00 SENATE CS FOR CS FOR HOUSE BILL NO. 287(FIN) 01 "An Act relating to the determination of the royalty received by the state on oil 02 production refined or processed in the state; providing tax credits for qualified 03 infrastructure expenditures for in-state refineries; approving and ratifying the sale of 04 royalty oil by the State of Alaska to Tesoro Corporation and Tesoro Refining and 05 Marketing Company LLC; and providing for an effective date." 06 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA: 07  * Section 1. AS 38.05.180(cc) is amended to read: 08 (cc) The provisions of (aa), [AND] (ee), and (hh) of this section do not 09 prohibit the commissioner from accepting any payment on a federal lease tendered by 10 the federal agency responsible for determination and transmittal of the payment to the 11 state under 30 U.S.C. 191 or otherwise due the state as the state's royalty share of gas 12 production or the state's royalty share of oil production irrespective of the state's 13 acceptance of an amount that is different than the amount due under the lease for 01 purposes of determining royalty share on oil and gas production under that subsection. 02  * Sec. 2. AS 38.05.180 is amended by adding new subsections to read: 03 (hh) Upon written request of a lessee of a lease issued under this section or of 04 a lessee of federal land from which the state is entitled to receive a share of the royalty 05 on oil production, the commissioner may enter into an agreement with the lessee to 06 accept, as a value for the state's royalty share of oil production sold to an in-state 07 refiner, an amount that is not less than the price established in a contract between the 08 lessee and the in-state refiner but not exceeding the amount that would otherwise be 09 due under the lease. This subsection applies to a contract entered into after 10 December 31, 2014. The commissioner shall respond to a request received under this 11 section within 90 days after the receipt of the request by the department. The 12 commissioner may enter into an agreement under this section if 13 (1) the commissioner issues a written finding that 14 (A) the agreement is in the best interest of the state; 15 (B) the parties to the contract between the lessee and the in- 16 state refiner are not affiliated under (2) of this subsection; and 17 (C) based on clear and convincing evidence, 18 (i) the contract price is not unreasonably low; and 19 (ii) the prospective reduction in royalty receipts will be 20 balanced by employment opportunities or other tangible benefits to the 21 state; and 22 (2) the primary function of the in-state refiner's contracting with the 23 lessee is to engage in the manufacture of refined petroleum products in the state, and 24 the in-state refiner is not affiliated with the lessee or with a subsequent purchaser of 25 more than 10 percent of the in-state refiner's product; the parties to a contract or 26 purchase are affiliated if, in the judgment of the commissioner, one of the parties to 27 the contract or purchase exercises substantial influence over the policies and actions of 28 the other as evidenced by a relationship based on common ownership or family 29 interest or by action taken in concert whether or not that influence is based on 30 stockholdings, stockholders, officers, or directors. 31 (ii) In (cc) and (hh) of this section, 01 (1) "in-state refiner" means a person engaged in the manufacture of 02 refined petroleum products in the state; 03 (2) "price established in the contract between the lessee and the in-state 04 refiner" includes tax reimbursement amounts, deliverability and other charges, and 05 other forms of consideration paid by the in-state refiner, as appropriate, under the 06 contract; 07 (3) "state's royalty share of oil production" includes payments on 08 federal leases made to the state under 30 U.S.C. 191. 09  * Sec. 3. AS 43.20 is amended by adding a new section to read:  10 Sec. 43.20.053. Qualified in-state oil refinery infrastructure expenditures  11 tax credit. (a) A taxpayer that owns an in-state oil refinery whose primary function is 12 the manufacturing and sale of refined petroleum products to third parties in arm's 13 length transactions may apply a credit against the tax due under this chapter for a 14 qualified infrastructure expenditure incurred in the state for a tax year beginning after 15 December 31, 2014, and before January 1, 2020. The total amount of credit a taxpayer 16 may receive under this section may not exceed the lesser of 40 percent of qualified 17 infrastructure expenditures incurred in the state during the tax year or $10,000,000 for 18 each in-state refinery for which qualified expenditures are incurred. 19 (b) A taxpayer applying the credit under this section against a liability under 20 this chapter shall claim the credit on the taxpayer's return. A tax credit or portion of a 21 tax credit under this section may not be used to reduce the taxpayer's tax liability 22 under this chapter below zero. Any unused tax credit or portion of a tax credit under 23 this section may be carried forward to the five tax years immediately following the tax 24 year in which the qualified infrastructure expenditures were incurred. 