03/09/2011 03:30 PM Senate RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| SB85 | |
| SB49 | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 85 | TELECONFERENCED | |
| *+ | SB 49 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
SENATE RESOURCES STANDING COMMITTEE
March 9, 2011
3:34 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
Representative Mike Doogan
Representative Les Gara
COMMITTEE CALENDAR
SENATE BILL NO. 85
"An Act providing for a tax credit applicable to the oil and gas
production tax based on the cost of developing new oil and gas
production; and providing for an effective date."
- HEARD & HELD
SENATE BILL NO. 49
"An Act relating to the interest rate applicable to certain
amounts due for fees, taxes, and payments made and property
delivered to the Department of Revenue; relating to the oil and
gas production tax rate; relating to monthly installment
payments of estimated oil and gas production tax; relating to
oil and gas production tax credits for certain expenditures,
including qualified capital credits for exploration,
development, and production; relating to the limitation on
assessment of oil and gas production taxes; relating to the
determination of oil and gas production tax values; making
conforming amendments; and providing for an effective date."
- HEARD & HELD
PREVIOUS COMMITTEE ACTION
BILL: SB 85
SHORT TITLE: TAX CREDIT FOR NEW OIL & GAS DEVELOPMENT
SPONSOR(s): SENATOR(s) WAGONER
02/07/11 (S) READ THE FIRST TIME - REFERRALS
02/07/11 (S) RES, FIN
02/25/11 (S) RES AT 3:30 PM BUTROVICH 205
02/25/11 (S) Heard & Held
02/25/11 (S) MINUTE(RES)
02/28/11 (S) RES AT 3:30 PM BUTROVICH 205
02/28/11 (S) Heard & Held
02/28/11 (S) MINUTE(RES)
03/07/11 (S) RES AT 3:30 PM BUTROVICH 205
03/07/11 (S) Heard & Held
03/07/11 (S) MINUTE(RES)
03/09/11 (S) RES AT 3:30 PM BUTROVICH 205
BILL: SB 49
SHORT TITLE: PRODUCTION TAX ON OIL AND GAS
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
01/19/11 (S) READ THE FIRST TIME - REFERRALS
01/19/11 (S) RES, FIN
03/09/11 (S) RES AT 3:30 PM BUTROVICH 205
WITNESS REGISTER
BRYAN BUTCHER, Commissioner-designee
Department of Revenue (DOR)
Anchorage, AK
POSITION STATEMENT: Presented SB 49 to the committee.
SUSAN POLLARD, Assistant Attorney General
Division of Oil, Gas and Mining
Department of Law (DOL)
Juneau, AK
POSITION STATEMENT: Provided technical walk-through of SB 49.
CHERIE NIENHUIS, Acting Chief Economist
Department of Revenue (DOR)
Anchorage, AK
POSITION STATEMENT: Commented on SB 49.
LENNIE DEES, Master Auditor
Department of Revenue (DOR)
Juneau, AK
POSITION STATEMENT: Commented on SB 49.
ACTION NARRATIVE
3:34:10 PM
CO-CHAIR JOE PASKVAN called the Senate Resources Standing
Committee meeting to order at 3:34 p.m. Present at the call to
order were Senators Wielechowski, Stedman, McGuire, French,
Stevens, Co-Chair Wagoner, and Co-Chair Paskvan.
SB 85-TAX CREDIT FOR NEW OIL & GAS DEVELOPMENT
3:34:57 PM
CO-CHAIR PASKVAN announced SB 85 to be up for consideration and
invited Senator Wagoner, sponsor of SB 85, to make a statement.
CO-CHAIR WAGONER said he wanted to hold the bill for another
week, so they would have something that would be easier to
model. Therefore, SB 85 was held.
3:35:57 PM
SB 49-PRODUCTION TAX ON OIL AND GAS
CO-CHAIR PASKVAN announced SB 49 to be up for consideration. He
said the bill's sponsor would explain the rationale behind it.
He outlined future discussions on the bill and said he intends
to inform the public as soon as he knows what the agenda will
be.
