00 HOUSE BILL NO. 156 01 "An Act relating to mining licenses, to the mining license tax, and to production 02 royalties on minerals and rents for property involved in mining; and providing for an 03 effective date." 04 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA: 05  * Section 1. AS 38.05.150(d) is amended to read: 06 (d) For the privilege of mining or extracting the coal in the land covered by 07 the lease, the lessee shall pay to the state 08 (1) [SHALL PAY TO THE STATE] the royalties specified in the 09 lease; the royalties shall be fixed before offering the lease, and shall be effective for a 10 period of not more than 10 [20] years; the royalties shall be based on the adjusted  11 gross value of coal from the leased area that is sold, disposed, transferred, or  12 consumed by the lessee at a rate not less than  13 (A) five percent for a noncompetitive lease or for a  14 competitive lease in which royalty is a bid variable; or  01 (B) five percent nor more than 12 percent for a competitive  02 lease in which royalty is not a bid variable; and [NOT LESS THAN FIVE 03 CENTS A TON OF 2,000 POUNDS; THE ROYALTY PAYMENT IS 04 SUBJECT TO THE EXPLORATION INCENTIVE CREDIT AUTHORIZED 05 BY AS 27.30;] 06 (2) [SHALL ALSO PAY] an annual rental, payable at the date of the 07 lease and annually thereafter, on the land or coal deposits covered by the lease, at a 08 rate fixed by the commissioner before offering the lease; the annual rental shall be 09 effective for a period of not more than 20 years; the annual rental shall be not less than 10 three dollars for each acre [25 CENTS AN ACRE FOR THE FIRST YEAR OF 11 THE LEASE, NOT LESS THAN 50 CENTS AN ACRE FOR THE SECOND YEAR, 12 THIRD YEAR, FOURTH YEAR AND FIFTH YEAR, AND NOT LESS THAN $1 13 AN ACRE FOR EACH YEAR THEREAFTER DURING THE CONTINUANCE OF 14 THE LEASE]; the rental for each year shall be credited against the royalties as they 15 accrue for that year; each lease shall provide that the annual rental payment is subject 16 to adjustment at intervals of not [NO] more than 10 [20] years [AND 17 ADJUSTMENTS SHALL BE BASED ON THE CURRENT RATES FOR 18 PROPERTIES SIMILARLY SITUATED]. 19  * Sec. 2. AS 38.05.150 is amended by adding new subsections to read: 20 (g) Notwithstanding the requirement in (d)(1) of this section, the 21 commissioner may require the lessee to pay royalty-in-kind rather than value as 22 necessary to fuel a coal-fired power plant owned by the state or an agency of the state. 23 (h) If the commissioner establishes an amount to be paid as rent by a 24 regulation adopted under this section, at least every 10 years, the commissioner shall 25 calculate a change in the rental amount based on the change in the Consumer Price 26 Index for all urban consumers, Anchorage Metropolitan Area (Semi-Annual Average) 27 compiled by the Bureau of Labor Statistics, United States Department of Labor, as 28 revised, rebased, or replaced by that bureau; the reference base index is the index for 29 January - June 2005, as revised or rebased by that bureau and adopt a regulation 30 establishing a new rental amount based on the calculation.  31  * Sec. 3. AS 38.05.211(a) is amended to read: 01 (a) The holder of each mining claim, leasehold location, prospecting site, and 02 mining lease, including a mining lease under AS 38.05.250, shall pay, in advance, 03 rental for the right to continue to hold the mining claim, leasehold location, 04 prospecting site, and mining lease, including a mining lease under AS 38.05.250. 05 Rental is due and payable as follows: 06 (1) the rental amount for a prospecting site is fixed at $200 for the two- 07 year term of the site; 08 (2) annual rental for a mining claim, leasehold location, or mining 09 lease shall be not less than $3.30 for each acre [BASED ON THE NUMBER OF 10 YEARS SINCE A MINING CLAIM, A LEASEHOLD LOCATION, OR A MINING 11 LEASE'S PREDECESSOR CLAIM OR LEASEHOLD LOCATION WAS FIRST 12 LOCATED; THE ANNUAL RENTAL AMOUNTS FOR A MINING CLAIM, 13 LEASEHOLD LOCATION, OR MINING LEASE ARE AS FOLLOWS: 14 RENTAL AMOUNT 15 FOR EACH MINING 16 CLAIM OR 17 LEASEHOLD 18 LOCATION 19 INCLUDING 20 NUMBER OF YEARS RENTAL AMOUNT EACH QUARTER- 21 SINCE PER ACRE FOR QUARTER SECTION 22 FIRST LOCATED MINING LEASES MTRSC SYSTEM 23 0 - 5 $ .50 $ 20 24 6 - 10 $1.00 40 25 11- OR MORE $2.50 100; 26 (3) THE ANNUAL RENTAL IN ANY YEAR FOR EACH 27 QUARTER SECTION CLAIM, LEASEHOLD LOCATION, OR LEASE BASED 28 ON THE MTRSC SYSTEM IS FOUR TIMES THE RENTAL AMOUNT FOR A 29 QUARTER-QUARTER SECTION MINING CLAIM, LEASEHOLD LOCATION, 30 OR LEASE IN THAT YEAR]. 