00 SENATE CS FOR CS FOR HOUSE BILL NO. 61(RES) 01 "An Act establishing an exploration and development incentive tax credit for operators 02 and working interest owners directly engaged in the exploration for and development of 03 gas for sale and delivery without reference to volume from a lease or property in the 04 state; and providing for an effective date." 05 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA: 06 * Section 1. AS 43.20 is amended by adding a new section to read: 07 Sec. 43.20.043. Gas exploration and development tax credit. (a) Subject to 08 the terms and conditions of this section, and in addition to any other credit authorized 09 to the taxpayer by this chapter, a taxpayer that is an operator or working interest owner 10 directly engaging in the exploration for and development of gas may apply as a credit 11 against the state tax liability that may be imposed on the taxpayer under this chapter, 12 for a tax year beginning after December 31, 2002, 13 (1) 10 percent of the taxpayer's qualified capital investment; and 14 (2) 10 percent of the annual cost incurred by the taxpayer for qualified 01 services in the state during each tax year for which a credit is allowable for a qualified 02 capital investment under (1) of this subsection. 03 (b) Expenditures qualifying for the taxpayer's qualified investment credit 04 under (a)(1) of this section must be 05 (1) cash expenditures or binding payment agreements entered into after 06 June 30, 2003; and 07 (2) made for assets first placed in service in the state in or before the 08 tax year in which the credit is claimed through the date the reserves produce gas for 09 sale and delivery; for purposes of this paragraph, "placed in service in the state" means 10 that the first use of the qualified investment is in this state; if the property on which the 11 claim of the credit is based has been used elsewhere in the tax year of acquisition and 12 is brought to this state during that year or a subsequent year, the property does not 13 qualify for the investment credit. 14 (c) The credit per tax year allowed by (a) of this section may not exceed 50 15 percent of the taxpayer's total tax liability under this chapter, but shall be calculated 16 before the application of any other credits allowed under this chapter. An unused 17 portion of the credit for the tax year 18 (1) may be carried forward into one or more of the following tax years, 19 except that the unused credit from one tax year may not be carried forward for more 20 than five following tax years; 21 (2) shall be applied to the taxpayer's tax liability under this chapter 22 during the following tax year before allowance of a credit allowed by (a) of this 23 section for that following tax year. 24 (d) To obtain the credit allowed by this section, the taxpayer shall, with the 25 taxpayer's tax return, submit, on a form prescribed by the department, information that 26 demonstrates that the taxpayer is eligible for the credit and evidence of the expenses 27 that are the basis of the claim of the credit. The taxpayer has the burden of 28 demonstrating compliance with the requirements of this section to entitle the taxpayer 29 to the claim of and the amount of the credit. 30 (e) A taxpayer entitled to a credit under this section 31 (1) may not convey, assign, or transfer the credit to another taxpayer or 01 business entity unless the conveyance, assignment, or transfer of the credit is part of 02 the conveyance, assignment, or transfer of the taxpayer's business; 03 (2) forfeits the credit to which the taxpayer is entitled during the tax 04 year and any carryover of it under (c) of this section, but does not forfeit the portion of 05 the credit that accrued in a previous taxable year that may be carried over under (c) of 06 this section, if the taxpayer 07 (A) disposes of the qualified capital investment; 08 (B) takes the qualified investment out of service; or 09 (C) transfers the qualified investment out of this state. 10 (f) A taxpayer is not entitled to a credit under this section for expenditures that 11 are made or incurred for the qualified capital investment or for qualified services made 12 for exploration and development of gas that occur in the area of Alaska lying north of 13 68 degrees North latitude or that are made or incurred to transport gas from reserves 14 located in the area of Alaska lying north of 68 degrees North latitude. 15 (g) A taxpayer who obtains a credit under this section may not claim a tax 16 credit or royalty modification provided for under any other title. However, a taxpayer 17 may, at the taxpayer's election, forgo a credit under this section in order to continue to 18 qualify for a credit provided for in another title. 