3:38:23 PM
BRYAN BUTCHER, Commissioner-designee, Department of Revenue
(DOR), stepped forward to present SB 49 to the committee.
COMMISSIONER BUTCHER said the bill covers primarily three topics
as well as some smaller ones. The first one, progressivity rates
and cap, had gotten a lot of discussion in the building as well
as in the press. He explained that SB 49 keeps the base rate of
the current production tax of 25 percent and keeps the same
progressivity slope but changes from having each additional
dollar of progressivity applying to the rest of the barrel to a
bracket model similar to federal income taxes - where earnings
from $0-$30,000 would be taxed at a 10 percent tax rate and
$30,000-40,000 might be taxed at a 15 percent rate, and as one
makes more money the higher tax bracket applies to that bracket
but not the entire income.
3:40:17 PM
The second major change looks at leases or properties that have
not been unitized or have not been producing as of the last day
in 2010 and starts those with a base tax rate of 15 percent
instead of 20 percent. This provision is trying to incentivize
development of areas on the North Slope, in particular, that
have not been developed yet. This bill will also change the
current progressivity cap of 75 percent to 50 percent and to 40
percent for undeveloped fields. So, the progressivity slope
would be the same, but shifted down 10 percent for areas that
haven't been developed.
The third major thing the bill does is it expands the 40 percent
well lease expenditure tax credits from south of 68 degrees
(from the last legislature) to north of 68 degrees to include
the North Slope.
One of the smaller pieces of the bill is that it changes tax
credits being claimed from a two-year period to a one-year
period. The effect would be to increase the dollar amount the
state would pay out toward taxes in the first year of 2012, but
it would go down the next year and flatten out thereafter.
COMMISSIONER BUTCHER said SB 49 also changes the monthly
Alaska's Clear and Equitable Share (ACES) tax calculation to a
yearly calculation, because that makes it easier for the
department to administer and clearer for industry to understand.
He then invited Ms. Pollard to go into a little more detail.
3:43:18 PM
SUSAN POLLARD, Assistant Attorney General, Division of Oil, Gas
and Mining, Department of Law (DOL), said her goal today was to
do a technical walk-through of SB 49, so at the end of the
presentation they would have a good idea of where changes were
made to existing law and what each section of the bill intends
to accomplish. She said she would use the effective dates for
the major components for her general walk through. The
progressivity rates and tax cap are covered in sections 8, 9 and
20; the base tax rate is in section 6 (page 3); tax credits are
covered in the next seven sections; most of them being
conforming amendments. Interest rate changes, statute of
limitations and effective dates follow. It is important to
remember that the default effective date in this bill happens to
be July 1, 2011 because of the interest rate changes. She
cautioned them to be careful with amendments because of the
three or four different effective dates.
3:46:09 PM
MS. POLLARD said the three major components of this bill are
establishment of incremental progressivity, establishment of a
separate rate for base fields and the extension of last year's
well lease expenditure credit to the North Slope.
She explained that currently the based tax of 25 percent is
levied by AS 43.55.011(e) and in SB 49 that remains the same;
the monthly progressivity tax is calculated under subsection (g)
and that has been changed in section 8 to be calculated on an
annual basis. But there is still a requirement that monthly
estimated payments are made based on the base rate and the
progressivity. So, even though the progressivity is going to be
calculated annually, there will still be monthly payments.
MS. POLLARD said the language that explains how both the base
tax rate and the incremental progressivity will be applied is in
section (9) on page 4, beginning on line 12. You calculate the
average annual production tax value as is currently done and
then calculate the fraction of the production tax value that
would fall into each incremental progressivity bracket. Then
only the value that is in that bracket is taxed at that higher
rate, which is a change from the current system where the
highest value dollar percentage applies to all dollars below
that. Section 8 (g)(1) applies the progressivity to all the
fields that are going to be subject to the 25 percent rate.
Instructions for calculating the progressivity begin on page 5,
line 4; the brackets themselves are listed on page 5, lines 18-
25.
3:50:26 PM
CO-CHAIR PASKVAN asked if it would be helpful for the
commissioner to explain the use of the term "nominal" production
tax rates.