25 (c) An expenditure that is the basis of the credit under this section may not be 26 the basis for 27 (1) a deduction against the tax levied under this chapter; 28 (2) a credit or deduction under another provision of this title; or 29 (3) any federal credit claimed under this title. 30 (d) A person entitled to a tax credit under this section that is greater than the 31 person's tax liability under this chapter may request a refund or payment in the amount 01 of the unused portion of the tax credit. 02 (e) The department may use money available in the oil and gas tax credit fund 03 established in AS 43.55.028 to make a refund or payment under (d) of this section in 04 whole or in part if the department finds that 05 (1) the claimant does not have an outstanding liability to the state for 06 unpaid delinquent taxes under this title; and 07 (2) after application of all available tax credits, the claimant's total tax 08 liability under this chapter for the calendar year in which the claim is made is zero. 09 (f) A refund under this section does not bear interest. 10 (g) If an oil refinery ceases commercial operation during the nine calendar 11 years immediately following the calendar year in which a credit under this section was 12 received, regardless of whether commercial operation later resumes, the taxpayer's tax 13 liability under this chapter will be increased. The tax liability increase is equal to the 14 total amount of credit taken multiplied by a fraction 15 (1) the numerator of which is the difference between 10 and the 16 number of calendar years for which the oil refinery was eligible for a credit under this 17 section; and 18 (2) the denominator of which is 10. 19 (h) A person claiming a tax credit under this section for an oil refinery that 20 ceases commercial operation or is sold during the nine calendar years immediately 21 following the calendar year in which a credit under this section was received shall 22 notify the department in writing of the date the oil refinery ceased commercial 23 operation or was sold. The notice must be filed with the return for the tax year in 24 which the oil refinery ceases commercial operation or was sold. 25 (i) The issuance of a refund under this section does not limit the department's 26 ability to later audit or adjust the claim as provided in AS 43.05 if the department 27 determines that the taxpayer claiming the credit was not entitled to the amount of the 28 credit. 29 (j) In this section, 30 (1) "modification" means an adjustment or other alteration to existing 31 tangible personal property that has a useful life of three years or more; 01 (2) "qualified infrastructure expenditure" means an expenditure for the 02 in-state purchase, installation, or modification of tangible personal property for the in- 03 state manufacture or in-state transport of refined petroleum products, or petroleum- 04 based feedstock; 05 (3) "refined petroleum products" means separate marketable elements, 06 compounds, or mixtures of oil in liquid form, including gasoline, diesel, jet fuel, gas 07 oil, heating oil, and kerosene; 08 (4) "unpaid delinquent tax" means an amount of tax for which the 09 department has issued an assessment that has not been paid and, if contested, has not 10 been finally resolved in the taxpayer's favor. 11  * Sec. 4. AS 43.55.028(a) is amended to read: 12 (a) The oil and gas tax credit fund is established as a separate fund of the state. 13 The purpose of the fund is to purchase transferable tax credit certificates issued under 14 AS 43.55.023 and production tax credit certificates issued under AS 43.55.025 and to 15 pay refunds and payments claimed under AS 43.20.046, [OR] 43.20.047, or  16 43.20.053. 17  * Sec. 5. AS 43.55.028(g) is amended to read: 18 (g) The department may adopt regulations to carry out the purposes of this 19 section, including standards and procedures to allocate available money among 20 applications for purchases under this chapter and claims for refunds and payments 21 under AS 43.20.046, [OR] 43.20.047, or 43.20.053 when the total amount of the 22 applications for purchase and claims for refund exceed the amount of available money 23 in the fund. The regulations adopted by the department may not, when allocating 24 available money in the fund under this section, distinguish an application for the 25 purchase of a credit certificate issued under former AS 43.55.023(m) or a claim for a 26 refund or payment under AS 43.20.046, [OR] 43.20.047, or 43.20.053.  27  * Sec. 6. The uncodified law of the State of Alaska is amended by adding a new section to 28 read: 29 ROYALTY OIL SALE CONTRACT WITH TESORO CORPORATION AND 30 TESORO REFINING AND MARKETING COMPANY LLC APPROVED AND 31 RATIFIED. In accordance with AS 38.06.055, the legislature approves and ratifies the 01 proposed Amendment to Agreement for the Sale of Royalty Oil attached as Exhibit 1 to the 02 final best interest finding and determination executed January 9, 2014, by the Department of 03 Natural Resources regarding the amendment of the Agreement for the Sale Of Royalty Oil 04 Between and Among the State of Alaska and Tesoro Corporation, a Delaware Corporation 05 and Tesoro Refining and Marketing Company LLC, a Delaware Limited Liability Company, 06 October 25, 2013. 07  * Sec. 7. Sections 1 - 5 of this Act take effect January 1, 2015. 08  * Sec. 8. Except as provided in sec. 7 of this Act, this Act takes effect immediately under 09 AS 01.10.070(c).