00 CS FOR HOUSE BILL NO. 197(RES)                                                                                          
01 "An Act providing for exploration incentive credits for activities involving locatable                                  
02 and leasable mineral and coal deposits on certain land in the state; and                                                
03 providing for an effective date."                                                                                       
04 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA:                                                                
05    * Section 1.  AS 27 is amended by adding a new chapter to read:                                                      
06 CHAPTER 30.  EXPLORATION INCENTIVE CREDITS.                                                                             
07  Sec. 27.30.010.  EXPLORATION INCENTIVE CREDITS AUTHORIZED.                                                            
08 (a)  The commissioner shall grant to a qualified applicant an exploration incentive credit                              
09 for the eligible costs of each of the following exploration activities that are performed                               
10 on or for the benefit of land in the state for the purpose of determining the existence,                                
11 location, extent, or quality of a locatable or leasable mineral or coal deposit, regardless                             
12 of whether the land is state-owned land:                                                                                
13   (1)  surveying by geophysical or geochemical methods;                                                                
14   (2)  drilling exploration holes;                                                                                     
01   (3)  conducting underground exploration;                                                                             
02   (4)  surface trenching and bulk sampling; or                                                                         
03   (5)  performing other exploratory work, including aerial photographs,                                                
04 geological and geophysical logging, sample analysis, and metallurgical testing.                                         
05  (b)  An exploration incentive credit may not be granted under (a) of this section                                     
06 for exploration activity described in that subsection that occurs after the mine                                        
07 construction commencement date.  In this subsection, "mine construction commencement                                    
08 date" means the date no later than which all of the following have occurred:                                            
09   (1)  there has been issued to the owner or an agent of the owner permits,                                            
10 leases, and title and other rights in land, and other approvals, permits, licenses, and                                 
11 certificates, by federal, state, and local agencies that a reasonable and prudent person                                
12 would consider adequate to commence construction of a mine in the expectation that all                                  
13 other approvals, permits, licenses, and certificates necessary for the completion of the                                
14 facilities will be obtained;                                                                                            
15   (2)  all approvals, permits, licenses, and certificates are in full force and                                        
16 effect, unrevoked and without any modification that might jeopardize the completion or                                  
17 continued construction of the mine; and                                                                                 
18   (3)  an order, judgment, decree, determination, or award of a court or                                               
19 administrative or regulatory agency enjoining, either temporarily or permanently, the                                   
20 construction or the continuation of construction of the mine is not in effect.                                          
21  Sec. 27.30.020.  APPLICATION OF CREDIT.   An exploration incentive credit                                             
22 granted under AS 27.30.030 may be                                                                                       
23   (1)  applied, at the discretion of the qualified applicant, against                                                  
24   (A)  taxes payable under AS 43.20 and AS 43.65 that are related                                                     
25 to production from the site on which the exploration activities occur;                                                  
26   (B)  mineral production royalty payments due the state under                                                        
27 AS 38.05.135 - 38.05.175 and 38.05.212 for production from the site on which                                            
28 the exploration activities occur; and                                                                                   
29   (C)  annual rent payable under AS 38.05.211 for the site on which                                                   
30 the exploration activities occur;                                                                                       
31   (2)  carried forward to a subsequent tax year or royalty or rental payment                                           
01 period, except as limited by AS 27.30.040.                                                                              
02  Sec. 27.30.030.  PROCEDURE FOR OBTAINING THE CREDIT.  To obtain                                                       
03 the credit authorized by this chapter,                                                                                  
04   (1)  the prospective credit applicant must certify annual expenditures and                                           
05 obtain approval of an annual certification of expenditures as follows:                                                  
06   (A)  the applicant must submit a certification of expenditures for                                                  
07 the previous calendar year not later than 60 days after the close of that calendar                                      
08 year;                                                                                                                   