COMMISSIONER BUTCHER replied:
'Nominal' is simply the number that would appear in
the bill...as not comparing it to real dollars or just
comparing it to what the actual number that is applied
in legislation would be, which is 25 percent.
MS. POLLARD said, "This segues nicely because this does make
that change to how the nominal rate is calculated, because it is
now just the production within that particular bracket. And
that's all set out in section 8 of the bill."
3:51:52 PM
She said a related section, section 9, beginning on page 5, line
26, repeals and reenacts language because it would be too
confusing otherwise. This section covers payment of the tax
which is levied under AS 43.55.011(e), and some of the tax
payment that is determined under (g). Section .020 of the
production tax gives instructions on how the tax is paid for the
monthly installments.
Section 9 takes into account the change in progressivity from
the monthly basis to the annual basis and instructs the
taxpayers on how to make their monthly estimated tax payments
and how each category of production tax value is reported. Those
segments begin on page 6 and appear again in the section dealing
with annual production tax value. She said this section makes
sure that for every area where there is a separate tax value -
North Slope and Cook Inlet oil and gas and gas used in state -
that the monthly reporting takes that into account.
SENATOR WIELECHOWSKI asked what the impact would have been over
the past three years if ACES payments had been calculated yearly
instead of monthly.
COMMISSIONER BUTCHER replied for 2009 and 2010 calculating taxes
on a yearly basis would bring the state just under $100 million
less. The most volatile year for oil prices in history was 2008
when that figure was around $600 million. He added the state
would have seen in the range of $100-200 million less for each
year over 10 years with the exception of 2008.
SENATOR WIELECHOWSKI clarified that the state would have lost
$800 million over the last three years if this provision had
been in ACES.
COMMISSIONER BUTCHER answered yes.
SENATOR WIELECHOWSKI asked if he projected that the state would
lose another $100-200 million every year for the next decade.
COMMISSIONER BUTCHER replied a lot would depend on how volatile
oil was. Over 2009 and 2010, the state treasury would have lost
less than $100 million.
SENATOR WIELECHOWSKI said he didn't see those numbers reflected
in his fiscal note.
COMMISSIONER BUTCHER responded that that is because the bill
changes the progressivity calculation and it would be impossible
to look into the future and make an estimate of what the result
might be.
SENATOR STEDMAN asked if the administration intends to present
what policy calls were made with these decisions.
3:57:55 PM
COMMISSIONER BUTCHER replied yes, they are planning on doing
that this Friday.
SENATOR STEDMAN recalled that several years ago this committee
put the original progressivity in the PPT, because with the
[current] flat 20 percent base tax, the state's share of profit
oil under advancing oil prices diminishes. That was
unacceptable. Legislators put in progressivity that raised the
state's share as prices advanced as a policy call; and under
ACES it was raised even more. So, he thought it would be
beneficial to spend some time on a thorough review of why the
policy calls were made - and make sure the public understands.
CO-CHAIR PASKVAN agreed that those policy issues need to be
fully understood in order to understand what choices have to be
addressed.
MS. POLLARD continued on to the incremental bracketed
progressivity in section 8 and the fact that there would still
be monthly payments and how they would be calculated (in section
9). A new 15 percent tax rate segment was added to the
determination of production tax value for oil and gas in section
20, starting on page 13. This section is repealed and reenacted
to make it easier to read and to clean up tax ceiling language
that will expire in 2022 that wasn't taken into account when the
current AS 43.55.160 was structured.
The basic rules for determining the annual production tax value
remains the same, but they have added segments (a term used by
the DOR in their regulations, not in the legislation) on page 14
that have a different tax treatment. They make sure they include
all possible categories of taxation including the 15 percent
rate and the 25 percent rate within both of those rates as well
as anything subject to Cook Inlet ceilings or gas used in the
state ceilings and the minimum taxes considered in the section
.020 reporting.
4:02:00 PM
SENATOR WIELECHOWSKI asked her to refresh him about the point of
the year 2022.