31  * Sec. 4. AS 38.05.211(d) is amended to read: 01 (d) For a claim, leasehold, location, prospecting site, and mining lease,  02 including a mining lease under AS 38.05.250, first located before January 1, 2008,  03 the [THE] rental amount established under this section shall be revised by the 04 commissioner as provided in this section based on changes in the Consumer Price 05 Index for all urban consumers, Anchorage Metropolitan Area (Semi-Annual Average) 06 compiled by the Bureau of Labor Statistics, United States Department of Labor, as 07 revised, rebased, or replaced by that bureau. The reference base index is the index for 08 January - June 1989, as revised or rebased by that bureau. The rental amount shall be 09 increased or decreased, as appropriate, by an amount equal to the change in the index 10 described in this subsection. The commissioner shall calculate the change in the rental 11 amount each 10 years and, if the rental amount must be revised, shall adopt a 12 regulation establishing the revised rental amount. A revised rental amount applies to a 13 rental payment if the regulation establishing the revised rental amount took effect at 14 least 90 days before the date the rental payment is due. 15  * Sec. 5. AS 38.05.211 is amended by adding a new subsection to read: 16 (f) For a claim, leasehold, location, prospecting site, and mining lease, 17 including a mining lease under AS 38.05.250 first located after December 31, 2007, 18 the rental amount established under this section shall be revised by the commissioner 19 as provided in this section based on changes in the Consumer Price Index for all urban 20 consumers, Anchorage Metropolitan Area (Semi-Annual Average) compiled by the 21 Bureau of Labor Statistics, United States Department of Labor, as revised, rebased, or 22 replaced by that bureau. The reference base index is the index for January - June 2005, 23 as revised or rebased by that bureau. The rental amount shall be increased or 24 decreased, as appropriate, by an amount equal to the change in the index described in 25 this subsection rounded to the nearest whole $5 unit. The commissioner shall calculate 26 the change in the rental amount each 10 years and, if the rental amount must be 27 revised, shall adopt a regulation establishing the revised rental amount. A revised 28 rental amount applies to a rental payment if the regulation establishing the revised 29 rental amount took effect at least 90 days before the date the rental payment is due. 30  * Sec. 6. AS 38.05.212(b) is repealed and reenacted to read: 31 (b) The production royalty is 01 (1) subject to the exploration incentive credit authorized by AS 27.30; 02 and 03 (2) three percent of 04 (A) the net smelter return for mining production that is further 05 processed by a smelter or refinery; or 06 (B) the gross value at the point of production as determined 07 under AS 38.05.213 for mining production that is not further processed by a 08 smelter or refinery. 09  * Sec. 7. AS 38.05.212 is amended by adding a new subsection to read: 10 (d) In this section, "net smelter return" means the value the person engaged in 11 mining receives from the smelter or refinery and may be based on 12 (1) the spot or current price of the mineral minus deductions for the 13 costs associated with the processing by the smelter or refinery and transportation 14 between the smelter or refinery and the location of the mine; or 15 (2) another method adopted by the department by regulation. 16  * Sec. 8. AS 38.05 is amended by adding a new section to read: 17 Sec. 38.05.213. Gross value at the point of production. (a) The gross value 18 at the point of production 19 (1) is the value of a resource immediately after its removal from the 20 mine; 21 (2) does not include income from the extraction or processing of 22 resources from mine waste or residue of previously processed resources previously 23 subject to tax under AS 43.65. 24 (b) Except as provided in (c) of this section, the value of a resource 25 immediately after its removal from the mine is the price received by the person 26 engaged in the mining of the resource adjusted for value added after the resource was 27 produced. 28 (c) The price received by the person engaged in the mining of the resource 29 may be rejected by the department as the gross value at the point of production when 30 the 31 (1) price received is less than the fair market value; 01 (2) price received does not reflect the total value received by the seller 02 in the transaction; 03 (3) parties to the transaction are affiliated; or 04 (4) price received was not negotiated in an arm's length transaction 05 between the buyer and seller. 