09   (B)  the certification must describe the work accomplished during                                                   
10 the previous year, the number of employees, and the names and number of                                                 
11 consultants, and provide a detailed list or ledger of expenditures;                                                     
12   (C)  the applicant is not required to transmit copies of receipts                                                   
13 with the certification, but the certification is subject to audit in the discretion of                                  
14 the commissioner;                                                                                                       
15   (D)  if the commissioner determines to audit the applicant's                                                        
16 certificate, the commissioner may require the prospective credit applicant to                                           
17 justify claims of expenditures with receipts and other reliable information;                                            
18   (E)  the commissioner shall respond to the prospective credit                                                       
19 applicant's certification of expenditures by September 30 by approving or                                               
20 disapproving the certification; if the commissioner                                                                     
21   (i)  disapproves the applicant's certification, the                                                                
22 commissioner shall state the reasons for disapproval and give the                                                       
23 applicant an opportunity to correct any problems or to provide additional                                               
24 information;                                                                                                            
25   (ii)  approves the applicant's certification, the                                                                  
26 commissioner shall certify the applicant's expenditures and specify the                                                 
27 exploration activity data requirements for that year that must be presented                                             
28 to the department at the time of application for the credit;                                                            
29   (F)  if the commissioner neither approves nor disapproves the                                                       
30 certification of expenditures by September 30, the certified expenditures are                                           
31 automatically approved;                                                                                                 
01   (2)  the prospective credit applicant whose annual certification of                                                  
02 expenditures has been approved under (1) of this subsection may thereafter request                                      
03 approval of the credit for the certified expenditures as follows:                                                       
04   (A)  the credit applicant shall deliver to the commissioner the                                                     
05 exploration activity data identified by the commissioner under (1)(E)(ii) of this                                       
06 section, and shall request the commissioner's approval of the exploration                                               
07 incentive credit;                                                                                                       
08   (B)  the commissioner shall approve or disapprove the credit                                                        
09 application within six months after receipt of the application for credit; if the                                       
10   (i)  exploration activity data complies with the                                                                   
11 requirements identified by the commissioner under (1)(E)(ii) of this                                                    
12 section, the commissioner shall approve the credit;                                                                     
13   (ii)  credit application is disapproved, the commissioner                                                          
14 shall state the reasons for disapproval and offer the applicant an                                                      
15 opportunity to correct any problems or to provide additional exploration                                                
16 activity data or other information;                                                                                     
17   (C)  if the commissioner neither approves nor disapproves the                                                       
18 credit application within six months after submission of the credit application, the                                    
19 credit is approved.                                                                                                     
20  Sec. 27.30.040.  LIMIT ON CREDITS.  (a)  The amount of the exploration                                                
21 incentive credit for each site that may be taken during a tax year or royalty payment                                   
22 period may not exceed 50 percent of the combined amount payable by the applicant as                                     
23   (1)  taxes payable under AS 43.20 and AS 43.65 that are related to                                                   
24 production from the site on which the exploration activities occur;                                                     
25   (2)  mineral production royalty payments due the state under                                                         
26 AS 38.05.135 - 38.05.175 and 38.05.212 for production from the site on which the                                        
27 exploration activities occur; and                                                                                       
28   (3)  annual rent payable under AS 38.05.211 for the site on which the                                                
29 exploration activities occur.                                                                                           
30  (b)  Except as its application or use is limited by AS 27.30.020 and 27.30.050,                                       
31 a portion of a credit that is not applied or used under (a) of this section may be carried                              
01 forward to and applied during a subsequent tax year or royalty or rental payment period.                                