MS. POLLARD answered there are some tax limitations that apply
to gas and oil produced in Cook Inlet and gas produced anywhere
in the state for consumption as fuel. Those tax ceilings expire
in 2022.
SENATOR WIELECHOWSKI asked if that is being changed.
MS. POLLARD answered that is not being changed.
SENATOR STEDMAN asked the chairman in future presentations to go
back and look at why 2022 was in there in dealing with Cook
Inlet, and the potential for a major gas line and other "policy
creep issues" from Cook Inlet - ring fencing and some incentives
- expanding north from Cook Inlet to the North Pole. The history
needs to be understood; 2022 is not in there "just by
happenchance."
SENATOR WIELECHOWSKI asked the commissioner if he had given any
thought to ring fencing for legacy fields or other fields or any
thought to decoupling oil and gas.
COMMISSIONER BUTCHER replied no. While the administration is
willing to have that discussion, that is not the focus of this
legislation, but rather to increase production.
4:06:00 PM
SENATOR STEDMAN said he wanted the committee to look at the
decoupling issue and that maybe they would end up with a better
product because of it.
MS. POLLARD stated there are some specific rules that relate to
lease expenditures for production that are subject to the tax
ceilings. That is also in section .160 which is not changed.
SENATOR WIELECHOWSKI said lease expenditures is another issue to
add to the list of the things that need to be discussed. He
asked how the regulations are going regarding the lease
expenditures that were supposed to be enacted after ACES. Are
those complete and does the department have the full ability to
audit those lease expenditures?
MS. POLLARD replied that most of the lease expenditure
regulations are done, the main component being in 15 AAC 55.250
and .260. She didn't know of any regulations that need to be
completed.
COMMISSIONER BUTCHER added that he wasn't aware of any either.
He said that Lennie Dees, Master Auditor, Department of Revenue
(DOR), would give his presentation next week.
4:09:03 PM
MS. POLLARD said the next major component of the bill is found
in section 6 that amends AS 43.55.011(e), where the production
tax is levied. The main change is that the entire tax
calculation is in subsection (g) - as opposed to the current
setup where the base rate for production tax values under $30
oil is listed in (e). The reason for that is because that is
annual whereas the progressivity was done on a monthly basis.
So, they have what she refers to simply as "(e)(1) production,"
- or "oil and gas produced from a lease or property containing
land that, as of December 31, 2010, was or had previously been
within a unit or in commercial production, would be subject to
the current 25 percent rate plus the incremental progressivity
in .011(g)(1)." The new fields production that would be subject
to the 15 percent rate plus the progressivity in (g)(2) is
listed on page 3, line 17.
CO-CHAIR PASKVAN asked for an explanation of the distinction
between a parcel of land that is classified as a unit and one
that is not classified as a unit, because that's the distinction
in the tax.
COMMISSIONER BUTCHER replied that the lessor property cannot be
in a unit, in an area that had been unitized for production, or
be in commercial production prior to December 31, 2010.
MS. POLLARD added that DNR was involved in figuring out the
language that would best implement the policy. So, both the
lessor property and a unit are defined within the production
tax; a unit is like a state unit or a unit under federal land.
She said a DNR person could do a more detailed explanation.
SENATOR STEDMAN said he would be happy to hear their
justification for the 15 percent base tax versus some other
number.
MS. POLLARD stated that was the "technical walkthrough" of those
four sections.
4:13:30 PM
She explained that the third major component of the bill - the
policy direction - was to expand the 40 percent well lease
expenditure credit to the North Slope. The well lease
expenditure credit was added to section .023 last year in HB
280, the Cook Inlet Recovery Act, and at first it was limited to
Cook Inlet, but now it extends out of Cook Inlet and south of 68
degrees north. The actual language of the credit remains exactly
the same, but the language that would keep that credit out of
North Slope is simply taken out.
CO-CHAIR PASKVAN asked if there has been a calculation of what
the additional credit would amount to going forward.
COMMISSIONER BUTCHER replied that the fiscal note estimates it
to be $200-400 million annually.
SENATOR WIELECHOWSKI asked how they came up with that estimate.
