HCS CSSB 2001(FIN): "An Act relating to the production tax on oil and gas and to conservation surcharges on oil; relating to criminal penalties for violating conditions governing access to and use of confidential information relating to the production tax; amending the definition of 'gas' as that definition applies in the Alaska Stranded Gas Development Act; making conforming amendments; and providing for an effective date."
00 HOUSE CS FOR CS FOR SENATE BILL NO. 2001(FIN) 01 "An Act relating to the production tax on oil and gas and to conservation surcharges on 02 oil; relating to criminal penalties for violating conditions governing access to and use of 03 confidential information relating to the production tax; amending the definition of 'gas' 04 as that definition applies in the Alaska Stranded Gas Development Act; making 05 conforming amendments; and providing for an effective date." 06 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA: 07 * Section 1. The uncodified law of the State of Alaska is amended by adding a new section 08 to read: 09 LEGISLATIVE INTENT. (a) It is the intent of the legislature through sec. 11 of this 10 Act to confirm by clarification the long-standing interpretation of AS 43.55.020(f) by the 11 Department of Revenue. 12 (b) It is the intent of the legislature that the division or other unit of the Department of 13 Environmental Conservation assigned responsibility for administration of the programs under
01 AS 46.08 that are principally supported by the conservation surcharges on oil levied under 02 AS 43.55.201 - 43.55.299 and 43.55.300 - 43.55.310 03 (1) reduce program costs, including personnel costs, as necessary to operate 04 within the revenue anticipated to be generated by those surcharges, in the amounts of those 05 surcharges as amended by secs. 26 and 28 of this Act; and 06 (2) request appropriations for exceptional program needs and expansions 07 beyond what can be provided from the estimated amounts collected from those surcharges 08 from alternative funding sources. 09 * Sec. 2. AS 43.05.230(f) is amended to read: 10 (f) A wilful violation of the provisions of this section or of a condition 11 imposed under AS 43.55.040(1)(B) is punishable by a fine of not more than $5,000, 12 or by imprisonment for not more than two years, or by both. 13 * Sec. 3. AS 43.20.031(c) is amended to read: 14 (c) In computing the tax under this chapter, the taxpayer is not entitled to 15 deduct any taxes based on or measured by net income. The taxpayer may deduct the 16 tax levied and paid under AS 43.55. 17 * Sec. 4. AS 43.20.072(b) is amended to read: 18 (b) A taxpayer's business income to be apportioned under this section to the 19 state shall be the federal taxable income of the taxpayer's consolidated business for the 20 tax period, except that 21 (1) taxes based on or measured by net income that are deducted in the 22 determination of the federal taxable income shall be added back; the tax levied and 23 paid under AS 43.55 may not be added back; 24 (2) intangible drilling and development costs that are deducted as 25 expenses under 26 U.S.C. 263(c) (Internal Revenue Code) in the determination of the 26 federal taxable income shall be capitalized and depreciated as if the option to treat 27 them as expenses under 26 U.S.C. 263(c) (Internal Revenue Code) had not been 28 exercised; 29 (3) depletion deducted on the percentage depletion basis under 26 30 U.S.C. 613 (Internal Revenue Code) in the determination of the federal taxable income 31 shall be recomputed and deducted on the cost depletion basis under 26 U.S.C. 612
01 (Internal Revenue Code); and 02 (4) depreciation shall be computed on the basis of 26 U.S.C. 167 03 (Internal Revenue Code) as that section read on June 30, 1981. 04 * Sec. 5. AS 43.55.011 is amended by adding new subsections to read: 05 (e) There is levied on the producer of oil or gas a tax for all oil and gas 06 produced each month from each lease or property in the state, less any oil and gas the 07 ownership or right to which is exempt from taxation or constitutes a landowner's 08 royalty interest. Except as otherwise provided under (i) and (j) of this section, the tax 09 is equal to 20 percent of the production tax value of the taxable oil and gas as 10 calculated under AS 43.55.160. 