00 HOUSE BILL NO. 307 01 "An Act establishing an oil and gas corporate income tax and making conforming 02 amendments; and amending the tax on corporations levied under the Alaska Net 03 Income Tax Act to eliminate the state corporate income tax on taxable income 04 of less than $10,000; and providing for an effective date." 05 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA: 06 * Section 1. The uncodified law of the State of Alaska is amended by adding a new 07 section to read: 08 SHORT TITLE. This Act may be known as the "Corporate Income Tax Reform Act 09 of 2000." 10 * Sec. 2. The uncodified law of the State of Alaska is amended by adding a new section 11 to read: 12 LEGISLATIVE FINDINGS AND INTENT. (a) The legislature finds and declares that 13 (1) the method of apportioning income for tax purposes under AS 43.19 14 ("Uniform Division of Income for Tax Purposes" formula embodied in the Multistate Tax 01 Compact), AS 43.20.065, and 43.20.072, repealed by sec. 13 of this Act, do not fairly 02 represent the extent of the business activities in this state of multistate corporations engaged 03 in the production and pipeline transportation of crude oil and natural gas in the state; 04 (2) the separate accounting method of apportioning income more accurately 05 and fairly represents the extent of business activities in this state of multistate corporations 06 engaged in the production and pipeline transportation of crude oil and natural gas in the state; 07 and 08 (3) the repeal of former AS 43.21.010 - 43.21.120 by ch. 116, SLA 1981, was 09 made only because of the uncertainties presented by a then-pending court challenge that have 10 since been resolved. 11 (b) The legislature, therefore, intends that 12 (1) in accordance with the provisions of art. IV, sec. 18, AS 43.19, the income 13 tax of all corporations engaged in the production or pipeline transportation of oil or natural 14 gas in or directly associated with this state shall be assessed by the tax administrator under 15 this Act; 16 (2) the assessment of income tax against a multistate corporation engaged in 17 the production or pipeline transportation of oil or natural gas shall be commensurate with the 18 tax that would be assessed against a corporation owning and operating only those assets of the 19 multistate corporation that are in or directly associated with this state. 20 * Sec. 3. AS 29.60.599(1) is amended to read: 21  (1) "barrel" when used with reference to oil  means the quantity of oil 22 contained in 42 United States gallons of 231 cubic inches each, measured at a 23 temperature of 60 degrees Fahrenheit, and an absolute pressure of 14.65 pounds 24 per square inch  [HAS THE MEANING GIVEN IN AS 43.20.072]; 25 * Sec. 4. AS 41.09.010(b) is amended to read: 26  (b) An exploration incentive credit extended under (a) of this section may be 27 applied against 28  (1) a payment or obligation against which a credit authorized by 29 AS 38.05.180(i) may be claimed; 30  (2) taxes payable under AS 43.20  or AS 43.21, as appropriate ; and 31  (3) oil and gas bonus payments due the state under AS 38.05.180(f). 01 * Sec. 5. AS 43.20.011(e) is amended to read: 02  (e) There is imposed for each taxable year upon the entire taxable income of 03 every corporation derived from sources within the state a tax computed as follows: 04 If the taxable income is: Then the tax is: 05 [LESS THAN $10,000 1 PERCENT OF THE TAXABLE INCOME] 06 $10,000 but less than $20,000 $100 plus 2 percent of the taxable 07 income over $10,000 08 $20,000 but less than $30,000 $300 plus 3 percent of the taxable income over $20,000 09 $30,000 but less than $40,000 $600 plus 4 percent of the taxable income over $30,000 10 $40,000 but less than $50,000 $1,000 plus 5 percent of the taxable income over $40,000 11 $50,000 but less than $60,000 $1,500 plus 6 percent of the taxable income over $50,000 12 $60,000 but less than $70,000 $2,100 plus 7 percent of the taxable income over $60,000 13 $70,000 but less than $80,000 $2,800 plus 8 percent of the taxable income over $70,000 14 $80,000 but less than $90,000 $3,600 plus 9 percent of the taxable income over $80,000 15 $90,000 or more $4,500 plus 9.4 percent of the taxable income over $90,000. 16 * Sec. 6. AS 43.20.011 is amended by adding a new subsection to read: 17  (g) The tax of a corporation engaged in the production or transportation of 18 crude oil or natural gas shall be determined and paid in accordance with AS 43.21. 19 * Sec. 7. AS 43.20.014(d) is amended to read: 20  (d) A contribution claimed as a credit under this section may not 21  (1) be claimed as a credit under another provision of this title; 22  (2) also be allowed as a deduction under 26 U.S.C. 170 against the tax 23 imposed by this chapter; and 24  (3) when combined with credits taken during the taxpayer's tax year 25 under AS 21.89.070,  AS 43.21.310,  AS 43.55.019, AS 43.56.018, AS 43.65.018, 26 AS 43.75.018, or AS 43.77.045, exceed $150,000. 27 * Sec. 8. AS 43.20.073(f) is amended to read: 28  (f) This section does not apply to taxpayers subject to  AS 43.21.200 - 29 43.21.499  [AS 43.20.072 ENGAGED IN 30  (1) THE PRODUCTION OF OIL OR GAS FROM A LEASE OR 31 PROPERTY IN THE STATE; OR 01  (2) THE TRANSPORTATION OF OIL OR GAS BY REGULATED 02 PIPELINE IN THE STATE]. 