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).