11 (f) There is levied on the producer of oil or gas a tax for all oil and gas 12 produced each month from each lease or property in the state the ownership or right to 13 which constitutes a landowner's royalty interest, except for oil and gas the ownership 14 or right to which is exempt from taxation. The provisions of this subsection apply to a 15 landowner's royalty interest as follows: 16 (1) the rate of tax levied on oil is equal to five percent of the gross 17 value at the point of production of the oil; 18 (2) the rate of tax levied on gas is equal to 1.667 percent of the gross 19 value at the point of production of the gas; 20 (3) if the department determines that, for purposes of reducing the 21 producer's tax liability under (1) or (2) of this subsection, the producer has received or 22 will receive consideration from the royalty owner offsetting all or a part of the 23 producer's royalty obligation, other than a deduction under AS 43.55.020(d) of the 24 amount of a tax paid, 25 (A) notwithstanding (1) of this subsection, the tax is equal to 26 (i) for oil that is produced from a lease or property in 27 the Cook Inlet sedimentary basin, five percent of the gross value at the 28 point of production of the oil; 29 (ii) for oil, except oil described in (i) of this 30 subparagraph, 20 percent of the gross value at the point of production 31 of the oil; and
01 (B) notwithstanding (2) of this subsection, for gas the tax is 02 equal to 11.25 percent of the gross value at the point of production of the gas. 03 (g) In addition to the taxes levied under (e) and (f) of this section, during each 04 month for which the price index determined under (h) of this section is greater than 05 zero, there is levied on the producer of oil or gas a tax for all oil and gas produced 06 during that month from each lease or property in the state, less any oil and gas the 07 ownership or right to which is exempt from taxation or constitutes a landowner's 08 royalty interest. Except as otherwise provided under (i) and (j) of this section, the tax 09 levied under this subsection is equal to .175 percent of the production tax value of the 10 taxable oil and gas as calculated under AS 43.55.160, multiplied by the price index 11 determined under (h) of this section. However, application of this subsection may not, 12 when added to the tax levied under (e) of this section, impose a tax levy of more than 13 50 percent of the production tax value of taxable oil and gas as calculated under 14 AS 43.55.160. 15 (h) For purposes of (g) of this section, the price index for a month is calculated 16 by subtracting 45 from the number that is equal to the quotient of the production tax 17 value of the taxable oil and gas produced during that month, as calculated under 18 AS 43.55.160, divided by the amount of the taxable oil and gas produced during that 19 month, in Btu equivalent barrels. The production tax value is calculated (1) using the 20 monthly average of the producer's costs of transportation for the calendar year, as 21 provided by AS 43.55.160(i), and (2) substituting for the month's lease expenditures 22 1/12 of the adjusted lease expenditures for the calendar year, as provided by 23 AS 43.55.160(f). For purposes of this subsection, "Btu equivalent barrel" means (1) in 24 the case of oil, one barrel; (2) in the case of gas, the amount of gas that has an energy 25 content of 6,000,000 British thermal units. 26 (i) For a month that ends before April 1, 2021, the total tax levied by (e) and 27 (g) of this section on gas produced from a lease or property in the Cook Inlet 28 sedimentary basin may not exceed 29 (1) for a lease or property that first commenced commercial production 30 of gas before April 1, 2006, the product obtained by multiplying (A) the amount of gas 31 produced during that month from the lease or property, times (B) the average rate of