19 (h) For purposes of determining allowable credits under this section, the 20 department shall allow only expenditures and payments that are not inconsistent with 21 the expenditures authorized under 26 U.S.C. (Internal Revenue Code) for exploration 22 and development of natural resources. 23 (i) In this section, 24 (1) "qualified capital investment" means a cash expenditure or binding 25 payment agreement, as described in (b)(1) of this section, for real property or tangible 26 personal property used in this state in the exploration and development of gas reserves 27 in a gas reservoir for which there has not been commercial production if the reserves 28 produce gas for sale and delivery; in this paragraph, "property" includes 29 (A) property used in the operation or maintenance of facilities 30 for exploration or development of gas; 31 (B) property that is placed in use under a capitalized lease or an 01 operating lease; and 02 (C) the following property used for the exploration and 03 development of gas: 04 (i) machinery, appliances, supplies, and equipment; 05 (ii) drilling rigs, wells, gathering lines and transmission 06 lines, pumping stations, compressor stations, power plants, topping 07 plants, and processing units; 08 (iii) roads, docks and other port facilities, and helicopter 09 pads; 10 (iv) maintenance equipment and facilities, and 11 maintenance camps and other related facilities; and 12 (v) communications facilities owned by a person whose 13 principal business in the state is the exploration for or development of 14 gas and whose operation of the communications facilities directly 15 relates to the conduct of that business; 16 (2) "qualified services" 17 (A) means expenditures for labor, seismic, and other services 18 that are directly applicable to a qualified capital investment; 19 (B) does not include lease operating expenses. 20 * Sec. 2. AS 43.20.043 is repealed. 21 * Sec. 3. The uncodified law of the State of Alaska is amended by adding a new section to 22 read: 23 CLAIM OF GAS EXPLORATION AND DEVELOPMENT TAX CREDIT 24 CONTINUED. A taxpayer who, on the effective date of repeal of AS 43.20.043 by sec. 2 of 25 this Act, claims the balance of any unused portion of the gas exploration and development tax 26 credit as a carry-forward under AS 43.20.043(c), may, notwithstanding the repeal of that 27 subsection, continue to claim the balance of the credit until the claim of the credit is exhausted 28 or until the tax year ending December 31, 2017, whichever occurs earlier. The provisions of 29 AS 43.20.043 as they read on the day immediately preceding the effective date of the repeal 30 of that section apply to the claim of the credit if carried forward under this section. 31 * Sec. 4. The uncodified law of the State of Alaska is amended by adding a new section to 01 read: 02 REPORT ON EFFECT OF GAS EXPLORATION AND DEVELOPMENT TAX 03 CREDIT. Not later than November 30, 2008, the Department of Revenue shall prepare and 04 publish a report on the effect of the gas exploration and development tax credit authorized by 05 AS 43.20.043, added by sec. 1 of this Act. The department shall advise the legislature of the 06 availability of the report and, within the first 10 days of the First Regular Session of the 07 Twenty-Sixth Alaska State Legislature, transmit copies of the report to the chairs or co-chairs 08 of the House and Senate Resources Committees and the chairs or co-chairs of the House and 09 Senate Special Committees on Oil and Gas, if established. The report must address 10 (1) the number of successful gas discoveries for which a tax credit is provided 11 under AS 43.20.043; 12 (2) the volume or amount of new gas reserves brought into production for 13 which a tax credit is provided under AS 43.20.043; 14 (3) the total credits allowed under AS 43.20.043 that are applied to the tax 15 liability through the date of preparation of the report; 16 (4) the total credits applied for under AS 43.20.043 that are not yet approved 17 as of the date of preparation of the report; 18 (5) royalties obtained and oil and gas property production taxes paid from new 19 gas production and anticipated from gas production for production for which credits are 20 allowed under AS 43.20.043; and 21 (6) any other information that, in the judgment of the commissioner of 22 revenue, would evaluate the effectiveness of the gas exploration and development tax credit 23 authorized under AS 43.20.043. 24 * Sec. 5. Section 2 of this Act takes effect January 1, 2013. 25 * Sec. 6. Except as provided in sec. 5 of this Act, this Act takes effect immediately under 26 AS 01.10.070(c).