06 (d) If the department rejects the price reported by the person engaged in the 07 mining of the resource, the department shall substitute the fair market value of the 08 resource on the date and at the place of production for purposes of determining the tax 09 liability under this chapter. 10 (e) The gross value at the point of production shall be calculated using the 11 reasonable costs of transportation if the destination value is used to determine the 12 value at the point of production. The reasonable costs of transportation shall be the 13 actual costs, except when the 14 (1) parties to the transportation are affiliated; 15 (2) contract for the transportation is not an arm's length transaction or 16 is not representative of the market value of that transportation; 17 (3) method of transportation is not reasonable in view of existing 18 alternative methods of transportation. 19 (f) If the department finds that the conditions in (e)(1), (2), or (3) of this 20 section are present, the department shall determine the reasonable costs of 21 transportation, using the fair market value of like transportation, the fair market value 22 of equally efficient and available alternative modes of transportation, or another 23 reasonable method. Transportation costs fixed by tariff rates properly on file with the 24 Regulatory Commission of Alaska or another regulatory agency shall be considered 25 prima facie reasonable. 26 (g) In this section, 27 (1) "affiliated" means a person who directly, or indirectly through one 28 or more intermediaries, controls, is controlled by, or is under common control with the 29 persons specified; 30 (2) "destination value" means the value of the resource at the 31 destination where production from the mine is delivered for treatment or processing. 01  * Sec. 9. AS 43.65 is amended by adding a new section to read: 02 Sec. 43.65.003. Mining license. (a) A person engaged in mining after 03 December 31, 2007, shall apply to the department for a mining license before the later 04 of May 1 of each year or within 30 days following the date on which mining began. 05 (b) The department shall adopt regulations that prescribe the information 06 required to be submitted on a mining license application submitted to the department 07 and a fee for the issuance of the license that represents the reasonable cost of 08 processing the application. 09  * Sec. 10. AS 43.65.010(a) is amended to read: 10 (a) A [PERSON PROSECUTING OR ATTEMPTING TO PROSECUTE, OR 11 ENGAGING IN THE BUSINESS OF MINING IN THE STATE SHALL OBTAIN A 12 LICENSE FROM THE DEPARTMENT. ALL] new mining operation may defer the  13 payment of the tax due under [OPERATIONS ARE EXEMPT FROM THE TAX 14 LEVIED BY] this chapter during the first [FOR] three and one-half years after the  15 date production begins. A taxpayer that defers the payment of tax under this  16 subsection shall pay the amount of tax deferred in 10 equal annual installments,  17 without interest, before May 1 of each year beginning with the first calendar year  18 following the date the deferral period ends. The tax deferral [EXEMPTION] 19 granted to a new mining operation [OPERATIONS] does not [EXTEND OR] apply 20 to the mining of sand and gravel. 21  * Sec. 11. AS 43.65.010(b) is amended to read: 22 (b) The Department of Natural Resources shall certify to the department the 23 date [UPON WHICH] production begins, and the department shall issue a certificate 24 of exemption to the producer accordingly. 25  * Sec. 12. AS 43.65.010(c) is amended to read: 26 (c) The license tax on mining is imposed on [AS FOLLOWS: UPON] the net 27 income of the taxpayer from the property in the state, computed with allowable 28 depletion, plus royalty received in connection with mining property in the state. The  29 tax rates applicable to the amount of a taxpayer's net income are as follows: 30 over $40,000 and not over $50,000 ......................................................five [3] percent 31 over $50,000 and not over $100,000 ........................................seven percent [$1,500 01 PLUS 5 PERCENT OF THE EXCESS OVER $50,000] 02 over $100,000 and not over $500,000.....................................................nine percent  03 over $500,000..................................................................................11 percent 04 PLUS 7 PERCENT OF THE EXCESS OVER $100,000]. 