01 tax that was imposed under this chapter on gas produced from the lease or property for 02 the 12-month period ending on March 31, 2006, times (C) the average prevailing value 03 for gas delivered in the Cook Inlet area for the 12-month period ending March 31, 04 2006, as determined by the department under AS 43.55.020(f); 05 (2) for a lease or property that first commences commercial production 06 of gas after March 31, 2006, the product obtained by multiplying (A) the amount of 07 gas produced during that month from the lease or property, times (B) the average rate 08 of tax that was imposed under this chapter on gas produced from all leases or 09 properties in the Cook Inlet sedimentary basin for the 12-month period ending on 10 March 31, 2006, times (C) the average prevailing value for gas delivered in the Cook 11 Inlet area for the 12-month period ending March 31, 2006, as determined by the 12 department under AS 43.55.020(f). 13 (j) For a month that ends before April 1, 2021, the total tax levied by (e) and 14 (g) of this section on oil produced from a lease or property in the Cook Inlet 15 sedimentary basin may not exceed 16 (1) for a lease or property that first commenced commercial production 17 of oil before April 1, 2006, the product obtained by multiplying (A) the amount of oil 18 produced during that month from the lease or property, times (B) the average rate of 19 tax that was imposed under this chapter on oil produced from the lease or property for 20 the 12-month period ending on March 31, 2006, times (C) the average prevailing value 21 for oil delivered in the Cook Inlet area for the 12-month period ending March 31, 22 2006, as determined by the department under AS 43.55.020(f); 23 (2) for a lease or property that first commences commercial production 24 of oil after March 31, 2006, the product obtained by multiplying (A) the amount of oil 25 produced during that month from the lease or property, times (B) the average rate of 26 tax that was imposed under this chapter on oil produced from all leases or properties in 27 the Cook Inlet sedimentary basin for the 12-month period ending on March 31, 2006, 28 times (C) the average prevailing value for oil delivered in the Cook Inlet area for the 29 12-month period ending March 31, 2006, as determined by the department under 30 AS 43.55.020(f). 31 (k) Notwithstanding any contrary provision of AS 38.05.180(i), AS 41.09.010,
01 AS 43.20.043, AS 43.55.024, 43.55.025, or 43.55.170, tax credits under 02 AS 38.05.180(i), AS 41.09.010, AS 43.20.043, AS 43.55.024, 43.55.025, and 03 43.55.170 that are allocated to gas produced from leases or properties in the Cook 04 Inlet sedimentary basin and that are available to be applied against a tax levied by (e) 05 of this section on gas produced from leases or properties in the Cook Inlet sedimentary 06 basin during a month may be applied only against the tax levied by (e) of this section 07 on that gas. The amount by which the tax credits allocated to gas produced from leases 08 or properties in the Cook Inlet sedimentary basin and that the producer would 09 otherwise be allowed to use for a different month or transfer to another person that 10 exceeds the amount of tax credits whose application would reduce the tax levied by (e) 11 of this section on that gas to zero, if any, is considered the amount of excess tax credits 12 and the excess tax credits are subject to the following: 13 (1) for each lease or property for which a limitation under (i) or (j) of 14 this section on the tax levied by (e) and (g) of this section has the effect of reducing 15 the producer's tax below the amount of tax that would be levied in the absence of that 16 limitation, the producer shall calculate the amount of that reduction; 17 (2) the producer shall calculate the total of the reductions calculated 18 under (1) of this subsection for all affected leases or properties; 19 (3) the producer shall reduce the amount of excess tax credits by the 20 total calculated under (2) of this subsection, but not to less than zero; 21 (4) any amount of excess tax credits remaining after reduction under 22 (3) of this subsection may be used for a different month, transferred to another person, 23 or applied against a tax levied on oil or gas produced from a lease or property located 24 anywhere in the state to the extent otherwise allowed under applicable law governing 25 the tax credits. 26 (l) Allocation of credits under (k) of this section shall be made under 27 regulations adopted by the department that provide for reasonable methods of 28 allocating tax credits to gas produced from leases or properties in the Cook Inlet 29 sedimentary basin. The method of allocating tax credits available under AS 43.55.170 30 shall be based on the number of barrels of oil equivalent produced from a lease or 31 property.