03 * Sec. 9. AS 43.21 is amended by adding new sections to read: 04 Article 1. Determination of Taxable Income. 05  Sec. 43.21.200. Application. This chapter applies to every corporation doing 06 business in the state that derives income from the production of oil or gas from a lease 07 or property in the state or from the pipeline transportation of oil or gas in the state. 08 The tax calculated under this chapter is measured by the total taxable income of the 09 corporation during the tax period as defined by AS 43.21.210 - 43.21.240 and is 10 calculated at the rates established under AS 43.20.011(e). 11  Sec. 43.21.210. Determination of taxable income from oil and gas 12 production. (a) The taxable income of a corporation from the production of oil and 13 gas from a lease or property in the state shall be the corporation's net income as 14 calculated by the department in accordance with this section. 15  (b) Gross income of a corporation from oil and gas production shall be the 16 gross value at the point of production of oil or gas produced from a lease or property 17 in the state. The department shall by regulation determine a uniform method of 18 establishing the gross value at the point of production. In making its determination, 19 the department may use the actual prices or values received for the oil or gas, the 20 posted prices for the oil or gas in the same field, or the prevailing prices or values of 21 oil or gas in the same field. In addition, in its determination of gross value at the 22 point of production of oil or gas produced from a lease or property, the department 23 shall determine the reasonable costs of transportation from the point of sale to the 24 point of production of the oil or gas. Transportation costs set by a tariff properly on 25 file with the Regulatory Commission of Alaska or other regulatory agency shall be 26 considered prima facie reasonable, but, if a tariff properly on file with a regulatory 27 agency is subsequently amended, changed, or overturned retroactively, the reasonable 28 costs of transportation shall be recomputed for that period using the newly determined 29 tariff. 30  (c) Net income from oil and gas production shall be determined by the 31 department by deducting from gross income the following: 01  (1) royalties paid in kind or in value; 02  (2) taxes imposed under AS 43.55 that are actually paid or incurred by 03 the corporation on the production from a lease or property in the state; 04  (3) taxes imposed under AS 29.45.080 - 29.45.090 and AS 43.56 that 05 are actually paid or incurred by the corporation on property used directly in the 06 production of oil or gas from a lease or property in the state, including property used 07 in production, gathering, treatment, or preparation of the oil or gas for pipeline 08 transportation, but only if those property tax payments were due and payable only after 09 the date of commercial production from the lease or property with which the property 10 was associated; 11  (4) the direct costs incurred by or for the corporation in operating the 12 lease or property, including the direct costs of producing, gathering, treating, or 13 preparing the oil or gas for pipeline transportation, but net of any payments received 14 for those activities and not including any indirect cost or overhead expense; 15  (5) depreciation, using the unit of production method or another 16 reasonable method as the department may by regulation establish, on property used 17 directly in the production, gathering, treatment, or preparation of the oil or gas for 18 pipeline transportation, including amortization of capitalized interest for investments 19 in this property at a rate not to exceed the average cost of borrowed capital to the 20 taxpayer during the year in which it is capitalized; 21  (6) the amortization of lease acquisition payments and taxes paid or 22 incurred under AS 29.45.080 - 29.45.090 or AS 43.56, including capitalized interest, 23 for or on producing properties before the commencement of commercial production 24 from the lease or property for which the property is being used; 25  (7) interest expense of the corporation, not capitalized during 26 construction, that was paid or incurred in connection with property in Alaska; however, 27 unless (f) of this section applies, the interest expense may not exceed that portion of 28 the total interest paid by the consolidated business of which the corporation is a part, 29 determined by multiplying the total interest, by a fraction, the numerator of which is 30 the value of the corporation's real and tangible personal property used directly in the 31 production of oil or gas from a lease or property in the state and the denominator of 01 which is the value of all real and tangible personal property of the consolidated 02 business; in this paragraph, "total interest paid by the consolidated business" does not 03 include interest expense arising from intercompany obligations within the consolidated 04 business except to the extent that the interest expense reflects a pass-through of interest 05 on a third-party borrowing by the parent