                                                               
to SARB difficult.                                                                                                              
CO-CHAIR PASKVAN asked her to define "expensive."                                                                               
MS.  BALES replied  expensive in  terms of  taxpayer appeals  and                                                               
having to go to court and  to compel them to follow the subpoena;                                                               
the subpoena itself  is not expensive. The  department has issued                                                               
subpoenas -  she signed  three last year  - and  fortunately they                                                               
weren't appealed.  They are used  sparingly, because you  have to                                                               
know what documents you are  looking for (although sometimes they                                                               
have  used  catch-all subpoenas  to  get  all documents  used  in                                                               
calculating  a tax  or a  report).  Also it's  important to  know                                                               
specifically  in  the  property  assessment  world  that  issuing                                                               
subpoenas in  a process  that has  10 days  to issue  an informal                                                               
conference decision and  a 10-day appeal is  somewhat useless and                                                               
they  have  actually  found  the discovery  process  to  be  more                                                               
fruitful for property tax issues.                                                                                               
4:35:34 PM                                                                                                                    
SENATOR  WIELECHOWSKI  asked  if  the  department  was  aware  of                                                               
information in  BP's internal  documents indicating  that Prudhoe                                                               
and Kuparuk would  be cash flow positive through  2054 along with                                                               
reserves estimates and values.                                                                                                  
MS. BALES  replied she  would have  to talk  to the  property tax                                                               
assessor to  find out what documents  he used, but at  trial they                                                               
are four years  down the road and some documents  weren't even in                                                               
existence at  the time.  The court is  looking at  different data                                                               
than what was available to them in 2007.                                                                                        
SENATOR WIELECHOWSKI said some reserves  information was filed in                                                               
10K forms and  asked if the department looks  at that information                                                               
periodically  or  is it  something  they  discovered in  a  court                                                               
hearing along with everyone else.                                                                                               
MS. BALES replied that auditors  understand what they are looking                                                               
at;  their job  at  the DOR  is  to find  a  fair and  reasonable                                                               
valuation for  TAPS and a fair  and reasonable tax at  the end of                                                               
the  day. They  do ask  questions and  most times  they get  very                                                               
reasonable responses.                                                                                                           
4:38:53 PM                                                                                                                    
She said  under property  tax statutes they  have the  ability to                                                               
enter  into joint  administrative agreements  with municipalities                                                               
because they use the department's  valuation for property tax for                                                               
their property  tax in their respective  municipalities. But they                                                               
can only enter into those  agreements with a municipality for the                                                               
cooperative or joint administration of the assessment authority.                                                                
MS. BALES said  they had an agreement for several  years with the                                                               
North  Slope Borough  for sharing  information.  The North  Slope                                                               
Borough had two  property tax auditor positions  that worked very                                                               
closely with  the DOR.  But those two  employees retired  and the                                                               
borough chose not  to fill those positions; so  the agreement was                                                               
CO-CHAIR PASKVAN  asked who said  that they didn't want  to enter                                                               
into the agreement that this statute allows.                                                                                    
COMMISSIONER BUTCHER replied  that a letter from  Marcia Davis at                                                               
the time  discusses the situation and  she would be happy  to get                                                               
that to the committee.                                                                                                          
CO-CHAIR PASKVAN  said he  was told  that specific  paragraph was                                                               
COMMISSIONER BUTCHER asked what specific part.                                                                                  
CO-CHAIR   PASKVAN   said    "continue   to   cooperative   joint                                                               
administration  of  the  property  tax  function."  He  said  the                                                               
statute  currently  says  "may"  and  asked  if  he  objected  to                                                               
changing it to "shall" enter into agreements....                                                                                
4:41:52 PM                                                                                                                    
COMMISSIONER BUTCHER  asked if that  would basically  be ordering                                                               
the department  and the municipality  to go into an  agreement as                                                               
opposed to having it as a possibility.                                                                                          
CO-CHAIR PASKVAN  said it  would change  the discretion  for both                                                               
from "may" to "shall".                                                                                                          
COMMISSIONER BUTCHER  said from discussions  he has had  with the                                                               
department  about the  joint  administrative  agreement issue  is                                                               
that  municipalities   didn't  want  to  provide   the  necessary                                                               
resources to  assist in the  assessment function. It  didn't come                                                               