01 (m) The department shall by regulation establish sampling, testing, and 02 averaging methods for determining the energy content of a producer's gas produced 03 during a month. 04 * Sec. 6. AS 43.55.017(a) is amended to read: 05 (a) Except as provided in this chapter, the taxes imposed by this chapter are in 06 place of all taxes now imposed by the state or any of its municipalities, and neither the 07 state nor a municipality may impose a tax on [UPON] 08 (1) producing oil or gas leases; 09 (2) oil or gas produced or extracted in the state; 10 (3) the value of intangible drilling and development costs, as 11 described in 26 U.S.C. 263(c) (Internal Revenue Code), as amended through 12 January 1, 1974 [EXPLORATION EXPENSES]. 13 * Sec. 7. AS 43.55.020(a) is repealed and reenacted to read: 14 (a) Ninety-five percent of the total tax levied by AS 43.55.011(e) - (g), net of 15 any credits applied under this chapter, is due on the last day of each calendar month on 16 oil and gas produced from each lease or property during the preceding month. The 17 remaining portion of the tax levied by AS 43.55.011(e) - (g), net of any credits applied 18 under this chapter, is due on March 31 of the year following the calendar year during 19 which the oil and gas were produced. An unpaid amount of tax that is not paid when 20 due in accordance with this subsection becomes delinquent. An overpayment of tax 21 with respect to a month may be applied against the tax due for any later month. 22 Notwithstanding any contrary provision of AS 43.05.280, interest on an overpayment 23 is allowed only from a date that is 90 days after the later of (1) the March 31 described 24 in this subsection, or (2) the date that the statement required under AS 43.55.030(a) 25 and (e) to be filed on or before that March 31 is filed. Interest is not allowed if the 26 overpayment was refunded within the 90-day period. 27 * Sec. 8. AS 43.55.020(b) is amended to read: 28 (b) The production tax on oil and [OR] gas shall be paid by or on behalf of the 29 producer. 30 * Sec. 9. AS 43.55.020(d) is amended to read: 31 (d) In making settlement with the royalty owner for oil and gas that is
01 taxable under AS 43.55.011, the producer may deduct the amount of the tax paid on 02 taxable royalty oil and [OR] gas, or may deduct taxable royalty oil or gas equivalent 03 in value at the time the tax becomes due to the amount of the tax paid. Unless 04 otherwise agreed between the producer and the royalty owner, the amount of the 05 tax paid under AS 43.55.011(e) and (g) on taxable royalty oil and gas for a month, 06 other than oil and gas the ownership or right to which constitutes a landowner's 07 royalty interest, is considered to be the gross value at the point of production of 08 the taxable royalty oil and gas produced during the month multiplied by a figure 09 that is a quotient, in which 10 (1) the numerator is the producer's total tax liability under 11 AS 43.55.011(e) and (g) for the month of production; and 12 (2) the denominator is the total gross value at the point of 13 production of the oil and gas taxable under AS 43.55.011(e) and (g) produced by 14 the producer from all leases and properties in the state during the month. 15 * Sec. 10. AS 43.55.020(e) is repealed and reenacted to read: 16 (e) Gas flared, released, or allowed to escape in excess of the amount 17 authorized by the Alaska Oil and Gas Conservation Commission is considered, for the 18 purpose of AS 43.55.011 - 43.55.180, as gas produced from a lease or property. Oil or 19 gas used in the operation of a lease or property in the state in drilling for or producing 20 oil or gas, or for repressuring, except to the extent determined by the Alaska Oil and 21 Gas Conservation Commission to be waste, is not considered, for the purpose of 22 AS 43.55.011 - 43.55.180, as oil or gas produced from a lease or property. 23 * Sec. 11. AS 43.55.020(f) is amended to read: 24 (f) If oil or gas is produced but not sold, or if oil or gas is produced and 25 sold under circumstances where the sale price does not represent the prevailing value 26 for oil or gas of like kind, character, or quality in the field or area from which the 27 product is produced, the department may require the tax to be paid upon the basis of 28 the value of oil or gas of the same kind, quality, and character prevailing for that field 29 or area during the calendar month of production or sale [FOR THAT FIELD OR 30 AREA]. 31 * Sec. 12. AS 43.55 is amended by adding a new section to read:
01 Sec. 43.55.024. Tax credits for certain losses and expenditures. (a) A 02 producer or explorer may take a tax credit for a qualified capital expenditure as 03 follows: 04 (1) notwithstanding that a qualified capital expenditure may be a 05 deductible lease expenditure for purposes of calculating the production tax value of oil 06 and gas under AS 43.55.160(a), unless a credit for that expenditure is taken under 07 AS 38.05.180(i), AS 41.09.010, AS 43.20.043, or AS 43.55.025, 08 (A) a producer or explorer that incurs a qualified capital 09 expenditure may also elect to take a tax credit against a tax due under 10 AS 43.55.011(e) in the amount of 20 percent of that expenditure; 11 (B) for a calendar year for which the producer makes a 12 substitution under AS 43.55.160(f), instead of taking a tax credit at a rate 13 authorized by (A) of this paragraph as to each separate qualified capital 14 expenditure after it has been incurred, a producer that incurs a qualified capital 15 expenditure during that year and that wishes to apply a credit based on that 16 expenditure against a tax due under AS 43.55.011(e) shall calculate and apply 17 every month an annualized tax credit in an amount equal to 1 2/3 percent of the 18 total qualified capital expenditures incurred during that year and for which the 19 tax credit is taken for that year; 20 (2) a producer or explorer may take a credit for a qualified capital 21 expenditure incurred in connection with geological or geophysical exploration or in 22 connection with an exploration well only if the producer or explorer provides to the 23 department, as part of the statement required under AS 43.55.030(a) for the month for 24 which the credit is sought to be taken, the producer's or explorer's written agreement 25 (A) to notify the Department of Natural Resources, within 30 26 days after completion of the geological or geophysical data processing or 27 completion of the well, or within 30 days after the statement is filed, whichever 28 is the latest, of the date of completion and to submit a report to that department 29 describing the processing sequence and provide a list of data sets available; 30 (B) to provide to the Department of Natural Resources, within 31 30 days after the date of a request, specific data sets, ancillary data, and reports
01 identified in (A) of this paragraph; 02 (C) that, notwithstanding any provision of AS 38, the 03 Department of Natural Resources shall hold confidential the information 04 provided to that department under this paragraph for 10 years following the 05 completion date, after which the department shall publicly release the 06 information after 30 days' public notice. 07 (b) A producer or explorer may elect to take a tax credit in the amount of 20 08 percent of a carried-forward annual loss. A credit under this subsection may be applied 09 against a tax due under AS 43.55.011(e). For purposes of this subsection, a carried- 10 forward annual loss is the amount of a producer's or explorer's adjusted lease 11 expenditures under AS 43.55.160 for a previous calendar year that was not deductible 12 in any month under AS 43.55.160(a) and (b). 13 (c) A credit or portion of a credit under this section may not be used to reduce 14 a person's tax liability under AS 43.55.011(e) for any month below zero, and any 15 unused credit or portion of a credit not used under this subsection may be applied in a 16 later month. 17 (d) Except as limited by (j) of this section, a person entitled to take a tax credit 18 under this section that wishes to transfer the unused credit to another person may 19 apply to the department for a transferable tax credit certificate. An application under 20 this subsection must be on a form prescribed by the department and must include 21 supporting information and documentation that the department reasonably requires. 22 The department shall grant or deny an application, or grant an application as to a lesser 23 amount than that claimed and deny it as to the excess, not later than 60 days after the 24 latest of (1) March 31 of the year following the calendar year in which the qualified 25 capital expenditure or carried-forward annual loss for which the credit is claimed was 26 incurred; (2) if the applicant is required under AS 43.55.030(a) and (e) to file a 27 statement on or before March 31 of the year following the calendar year in which the 28 qualified capital expenditures or carried-forward annual loss for which the credit is 29 claimed was incurred, the date the statement was filed; or (3) the date the application 30 was received by the department. If, based on the information then available to it, the 31 department is reasonably satisfied that the applicant is entitled to a credit, the