or other member of the consolidated business 06 with the purpose, expressed at the time of the third-party borrowing, of financing 07 Alaska business activity of the taxpayer corporation; 08  (8) expenses incurred by the corporation after December 31, 2000, of 09 unsuccessful exploration of oil or gas in the state, including the acquisition costs of 10 abandoned properties, dry hole costs, and the costs of geologic and geophysical 11 exploration related to those abandoned properties; 12  (9) general overhead or administrative expense incurred by the 13 corporation attributable to deriving income from the production of oil or gas from a 14 lease or property in the state to the extent, except as provided in (f) of this section, that 15 it does not exceed that portion of the total general overhead or administrative expense 16 incurred by the consolidated business of which the corporation is a part, determined 17 by multiplying the total general overhead or administrative expense by a fraction, the 18 numerator of which is the value of the corporation's real and tangible personal property 19 used directly in the production of oil or gas from a lease or property in the state and 20 the denominator of which is the value of all real and tangible personal property of the 21 consolidated business; 22  (10) the amount of income from the production of oil and gas from a 23 lease or property that is divided among the regional Native corporations under 43 24 U.S.C. 1606(i) (sec. 7(i), Alaska Native Claims Settlement Act (P.L. 92-203)). 25  (d) Deductions from gross income under this section may not include expenses 26 previously deducted on a return filed under AS 43.20. 27  (e) Where a corporation subject to this chapter shares the production or 28 proceeds of the production from a lease or property through a working interest, royalty 29 interest, overriding royalty interest, production payment, net profit interest, joint 30 venture, or other agreement, the department shall allocate the deductions from gross 31 income between the corporation and the persons with whom it has such an agreement 01 in accordance with the terms of the agreement. 02  (f) If a corporation demonstrates to the satisfaction of the department that it 03 paid or incurred actual expenses for interest or for general overhead or administration 04 attributable to deriving income from the production of oil or gas from a lease or 05 property in the state in an amount greater than the amount determined under (c)(7) or 06 (9) of this section, the department may allow the corporation to deduct the greater 07 amount. 08  Sec. 43.21.220. Determination of income from oil and gas pipeline 09 transportation. (a) Except as provided in (c) of this section, taxable income 10 attributable to the transportation of oil in a pipeline engaged in interstate commerce 11 in this state shall be determined by the department and shall be the amount reported 12 or that would be required to be reported to the Federal Energy Regulatory Commission 13 or its successors as net operating income, less those portions of interest and general 14 administrative expense attributable to the pipeline transportation of oil in the state, 15 except that taxable income shall also include taxes on or measured by income. The 16 department shall establish regulations governing the determination of interest and 17 general administrative expense attributable to pipeline transportation of oil in the state. 18  (b) Except as provided in (c) of this section, taxable income attributable to the 19 transportation of natural gas in a pipeline engaged in interstate commerce in this state 20 shall be determined by the department and shall be the amount reported or that would 21 be required to be reported to the Federal Energy Regulatory Commission as net 22 operating income, less that portion of interest and general administrative expense 23 attributable to pipeline transportation in the state, except that the taxable income shall 24 also include taxes on or measured by income. The department shall establish 25 regulations governing the determination of interest and general administrative expense 26 attributable to pipeline transportation of natural gas in the state. 27  (c) Taxable income attributable to the transportation of oil or natural gas in 28 this state of a corporation not under the Federal Energy Regulatory Commission 29 jurisdiction, or of a corporation under the jurisdiction of the Federal Energy Regulatory 30 Commission but not reporting the operation of pipelines in the state separately from 31 the operation of pipelines elsewhere, shall be determined by the department and shall 01 be based on an amount equal to that which would have been reported to the Federal 02 Energy Regulatory Commission under (a) of this section in the case of oil pipelines, 03 or (b) of this section in the case of natural gas pipelines, had the corporation been, in 04 fact, under Federal Energy Regulatory Commission jurisdiction for the taxable year 05 and required to report on the operation of pipelines in the state separately from the 06 operation of pipelines elsewhere. 07  Sec. 43.21.230. Determination of income from activities other than oil and 08 gas production or pipeline transportation.  (a) Taxable income of a corporation 09 subject to this chapter from activities in this state other than the production of oil or 10 gas from a lease or property in the state or the pipeline transportation of oil or gas in 11 the state shall be determined in accordance with the method established in art. IV of 12 AS 43.19.010 and in AS 43.20.071, as modified by (b) - (d) of this section. 13  (b) The total taxable income of the consolidated business is its entire income 14 less the portion of that entire income attributable to worldwide production and pipeline 15 transportation of oil and gas. In this subsection, for a member of a consolidated 16 business who is 17  (1) required to file under the Internal Revenue Code, "entire income" 18 means the taxpayer's federal taxable income as the term is used in AS 43.20.011 - 19 43.20.065, except that those provisions adopted after December 31, 2000, that change 20 or modify exemptions from tax under 26 U.S.C. (Internal Revenue Code) are not 21 adopted by reference as a part of this section until the second January 1 following the 22 effective date of the federal law; 23  (2) not required to file under the Internal Revenue Code, "entire 24 income" means book income, except that a taxpayer may elect to report his income as 25 the income would be determined under (1) of this subsection. 26  (c) The numerator and denominator of the property factor, of the payroll 27 factor, and of the sales factor shall be calculated without reference to that portion of 28 property, payroll, or sales directly related to the production of oil or gas from a lease 29 of property in the state or the pipeline transportation of oil or gas in the state. 30  (d) The value attributed to vessels transporting Alaska oil or gas of the 31 consolidated business that are not owned or effectively owned by the consolidated 01 business shall be excluded from the property factor. 02  Sec. 43.21.240. Applicability of tax to a consolidated business. The 03 provisions of this chapter apply to a consolidated business whether or not the taxpayer 04 is the parent or controlling corporation. 05 Article 2. Calculation of Tax; Returns. 06  Sec. 43.21.300. Assessment of income and tax. (a) The department shall 07 assess taxable income and the amount of tax payable on that taxable income. 08  (b) On or before August 15 of each year, the department shall send to every 09 corporation taxable under this chapter a notice of assessment showing the amount of 10 income taxable under this chapter for the previous year and the amount of tax payable 11 on that taxable income. 12  (c) For purposes of this chapter, the department may combine taxable income 13 of corporations subject to tax under this chapter who are part of the same consolidated 14 business. 15  (d) If the methods of allocation and apportionment provided in this chapter do 16 not fairly represent the extent of a corporation's business activity in the state, the 17 corporation may petition for or the department may require, in respect to all or any 18 part of the corporation's business activity, if reasonable, the employment of any method 19 authorized under art. IV, sec. 18, AS 43.19.010 (Multistate Tax Compact), to carry out 20 an equitable allocation and apportionment of the corporation's income. The 21 commissioner shall include in the annual report required in AS 43.21.420 a report on 22 all relief granted under this subsection, including for each case a statement of the 23 changes in tax liability resulting from the granting of relief, the tax years involved, and 24 a description of the method of determining taxable income that was substituted for 25 those provided in this chapter. 26  Sec. 43.21.310. Income tax education credit. (a) For cash contributions 27 accepted for direct instruction, research, and educational support purposes, including 28 library and museum acquisitions, and contributions to endowment, by an Alaska 29 university foundation or by a nonprofit, public or private, Alaska two-year or four-year 30 college accredited by a regional accreditation association, a taxpayer is allowed as a 31 credit against the tax due under this chapter 01  (1) 50 percent of contributions of not more than $100,000; and 02  (2) 100 percent of the next $100,000 of contributions. 03  (b) Each public college and university shall include in its annual operating 04 budget request contributions received and how the contributions were used. 05  (c) A contribution claimed as a credit under this section may not 06  (1) be claimed as a credit under another provision of this title; 07  (2) also be allowed as a deduction under 26 U.S.C. 170 against the tax 08 imposed by this chapter; and 09  (3) when combined with credits taken during the taxpayer's tax year 10 under AS 21.89.070, AS 43.20.014, AS 43.55.019, AS 43.56.018, AS 43.65.018, 11 AS 43.75.018, or AS 43.77.045, exceed $150,000. 12  Sec. 43.21.320. Returns. On or before April 15 of each year, a corporation 13 subject to tax under this chapter shall submit a return in a form prescribed by the 14 department setting out information required by the department to determine taxable 15 income. For purposes of this chapter, the department may require a corporation 16 subject to tax under this chapter who is part of the same consolidated business to file 17 a single return. 