from the department because working  with the North Slope Borough                                                               
for the 10 years worked very well.                                                                                              
4:43:24 PM                                                                                                                    
CO-CHAIR  WAGONER said  if they  change the  wording they  are as                                                               
guilty of heavy handedness as the federal government is.                                                                        
CO-CHAIR PASKVAN added if a  municipality says they want to enter                                                               
into an agreement.                                                                                                              
CO-CHAIR WAGONER  said that  would be fine,  but don't  force the                                                               
municipality into having to have an agreement.                                                                                  
MS. BALES said they enjoyed  working with the North Slope Borough                                                               
that provided  a lot of  assistance and great resources.  She has                                                               
had  discussions  with  a couple  of  other  municipalities  that                                                               
wanted to enter into agreements,  but they didn't want to provide                                                               
the  resources  needed  to  assist   them  in  the  property  tax                                                               
function.  And their  understanding of  those agreements  is that                                                               
they are  not just for  the department to provide  information to                                                               
the municipalities,  but there  is supposed  to be  a cooperative                                                               
working arrangement.                                                                                                            
MS. BALES noted that some  of these municipalities have their own                                                               
codes that allow  them to get information  regarding the property                                                               
that is within their jurisdiction.                                                                                              
4:46:09 PM                                                                                                                    
She summarized that  the benefits of confidentiality  in terms of                                                               
tax  administration lead  to cooperation  between the  department                                                               
and its taxpayers, it fosters  trust, it lends credibility to the                                                               
division  and it  aids in  obtaining  information without  costly                                                               
SENATOR STEDMAN  said he understands confidentiality,  but he was                                                               
concerned about the huge discrepancy  between the AOGCC estimates                                                               
of reserves  and what  was referenced by  Judge Gleason  when she                                                               
had  the  opportunity  to  look  at  the  confidential  data.  He                                                               
remarked,  "When  you're  a  100  percent  out  in  dealing  with                                                               
hundreds of billions of dollars  there's something wrong with the                                                               
COMMISSIONER  BUTCHER agreed,  but  with no  disrespect to  Judge                                                               
Gleason that was her opinion; he  has talked to DNR and the AOGCC                                                               
and  felt comfortable  with the  state's estimate  of recoverable                                                               
SENATOR  STEDMAN  asked if  he  has  access to  the  confidential                                                               
information  that  Judge  Gleason  had and  information  in  BP's                                                               
"Black Box  Room" for liquidation  or potential selling  of their                                                               
company and said not having that data is what concerned him.                                                                    
COMMISSIONER BUTCHER replied  that he would have  to discuss that                                                               
in  detail  with  the  team that  puts  the  production  forecast                                                               
together.  For the  most  part  they have  been  given access  to                                                               
anything  they have  asked  the  companies for  as  they put  the                                                               
reserves estimates together.                                                                                                    
4:50:06 PM                                                                                                                    
SENATOR STEDMAN said the discrepancy is too big.                                                                                
SENATOR WIELECHOWSKI  asked if the  commissioner agreed  with the                                                               
administration's Gaffney  Kline memo  of Oct  15, 2007  that said                                                               
many  believe  "the  state  is  at  a  disadvantage  to  the  oil                                                               
companies  in  auditing  their  compliance  as  little  data  are                                                               
routinely provided to  the state." They testified  the same thing                                                               
in front of the Resources Committee again last year.                                                                            
COMMISSIONER BUTCHER  said he  didn't have a  specific yes  or no                                                               
answer  to  that;  he  agreed   there  is  information  that  the                                                               
department  could get  that they  haven't  had, and  they gave  a                                                               
presentation as  to how they are  going about doing that.  At the                                                               
beginning of  last year's  session when he  started this  job and                                                               
began digging into  what was known, he was surprise  at what they                                                               
didn't  know  and that  they  had  statutory  powers to  get  the                                                               
information.  They just  hadn't  used it.  He  explained that  he                                                               
didn't want  to "throw the  Department of Revenue under  the bus"                                                               
because they were in the process of  moving from a gross tax to a                                                               
net tax and  were very busy. But the state  could and should have                                                               
more and they are working to  get that information. He added that                                                               
Alaska has more information than  any other jurisdiction in North                                                               
SENATOR WIELECHOWSKI said knowing the  economics of the fields is                                                               
critically important  now because  they are  considering changing                                                               