COMMISSIONER BUTCHER invited Ms. Nienhuis who prepared the
fiscal note to answer that question.
4:17:08 PM
CHERIE NIENHUIS, Acting Chief Economist, Department of Revenue
(DOR), said their information from which to make that estimate
is limited and that is why they provide a range. The department
gets some forward-looking drilling cost estimates from
operators, because they do ask for projections. But because only
the intangible drilling costs pertain to this credit they
estimated about 85 percent of the drilling costs they saw
forward looking and used a pretty conservative estimate.
SENATOR WIELECHOWSKI asked if these numbers are based on what
producers said they are already planning on drilling.
MS. NIENHUIS replied that it has that component to it; they also
increased the number slightly because they thought more drilling
would be seen with this provision.
SENATOR WIELECHOWSKI asked if this applied to infield drilling
on Prudhoe and the North Slope.
MS. NIENHUIS replied this would apply to any kind of drilling
that has intangible drilling costs.
SENATOR WIELECHOWSKI asked if she had run any numbers on
internal rates of return (ROR) for the infield drilling programs
on the North Slope.
MS. NIENHUIS replied no, although they had done internal rates
of return for various modeling projects.
SENATOR STEDMAN asked why not.
4:19:26 PM
MS. NIENHUIS replied probably because they weren't looking at it
on a project type basis, but they could.
SENATOR STEDMAN asked if Gaffney Cline, the administration's
consultants, had looked at the total credit impacts, the gold
plating and rates of return issues. Some oil basins have whole
fiscal structures based on rate of return, he said. He wanted
them to pay particular attention to the profit oil split,
because ultimately they are moving cash from the sovereign to
the industry and from the industry to the sovereign. He also
wanted to get some idea of sensitivity issues and, if they are
looking at credit increases, base tax changes, annual v.
monthly, and the step v. the slope change to progressivity. He
said he has been concerned since they started expanding credits
that the impact is huge and he is not convinced that credits are
the solution to the problem. He hadn't even heard a problem
defined, yet.
COMMISSIONER BUTCHER said they are certainly willing to model
anything he asks them to do.
CO-CHAIR WAGONER said he didn't know why this bill took the 40
percent drilling credit out of Cook Inlet, which was supposed to
incent additional drilling and exploration for gas, and put it
on the North Slope and applied it to infield drilling for oil.
COMMISSIONER BUTCHER responded that the governor had a bill last
year and this is the essence of that bill.
SENATOR WIELECHOWSKI asked for copy of the Gaffney Cline model
of infield drilling at Prudhoe Bay with $80/barrel oil and
$30/barrel oil under the current ACES structure; it had a 123
percent rate of return.
CO-CHAIR PASKVAN asked for an explanation of footnote 6 on page
2 of the fiscal note and the context of the phrase "DOR has very
limited data."
4:24:50 PM
MS. POLLARD explained that when she says they have limited data,
it's because they have forward-looking information from
operators; sometimes it's for one year, sometimes for several
years. Sometimes they get more detail with some units than with
others, so she means they can draw some conclusions and
assumptions from that data, but it's not all-encompassing.
SENATOR WIELECHOWSKI said the DOR's consultant, Rick Ruggerio,
has testified in the House that Alaska has very limited data
compared to other sovereigns, and he wanted to know where the
data gaps are.
COMMISSIONER BUTCHER responded that he hoped to have their data
spreadsheet by this week and it would show where the gaps are.
MS. NIENHUIS reiterated that this does not change the credit
that went into effect for expenditures after July 1, 2010
because it was enacted in last year's legislative session. The
effective date on this particular credit provision would be
January 1, 2012 and it would apply to expenditures after
December 31, 2011.
If the credit is changed so that the well lease expenditure
credit applies to expenditures north of 68 degrees, then there
are conforming amendments they will see made to AS 43.55.028,
which is where certain producers can get a cash refund for
credit - just to reflect the change in the credit provisions and
the repeal of .023(m).
SENATOR WIELECHOWSKI asked if the bill changes the 20 percent
credit to 40 percent. His understanding is that it jumps up to
40 percent three miles outside of existing units.