18  Sec. 43.21.330. Payment of tax. The tax levied under this chapter is payable 19 to the department on or before September 30 of each year or in installments, including 20 prepayments of estimated tax, at the times and under the conditions the department 21 may by regulation require. This tax is payable on the due date set out in this section 22 even though the assessment is under appeal or the validity, enforceability, or 23 application of this chapter or any provision of this chapter is challenged before the 24 department or in the courts. 25 Article 3. Administrative Matters. 26  Sec. 43.21.400. Regulations. The department may adopt regulations in 27 accordance with AS 44.62 (Administrative Procedure Act) as appropriate to administer 28 and enforce this chapter. 29  Sec. 43.21.410. Penalties. The penalties established in AS 43.20 apply to this 30 chapter. 31  Sec. 43.21.420. Public reporting. (a) The commissioner shall compile and 01 transmit to the legislature an annual consolidated report of state revenues and taxation 02 policies under this chapter. This report must include total aggregate income tax paid 03 by corporations covered under this chapter and aggregate income and deductions by 04 category, so classified as to prevent the identification of particular returns or reports. 05  (b) The legislative auditor shall transmit to the legislature an annual report 06 reviewing the actions of the department in administering this chapter. 07  Sec. 43.21.499. Definitions. Unless the context requires otherwise, the 08 definitions contained in AS 43.55.900 are applicable to this chapter. In addition, in 09 this chapter, 10  (1) "base of operations" means the closest point on land to the offshore 11 oil or gas production operations from which goods, services, and supplies flow to those 12 offshore oil or gas production operations; 13  (2) "consolidated business" means a corporation or group of 14 corporations having more than 50 percent common ownership, direct or indirect, or a 15 group of corporations in which there is common control, either direct or indirect, as 16 evidenced by an arrangement, contract, or agreement. 17 * Sec. 10. AS 43.55.019(d) is amended to read: 18  (d) A contribution claimed as a credit under this section may not 19  (1) be claimed as a credit under another provision of this title; and 20  (2) when combined with credits taken during the taxpayer's tax year 21 under AS 21.89.070, AS 43.20.014,  AS 43.21.310,  AS 43.56.018, AS 43.65.018, 22 AS 43.75.018, or AS 43.77.045, exceed $150,000. 23 * Sec. 11. AS 43.56.018(d) is amended to read: 24  (d) A contribution claimed as a credit under this section may not 25  (1) be claimed as a credit under another provision of this title; and 26  (2) when combined with credits taken during the taxpayer's tax year 27 under AS 21.89.070, AS 43.20.014,  AS 43.21.310,  AS 43.55.019, AS 43.65.018, 28 AS 43.75.018, or AS 43.77.045, exceed $150,000. 29 * Sec. 12. AS 43.82.210(a) is amended to read: 30  (a) If the commissioner approves an application and proposed project plan 31 under AS 43.82.140, the commissioner may develop proposed terms for inclusion in 01 a contract under AS 43.82.020 for periodic payment in lieu of one or more of the 02 following taxes that otherwise would be imposed by the state or a municipality on the 03 qualified sponsor or member of a qualified sponsor group as a consequence of 04 participating in an approved qualified project: 05  (1) oil and gas production taxes and oil surcharges under AS 43.55; 06  (2) oil and gas exploration, production, and pipeline transportation 07 property taxes under AS 43.56; 08  (3) [REPEALED. 09  (4)] Alaska net income tax under AS 43.20  or corporate income tax 10 under AS 43.21 ; 11   (4) [(5)] municipal sales and use tax under AS 29.45.650 - 29.45.710; 12   (5) [(6)] municipal property tax under AS 29.45.010 - 29.45.250 or 13 29.45.550 - 29.45.600; 14   (6) [(7)] municipal special assessments under AS 29.46; 15   (7) [(8)] a comparable tax or levy imposed by the state or a 16 municipality after June 18, 1998; 17   (8) [(9)] other state or municipal taxes or categories of taxes identified 18 by the commissioner. 19 * Sec. 13. AS 43.20.072 is repealed. 20 * Sec. 14. The uncodified law of the State of Alaska is amended by adding a new section 21 to read: 22 APPLICABILITY. The amendment to AS 43.20.011(e) made by sec. 5 of this Act and 23 AS 43.21.200 - 43.21.499, added by sec. 7 of this Act, apply to taxable income earned or 24 received after December 31, 2000. 25 * Sec. 15. The uncodified law of the State of Alaska is amended by adding a new section 26 to read: 27 TRANSITIONAL RULES. The Department of Revenue shall provide by regulation 28 transition for corporations subject to tax under AS 43.20 before December 31, 2000, to avoid 29 double taxation of the same income or double deduction of the same expense of those 30 corporations as a result of becoming subject to tax under AS 43.21.200 - 43.21.499. 31 * Sec. 16. This Act takes effect January 1, 2001.