02  Sec. 27.30.050.  USE OF CREDIT.  An exploration incentive credit                                                      
03   (1)  must be used within 15 tax years or royalty or rental payment periods                                           
04 after it is approved under AS 27.30.030(a)(2), but the tax years or royalty or rental                                   
05 payment periods in which the credit is used need not be                                                                 
06   (A)  the tax year or royalty or rental payment period in which the                                                  
07 qualified applicant first incurs liability for payment of tax, royalty, or rent based                                   
08 on the applicant's activity that is the basis of the claim of the exploration                                           
09 incentive credit; or                                                                                                    
10   (B)  consecutive periods; and                                                                                       
11   (2)  may, for the purposes described in AS 27.30.020, be assigned by the                                             
12 qualified applicant to the applicant's successor in interest for the site at which the                                  
13 exploration activities occur if the successor in interest is a qualified applicant; once the                            
14 applicant has assigned the credit to a successor in interest, the applicant may not use the                             
15 assigned credit.                                                                                                        
16  Sec. 27.30.060.  RELATIONSHIP TO OTHER FUNDS.  Amounts due the                                                        
17 permanent fund under AS 37.13.010 shall be calculated before the application of a credit                                
18 extended under this chapter.                                                                                            
19  Sec. 27.30.070.  CONFIDENTIALITY OF DATA.  (a)  The commissioner shall                                                
20 keep the exploration activity data provided under AS 27.30.030 confidential for 36                                      
21 months after receipt by the department.                                                                                 
22  (b)  The department is liable in damages to a person who provided the                                                 
23 exploration activity data under AS 27.30.030 if the data is disclosed in violation of (a)                               
24 of this section.                                                                                                        
25  Sec. 27.30.090.  DEFINITIONS.  In this chapter,                                                                       
26   (1)  "eligible costs" mean the costs incurred for activities in direct support                                       
27 of exploration activity conducted at the site of the exploration activity for the purpose                               
28 of determining the existence, location, extent, or quality of a mineral or coal deposit; the                            
29 term                                                                                                                    
30   (A)  includes                                                                                                       
31   (i)  the costs of obtaining the approvals, permits, licenses,                                                      
01 and certificates for an exploration activity set out in AS 27.30.010(a)(1) -                                            
02 (5);                                                                                                                    
03   (ii)  direct labor costs and the cost of benefits for                                                              
04 employees directly associated with work described in AS 27.30.010(a)(1)                                                 
05 - (5);                                                                                                                  
06   (iii)   the cost of renting or leasing equipment from parties                                                      
07 not affiliated with the applicant;                                                                                      
08   (iv)  the reasonable costs of maintaining and operating                                                            
09 equipment;                                                                                                              
10   (v)  insurance and bond premiums associated with the                                                               
11 activities set out in (i) - (iv) of this subparagraph;                                                                  
12   (vi)  payments to consultants and independent contractors;                                                         
13 and                                                                                                                     
14   (vii) the general expense of operating the taxpayer's                                                              
15 business, including the costs of materials and supplies, if those expenses                                              
16 and costs are directly attributable to the work described in                                                            
17 AS 27.30.010(a)(1) - (5);                                                                                               
18   (B)  does not include noncash expenses such as depreciation and                                                     
19 reserves, interest or other costs of borrowed funds, return on investment,                                              
20 insurance or bond premiums not covered under (A)(v) of this paragraph, or any                                           
21 other expense that is unreasonable or that the applicant has not incurred to                                            
22 complete work described in AS 27.30.010(a)(1) - (5);                                                                    
23   (2)  "exploration activity data" includes, as applicable,                                                            
24   (A)  a representative skeleton core for each hole cored or a                                                        
25 representative set of cuttings for each hole rotary drilled;                                                            
26   (B)  chemical analytical data and noninterpretive geophysical data;                                                 
27   (C)  aerial photographs or a topographic or geologic map showing                                                    
28 the location of the drill holes, sample locations, or the other exploration activities                                  
29 undertaken;                                                                                                             
30   (3)  "geochemical methods" means soil, rock, water, air, vegetation, and                                             
31 similar samples collected and their chemical analyses;                                                                  
01   (4)  "geophysical methods" means all geophysical data gathering methods                                              
02 used in mineral or coal exploration, including seismic, gravity, magnetic, radiometric,                                 
03 radar, and electromagnetic and other remote sensing measurements;                                                       
04   (5)  "qualified applicant" means                                                                                     
05   (A)  a natural person who is at least 18 years of age;                                                              
06   (B)  a partnership qualified to do business in the state;                                                           
07   (C)  a corporation qualified to do business in the state;                                                           
08   (D)  a limited liability company qualified to do business in the                                                    
09 state;                                                                                                                  
10   (E)  a legal guardian or trustee of a qualified natural person                                                      
11 described in (A) of this paragraph; or                                                                                  
12   (F)  any association of persons listed in (A) - (E) of this                                                         
13 paragraph.                                                                                                              
14    * Sec. 2.  AS 38.05.135(a) is amended to read:                                                                       
15  (a)  Except as otherwise provided, valuable mineral deposits in land belonging                                        
16 to the state shall be open to exploration, development, and the extraction of minerals.                                 