MS. POLLARD answered not for this particular credit. Senator
Wielechowski was referring to the alternate tax credit for
exploration in section .025. The credit under .023, which is
where the well lease expenditure is, doesn't have the distance
limitations that the exploration tax credit does.
SENATOR WIELECHOWSKI asked if the tax credit under sections 15
and 16 is currently 20 percent or if this is a tax credit that
exists only in Cook Inlet right now.
COMMISSIONER BUTCHER answered that it currently applies south of
68 degrees north latitude.
SENATOR WIELECHOWSKI asked how effectively the 40 percent tax
credit south of 68 degrees is working.
COMMISSIONER BUTCHER replied since the bill passed last session
and has been in effect less than one year, they don't have any
solid data, but they do hear things anecdotally.
4:30:10 PM
CO-CHAIR PASKVAN asked if the $200-400 million was in addition
to the $850 million in gross credits being projected for fiscal
year (FY) 2012.
COMMISSIONER BUTCHER answered yes, but they did as Ms. Nienhuis
said, ratcheted it up with the expectation that there would be
more spending as a result of these credits.
SENATOR FRENCH asked a more general question about the theory
behind the bill; was it to reduce taxes and get more exploration
that eventually leads to more oil production that leads to more
tax income or is that money given away in the interests of an
operating pipeline and more jobs?
COMMISSIONER BUTCHER answered that one piece of the answer is
that they would be presenting reinvestment scenarios that will
give them an idea of what amount of reinvestment would need to
occur and what level of production they believe will be the
result. The second piece is, and what the governor has
emphasized, is up to the industry that will be in front of the
committee at some point and will have a role in telling
legislators what they think SB 49 will do.
SENATOR STEDMAN asked him to gather up all of the revenue from
royalties, the base tax, progressivity, property and income
taxes from the last seven years before PPT, so they can look at
the entire picture of revenue due to the state from the oil
industry. He thought it was interesting that the FY12 budget has
$860 million in credits and $700 million in progressivity, so
the industry net wouldn't pay any progressivity.
COMMISSIONER BUTCHER replied that he didn't know specifically
what those numbers are, but he has talked to the chairman and
would be providing a comparison of credits and progressivity
very similar to what Senator Stedman is asking for.
4:34:44 PM
SENATOR STEDMAN said the reason he asked is that the state
doesn't have the ability to look at individual companies; they
have to look at the basin as a whole. But across the basin as a
whole there is zero projected progressivity to be paid. That
progressivity is one of the key issues, although he hasn't heard
the argument about why it's wrong yet. The issue before them is
the splitting of the profit oil at high oil prices. Industry
needs to be asked what these credits are generating.
SENATOR WIELECHOWSKI said they have heard that the hundreds of
millions of tax credits the state is giving out aren't leading
to any more exploration or any more drilling and asked the
commissioner what makes him think that increasing the credits to
40 percent will lead to any additional drilling.
COMMISSIONER BUTCHER answered that this is a piece of a larger
view. Companies have come in under ACES and explored over the
last few years and are excited about the credits that got them
here, but when they got to the point of trying to find deeper
pocketed partners to move it to a production unit (where the
progressivity piece kicks in), that is where they have been
dealing with the lack.
SENATOR MCGUIRE said there is a disconnect; it appears those who
are in a position to produce are using credits for things like
maintenance. She wanted the department to use its data to break
down the numbers showing it's clear that the explorers are
benefiting and what credits they are using. The new jobs that
have been created on the North Slope, which are very few, have
gone to those maintenance-type jobs and she is leaning towards
giving the credits once oil has been produced, which is where
they would benefit Alaska. She wanted to see from the department
an analysis of where the $3 billion in credits have been used.
4:40:30 PM
At ease 4:40:30-4:40:59.
4:40:59 PM
COMMISSIONER BUTCHER responded that when their credit expert
gives his presentation next week, the committee will learn
everything the department knows - which is a lot more than they
knew pre-PPT, but not as much as they would like to know. All of
what they would like to know they can get statutorily, but they
just haven't put the regulations out to get it. That is
something they are working on very actively now.