01 department shall issue the applicant a transferable tax credit certificate for the amount 02 of the credit. A certificate issued under this subsection does not expire. 03 (e) A person to which a transferable tax credit certificate is issued under (d) of 04 this section may transfer the certificate to another person, and a transferee may further 05 transfer the certificate. Subject to the limitations set out in (a) - (c) of this section, and 06 notwithstanding any action the department may take with respect to the applicant 07 under (g) of this section, the owner of a certificate may apply the credit or a portion of 08 the credit shown on the certificate only against a tax due under AS 43.55.011(e). 09 However, a credit shown on a transferable tax credit certificate may not be applied to 10 reduce a transferee's total tax due under AS 43.55.011(e) on oil and gas produced 11 during a calendar year to less than 80 percent of the tax that would otherwise be due 12 without applying that credit. Any portion of a credit not used under this subsection 13 may be applied in a later period. 14 (f) Under standards established in regulations adopted by the department and 15 subject to appropriations made by law, the department, on the written application of 16 the person to whom a transferable tax credit has been issued under (d) of this section 17 and whose average amount of oil and gas produced a day taxable under 18 AS 43.55.011(e) is not more than 50,000 barrels of oil equivalent a day for the 19 preceding calendar year, shall issue a cash refund, in whole or in part, for the 20 certificate if the department finds 21 (1) after investigation and audit of the tax credit claim by the 22 department, that the applicant is entitled to the credit to the extent of the refund 23 amount; 24 (2) within 24 months after having applied for the transferable tax credit 25 certificate, that the applicant incurred a qualified capital expenditure or was the 26 successful bidder on a bid submitted for a lease on state land under AS 38.05.180(f); 27 (3) that the amount of the refund would not exceed the total of 28 qualified capital expenditures and successful bids described in (2) of this subsection 29 that have not been the subject of a finding made under this paragraph for purposes of a 30 previous refund; 31 (4) that the applicant does not have an outstanding liability to the state
01 for unpaid delinquent taxes under this title; and 02 (5) that the sum of the amount of the refund applied for and amounts 03 previously refunded to the applicant during the calendar year under this subsection 04 would not exceed $25,000,000. 05 (g) The issuance of a transferable tax credit certificate under (d) of this section 06 does not limit the department's ability to later audit a tax credit claim to which the 07 certificate relates or to adjust the claim if the department determines that the applicant 08 was not entitled to the amount of the credit for which the certificate was issued. The 09 tax liability of the applicant under AS 43.55.011(e) and 43.55.017 - 43.55.180 is 10 increased by the amount of the credit that exceeds that to which the applicant was 11 entitled, or the applicant's available valid outstanding credits applicable against the tax 12 levied by AS 43.55.011(e) are reduced by that amount. If the applicant's tax liability is 13 increased under this subsection, the increase bears interest under AS 43.05.225 from 14 the date the transferable tax credit certificate was issued. For purposes of this 15 subsection, an applicant that is an explorer is considered a producer subject to the tax 16 levied by AS 43.55.011(e). 17 (h) The department may adopt regulations to carry out the purposes of this 18 section, including prescribing reporting, record keeping, and certification procedures 19 and requirements to verify the accuracy of credits claimed and to ensure that a credit is 20 not used more than once, and otherwise implementing this section. 21 (i) A person may not elect to take a tax credit under (a) or (j) of this section for 22 an expenditure incurred to acquire an asset (1) the cost of previously acquiring which 23 was a lease expenditure under AS 43.55.160(c) or would have been a lease 24 expenditure under AS 43.55.160(c) if it had been incurred on or after April 1, 2006; or 25 (2) that has previously been placed in service in the state. An expenditure to acquire an 26 asset is not excluded under this subsection if not more than an immaterial portion of 27 the asset meets a description under (1) or (2) of this subsection. For purposes of this 28 subsection, "asset" includes geological, geophysical, and well data and interpretations. 29 (j) For the purposes of this section, 30 (1) a producer's or explorer's transitional investment expenditures are 31 the sum of the expenditures the producer or explorer incurred on or after April 1,