05  * Sec. 13. AS 43.65.010(d) is amended to read: 06 (d) If a person conducts [WHERE] mining operations [ARE CONDUCTED] 07 in two or more places, [BY ONE PERSON] the operations are considered a single 08 mining operation and the tax under this chapter is computed upon the aggregate 09 income derived from all the mining operations. The lessor of a mine operated under a 10 lease is considered to be engaged in mining within this chapter, and the royalties 11 received by the lessor are considered to be the net income of the lessor's mining 12 operations. If the lessor receives royalties from more than one mine or mining 13 operation, the tax payable under this chapter by the lessor is computed upon the 14 aggregate royalties received by the lessor from all the mines or mining operations as 15 though they were a single mining operation. 16  * Sec. 14. AS 43.65.010(e) is repealed and reenacted to read: 17 (e) The allowance for depletion shall be computed and deducted on the cost 18 depletion basis under 26 U.S.C. 612 (Internal Revenue Code). 19  * Sec. 15. AS 43.65.060 is amended to read: 20 Sec. 43.65.060. Definitions. In this chapter, unless the context otherwise 21 requires, 22 (1) "date production begins" means the date on which the initial  23 shipment of products from a mining operation is made;  24 (2) "gross income from property" means the gross income from mining 25 in the state; 26 (3) [(2)] "mining" means the extraction or operation to take [AN 27 OPERATION BY WHICH] valuable metals, ores, minerals, asbestos, gypsum, coal, 28 marketable earth, or stone, or any of them [ARE EXTRACTED, MINED, OR 29 TAKEN] from the earth and [; "MINING"] includes the ordinary treatment processes 30 normally applied by a mine owner or operator [OWNERS OR OPERATORS] to 31 obtain the commercially marketable product, but does not include the extraction or 01 production of oil and gas; 02 (4) [(3)] "net income of the taxpayer [(COMPUTED WITHOUT 03 ALLOWANCES FOR DEPLETION)] from the property" means the gross income 04 from mining [THE PROPERTY], less allowable deductions attributable to the mineral 05 property for [UPON] which [THE] depletion is claimed and the allowable deductions 06 attributable to ordinary treatment processes that [INSOFAR AS THEY] relate to the 07 product of the property, including overhead and operating expenses, development 08 costs properly charged to expense, depreciation, taxes, and losses sustained, [ETC.,] 09 but excluding [ALLOWANCES FOR DEPLETION, AND] deductions for federal 10 income taxes, or for the tax imposed by this chapter; 11 (5) [(4)] "new mining operation [OPERATIONS]" means the first  12 mining operation on a property that previously has not been subject to mining 13 [MINING OPERATIONS WHICH BEGAN PRODUCTION AFTER JANUARY 1, 14 1953, OR WHICH HAVE NOT BEEN LIABLE TO PAY A MINING LICENSE 15 TAX UNDER THIS CHAPTER ON NET INCOME SINCE JANUARY 1, 1948]; 16 (6) [(5)] "ordinary treatment processes" includes 17 (A) in the case of coal: cleaning, breaking, sizing, and loading 18 for shipment, 19 (B) in the case of sulphur: pumping to vats, cooling, breaking, 20 and loading for shipment, 21 (C) in the case of iron ore, bauxite, ball and sagger clay, rock 22 asphalt, and minerals that [WHICH] are customarily sold in the form of crude 23 mineral product: sorting, concentrating, and sintering to bring to shipping 24 grade and form, and loading for shipment, and 25 (D) in the case of lead, zinc, copper, gold, silver, platinum 26 metals or fluorspar ores, potash and ores that [WHICH] are not customarily 27 sold in the form of the crude mineral product: crushing, grinding, and 28 beneficiation by concentration (gravity, flotation, amalgamation, electrostatic, 29 or magnetic), cyanidation, leaching, crystallization, precipitation (but 30 excluding electrolytic deposition roasting, thermal or electric smelting or 31 refining), or by substantially equivalent processes or combination of processes 01 used in the separation or extraction of a product from the ore, including the 02 furnacing or quicksilver ore [; 03 (6) "PRODUCTION" MEANS THE DATE ON WHICH THE 04 INITIAL SHIPMENT OF PRODUCTS FROM MINING OPERATIONS IS MADE]. 05  * Sec. 16. AS 38.05.211(b), 38.05.211(e); and AS 43.65.030 are repealed. 06  * Sec. 17. The uncodified law of the State of Alaska is amended by adding a new section to 07 read: 08 APPLICABILITY. AS 38.05.150(d), as amended by sec. 1 of this Act, applies to 09 leases entered into or renegotiated after December 31, 2007. 10  * Sec. 18. This Act takes effect January 1, 2008.