CO-CHAIR WAGONER asked him to talk about item 6 on the second
sheet of the fiscal note. He was curious about where the $200-
$400 million spread came from and how that came about. For
instance, just how many wells were drilled on the North Slope
last year?
MS. NIENHUIS responded that she didn't have the number of wells
drilled although she could find that number again. She looked at
well related expenditures rather than the number of wells. Not
every producer uses the same terms for what they are going to
do. Typically, she said, 75-85 percent of drilling costs are
intangible, and she applied the higher of those two numbers and
came up with a conservative range.
SENATOR WIELECHOWSKI said Senator McGuire did a good job of
summarizing his thoughts, but he heard Mr. Ruggerio testify in
the House last week that the state's tax credits for exploration
are some of the best in the world; he didn't know why they need
expanding in that area when they see a company like Repsol
coming in and spending $700-800 million. That loop is closing.
MS. POLLARD summarized the only changes in SB 49 happen in AS
43.55.023(the capital credits provision). The main components in
the bill to pay attention to are the expansion of the 40 percent
to the North Slope and second, when section .023 was enacted in
2006, it didn't have the language that required that credits be
split over two-years. That language was added in ACES, and she
recalled that was more of a reactive addition as opposed to
something proactive. There were concerns about what would happen
with some of the credits under ACES, so there was this idea that
if you had a credit certificate you could only apply half of it
in one year. So, another important component of the governor's
bill is to remove that language. Legally that would be fine as
well as removing an administrative tangle that is caused now by
some credits having to be split and others not, particularly in
conjunction with section the well lease expenditure credit
provision (section .023(m)).
She explained that some credits that occur outside of Cook Inlet
and below the North Slope are not split whereas credits that are
incurred on the North Slope are still split. That language would
be cleaned up in sections 11, 12, 14 and 24 of the SB 49 and
credits would be issued as one; the effective date for those
would be January 1, 2012. So, they would just muddle through the
rest of this year with the split/non-split issue.
CO-CHAIR PASKVAN said it would be nice to hear the policy
reasons why the split occurred initially and what policy
arguments are now being advanced as to why it should be changed.
It's important to know what happened yesterday so they can make
better policy decisions now.
MS. POLLARD added that the transferable credits that don't
expire are part of the reason for not having a split.
SENATOR STEDMAN asked for clarification on the last page of the
second fiscal note (prepared by Kevin Banks) where it talks
about the North Slope producers receiving 20 percent qualified
capital expenditure credit for well expenditure. The amendment
provides that producers will receive a 40 percent credit for
those expenditures.
4:51:17 PM
MS. POLLARD answered that section could almost be read as if all
of the qualified capital expenditure credits on the North Slope
will qualify for the 40 percent credit and that's not correct.
The only capital expenditures that will qualify for the well
lease expenditure credit are specifically defined in subsection
(l), the intangible drilling costs.
COMMISSIONER BUTCHER said they would get clarification on that
from Kevin Banks.
MS. POLLARD continued on to section 7 on page 3, line 20, that
changes the minimum tax that only applies to North Slope
production. It compares the gross production tax value based on
the threshold percentages that go from 4 percent to zero
percent; on the North Slope one would calculate under whatever
bracket he is under (the 25 or the 15 percent). That comparison
happens on page 6, lines 10-29. The effect is to lower the
threshold of the ANS price at which the North Slope minimum
applies. So, it would broaden the price ranges at which the
taxpayer would have to make that comparison.
SENATOR WIELECHOWSKI asked if this section had ever applied
since ACES passed.
COMMISSIONER BUTCHER replied no.
SENATOR WIELECHOWSKI recalled when the governor first came out
with ACES, it had a gross floor and industry "really hated that"
because it affected their margins. So, the policy call at that
time removed the significant gross floor in her bill, but then
took more at the high end. This was at a time when they didn't
know if oil was going to be $30 or $150 barrel. Now they are
giving up more at the top for something that realistically will
never be.