17 All land, together with tide, submerged, or shoreland, to which the state holds title to or                             
18 to which the state may become entitled, may be obtained by permit or lease for the                                      
19 purpose of exploration, development, and the extraction of minerals.  Except as                                         
20 specifically limited by AS 38.05.135 - 38.05.181, land may be withheld from lease                                       
21 application on a first-come, first-served basis, and offered only on a competitive bid basis                            
22 when determined by the commissioner to be in the best interests of the state.  When                                    
23 authorized by AS 27.30.030, the commissioner shall allow an exploration incentive                                       
24 credit for activities undertaken to determine the existence, location, extent, or                                       
25 quality of a locatable or leasable mineral or coal deposit and in [IN] unproven areas                                  
26 the commissioner may offer additional incentives, including a reduction of royalty to a                                 
27 minimum of five percent in the case of oil and gas, and other terms in and granting                                     
28 permit or lease for exploration and development whenever it appears to be in the best                                   
29 interests of the state to do so.                                                                                        
30    * Sec. 3.  AS 38.05.211(c) is amended to read:                                                                       
31  (c)  The rental for each year                                                                                        
01   (1)  is subject to the claim of the exploration incentive credit                                                     
02 authorized by AS 27.30; and                                                                                             
03   (2)  after allowance of the credit claimed under (1) of this subsection,                                             
04 shall be credited against the production royalty under AS 38.05.212 as it accrues for that                             
05 year.                                                                                                                   
06    * Sec. 4.  AS 38.05.212(b) is amended to read:                                                                       
07  (b)  The production royalty                                                                                           
08   (1)  is three percent of net income as determined under AS 43.65; and                                             
09   (2)  is subject to the exploration incentive credit authorized by                                                    
10 AS 27.30.                                                                                                              
11    * Sec. 5.  AS 43.20 is amended by adding a new section to read:                                                      
12  Sec. 43.20.044.  EXPLORATION INCENTIVE CREDIT.  A taxpayer may apply                                                  
13 as a credit against the tax levied under this chapter the exploration incentive credit                                  
14 authorized by AS 27.30.                                                                                                 
15    * Sec. 6.  AS 43.65.020(a) is amended to read:                                                                       
16  (a)  A person subject to tax under this chapter shall make a return stating                                           
17 specifically the items of gross income from the property, including royalty received and                                
18 the deductions and credits allowed by this chapter and the exploration incentive credit                                
19 authorized by AS 27.30, and other information for carrying out this chapter that the                                   
20 department prescribes.  The return must show the mining license number and must be                                      
21 signed by the taxpayer or an authorized agent of the taxpayer, under penalty of unsworn                                 
22 falsification.  If receivers, trustees, or assigns are operating the property or business, they                         
23 shall make returns for the person engaged in mining, or the recipient of royalty in                                     
24 connection with mining property.  The tax due on the basis of the returns shall be                                      
25 collected in the same manner as if collected from the person of whose business they have                                
26 custody and control.                                                                                                    
27    * Sec. 7.  This Act is retroactive to January 1, 1995, and applies to activities that qualify for                    
28 the exploration incentive credit authorized by AS 27.30 that are undertaken after December 31,                          
29 1994.                                                                                                                   
30    * Sec. 8.  This Act takes effect immediately under AS 01.10.070(c).