the  tax  structure.  They  have   been  accused  of  inexcusable                                                               
trustfulness with  the oil companies by  a judge in the  past and                                                               
they want  to make  sure the people's  resource gets  managed for                                                               
the maximum benefit.                                                                                                            
The oil  companies have been saying  for over a year  if you roll                                                               
back oil taxes they would  develop IPad (that is uneconomic under                                                               
ACES), and when he asked the  director of the Division of Oil and                                                               
Gas yesterday  if it  was being  held up  because of  economic or                                                               
technical reasons,  he answered  technical. This  is the  kind of                                                               
lack of  information they  are dealing with  in trying  to figure                                                               
out what  they are going  to do to  spur more development  to get                                                               
more oil in the pipeline.                                                                                                       
COMMISSIONER  BUTCHER said  they have  far more  information than                                                               
when PPT or  ACES was passed, and anyone who  thought they should                                                               
have  passed either  of those  and now  thinks they  shouldn't be                                                               
taking action because they don't  have enough information doesn't                                                               
ring particularly true.                                                                                                         
CO-CHAIR  PASKVAN  said  that  was   troubling,  because  he  was                                                               
inferring that trying to get information is a bad goal.                                                                         
COMMISSIONER  BUTCHER responded  that  getting  information is  a                                                               
good goal. He  meant when decisions have been made  with far less                                                               
information, it's difficult to understand.                                                                                      
4:55:37 PM                                                                                                                    
SENATOR WIELECHOWSKI  responded when they  worked on ACES  he had                                                               
two  binders of  DOR  economic analysis  on  fields, net  present                                                               
values, rates of  return and such, but he hadn't  seen one single                                                               
document  like  that from  the  department  this session  and  he                                                               
hadn't been  able to  tell one  single field  project development                                                               
that is  uneconomic under  ACES. They  had that  information when                                                               
they did ACES.                                                                                                                  
COMMISSIONER BUTCHER said he wasn't  saying because they had less                                                               
information  they  were  being  irresponsible;  they  were  being                                                               
responsible. But now they have  more information and the decision                                                               
could still be made responsibly.                                                                                                
SENATOR STEDMAN said he rarely  agreed with Senator Wielechowski,                                                               
and  maybe  they  could  work together  and  update  the  fields'                                                               
4:57:04 PM                                                                                                                    
COMMISSIONER BUTCHER said  he would be happy to do  that. He also                                                               
mentioned that  they can share all  this confidential information                                                               
with the legislature in an  executive session; that has been done                                                               
in the  past. But  the issue  is the  public release  of taxpayer                                                               
4:57:52 PM                                                                                                                    
MS.  BALES  summarized  that confidentiality  statutes  are  very                                                               
broad,  so  all  information   they  receive  regarding  business                                                               
affairs or  taxpayer information  is confidential.  She discussed                                                               
the SARB and  said it is important to note  that a complaint they                                                               
have  heard is  that  municipalities don't  have  access to  this                                                               
information;   but  they   actually  have   access  to   all  the                                                               
information  at  Superior  Court.  If  they  could  work  on  the                                                               
problems they  have with the  SARB the department could  get that                                                               
information to them sooner.                                                                                                     
When  information is  provided in  an administrative  proceeding,                                                               
whether it  be executive  session of  the legislature  or through                                                               
the SARB, the  issue is that the information  then isn't suddenly                                                               
public. The  division is allowed  to release it for  tax purposes                                                               
only. So,  that information  cannot be  used in  other litigation                                                               
that doesn't involve  taxes under Title 43. Again,  she said they                                                               
are willing to enter into  agreements with municipalities so they                                                               
can  have information,  but those  municipalities  would have  to                                                               
incur some  costs along with  the DOR  in doing the  property tax                                                               
assessments.  The  intent of  those  MOUs  isn't simply  to  give                                                               
municipalities information.                                                                                                     
CO-CHAIR  PASKVAN thanked  the participants  and held  SB 192  in                                                               
5:00:30 PM                                                                                                                    
There being  no further  business to  come before  the committee,                                                               
Co-Chair  Paskvan   adjourned  the  Senate   Resources  Committee                                                               
meeting at 5:00 p.m.                                                                                                            

Document Name Date/Time Subjects
DOR_ Access to Info-Confidentiality_02-23-12.pdf SRES 2/23/2012 3:30:00 PM
SB 192