COMMISSIONER BUTCHER said Ms. Nienhuis pointed out to him that
we are always under the minimum tax, so technically it always
applies. But because we are at a dollar amount much above this,
the question he is asking is if we ever fall into a period where
this applies and not the base in progressivity. And that has not
occurred.
CO-CHAIR PASKVAN asked if the concern in part is that the
credits are so large that at these hypothetically low prices
they so overwhelm the progressivity that this is like an
alternative minimum tax.
COMMISSIONER BUTCHER replied that is not how he heard it
described. "We just gave ourselves...in the bill a little bit
more protection on the bottom end. It's unlikely we'll get to
that point, but no one has a crystal ball."
4:55:20 PM
MS. POLLARD went to the interest rate amendments and explained
that this is the interest rate that would apply to both
delinquent taxes and the situations where the state might have a
refund obligation for an overpayment of the tax. It is the only
section of the bill that affects a non-production tax area.
She said that section 3 on page 2 of SB 49 shows the main
change. The current interest rate is 5 percentage points above
the annual rate charged for advances by the 12th Federal Reserve
or 11 percent, whichever is greater. The rate has been at 11
percent for a while. She said section e effectively lowers it to
3 percent above the 12th Federal Reserve rate or 11 percent,
whichever is lesser. It would apply basically to most tax types;
the ones it would not apply to are specifically detailed in the
bill, such as section 1, which is about delinquent permitting
fees or section 2 which refers to an unclaimed property statute.
There are a variety of conforming amendments, but just where the
interest rate is mentioned.
SENATOR WIELECHOWSKI recalled the policy call behind this was a
feeling that the state was going to have a hard time with
accounting and the department wanted a big stick. Has that
changed? How much in delinquent taxes and refunds has there
been?
COMMISSIONER BUTCHER replied that the rationale is that this
interest rate goes both ways; if a taxpayer underpays, they have
to pay the state this amount. If a taxpayer overpays, the state
has to pay them back - and it seemed excessively high from both
the state and industry views.
4:58:36 PM
LENNIE DEES, Master Auditor, Department of Revenue (DOR), said
he would research the number for delinquent taxes and refunds,
but agreed that it cuts both ways.
5:00:01 PM
CO-CHAIR PASKVAN said the knowledge and history his committee
members bring to this debate is appreciated and adjourned the
meeting at 5:00 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB 49_Fiscal Note_DNR_1-19-2011.PDF |
SRES 3/9/2011 3:30:00 PM |
SB 49 |
| SB 49_Hearing Request.pdf |
SRES 3/9/2011 3:30:00 PM |
SB 49 |
| SB 49_Fiscal Note_DOR_1-19-2011.PDF |
SRES 3/9/2011 3:30:00 PM |
SB 49 |
| SB 49_Version A_Bill.PDF |
SRES 3/9/2011 3:30:00 PM |
SB 49 |
| SB 49_Version A_Sectional Analysis_1-20-11.pdf |
SRES 3/9/2011 3:30:00 PM |
SB 49 |
| SB49_PowerPoint Presentation of Sectional Analysis_3-9-2011.pdf |
SRES 3/9/2011 3:30:00 PM |
SB 49 |
| SB 49_Back-Up_DOR Answers to Rep Seaton Questions 2.18.11.pdf |
SRES 3/9/2011 3:30:00 PM |
SB 49 |
| SB 49_Back-Up_DOR Modeling for Rep. Seaton 2.23.11.pdf |
SRES 3/9/2011 3:30:00 PM |
SB 49 |
| SB 49_Back-Up_DOR Response for 2-21-11.pdf |
SRES 3/9/2011 3:30:00 PM |
SB 49 |
| SB 49_DOR 2011 O&G Production Tax Report_1-18-2011.pdf |
SRES 3/9/2011 3:30:00 PM |
SB 49 |
| SB 49_Back-Up_DOR response to 2.7.11 questions.pdf |
SRES 3/9/2011 3:30:00 PM |
SB 49 |
| SB 49_Back-Up_DOR Response to Feb. 11 Questions 2.23.11.pdf |
SRES 3/9/2011 3:30:00 PM |
SB 49 |