01 2001, and before April 1, 2006, that would be qualified capital expenditures if they 02 were incurred on or after April 1, 2006, less the sum of the payments or credits the 03 producer or explorer received before April 1, 2006, for the sale or other transfer of 04 assets, including geological, geophysical, or well data or interpretations, acquired by 05 the producer or explorer as a result of expenditures the producer or explorer incurred 06 before April 1, 2006, that would be qualified capital expenditures, if they were 07 incurred on or after April 1, 2006; 08 (2) a producer or explorer may elect to take a tax credit against a tax 09 due under AS 43.55.011(e) in the amount of 20 percent of the producer's or explorer's 10 transitional investment expenditures, but only to the extent that the amount does not 11 exceed 12 (A) 1/10 of the producer's or explorer's qualified capital 13 expenditures that are incurred during the month for which the credit is taken, if 14 the producer or explorer does not make a substitution under AS 43.55.160(f); 15 (B) 1/120 of the producer's or explorer's qualified capital 16 expenditures that are incurred during the calendar year that includes the month 17 for which the credit is taken, if the producer or explorer makes a substitution 18 under AS 43.55.160(f); 19 (3) a producer or explorer may not take a tax credit for a transitional 20 investment expenditure 21 (A) for any month that ends the later of 22 (i) April 30, 2013; or 23 (ii) the seventh anniversary of the last day of the month 24 for which the producer first applies a credit under this subsection 25 against a tax due under AS 43.55.011(e), if the producer did not have 26 commercial production of oil or gas from a lease or property in the state 27 before April 1, 2006; 28 (B) more than once; or 29 (C) if a credit for that expenditure was taken under 30 AS 38.05.180(i), AS 41.09.010, AS 43.20.043, or AS 43.55.025; 31 (4) notwithstanding (d), (e), and (g) of this section, a producer or
01 explorer may not transfer a tax credit or obtain a transferable tax credit certificate for a 02 transitional investment expenditure. 03 (k) As a condition of receiving a tax credit under this section, a producer or 04 explorer that obtains the tax credit for or directly related to a pipeline, facility, or other 05 asset that is or becomes subject to regulation by the Federal Energy Regulatory 06 Commission or the Regulatory Commission of Alaska, or a successor regulatory body 07 shall at all times support and in all rate proceedings file to flow through 100 percent of 08 the tax credits to ratepayers as a reduction in the costs of service for the pipeline, 09 facility, or other asset. 10 (l) In this section, "qualified capital expenditure" means, except as otherwise 11 provided in (i) of this section, an expenditure that is a lease expenditure under 12 AS 43.55.160 and is 13 (1) incurred for geological or geophysical exploration; or 14 (2) treated as a capitalized expenditure under 26 U.S.C. (Internal 15 Revenue Code), as amended, regardless of elections made under 26 U.S.C. 263(c) 16 (Internal Revenue Code), as amended, and is 17 (A) treated as a capitalized expenditure for federal income tax 18 reporting purposes by the person incurring the expenditure; or 19 (B) eligible to be deducted as an expense under 26 U.S.C. 20 263(c) (Internal Revenue Code), as amended. 21 * Sec. 13. AS 43.55.025(a) is amended to read: 22 (a) Subject to the terms and conditions of this section, [ON OIL AND GAS 23 PRODUCED ON OR AFTER JULY 1, 2004, FROM AN OIL AND GAS LEASE, 24 OR ON GAS PRODUCED FROM A GAS ONLY LEASE,] a credit against the 25 production tax due under AS 43.55.011(e) [THIS CHAPTER] is allowed for 26 exploration expenditures that qualify under (b) of this section in an amount equal to 27 one of the following: 28 (1) 20 percent of the total exploration expenditures that qualify only 29 under (b) and (c) of this section; 30 (2) 20 percent of the total exploration expenditures for work performed 31 before July 1, 2007, and that qualify only under (b) and (d) of this section;
01 (3) 40 percent of the total exploration expenditures that qualify under 02 (b), (c), and (d) of this section; or 03 (4) 40 percent of the total exploration expenditures that qualify only 04 under (b) and (e) of this section. 05 * Sec. 14. AS 43.55.025(b) is amended to read: 06 (b) To qualify for the production tax credit under (a) of this section, an 07 exploration expenditure must be incurred for work performed on or after July 1, 2003, 08 and before July 1, 2016 [2007], except that an exploration expenditure for a Cook Inlet 09 prospect must be incurred for work performed on or after July 1, 2005, [AND 10 BEFORE JULY 1, 2010, AND EXCEPT THAT AN EXPLORATION 11 EXPENDITURE, IN WHOLE OR IN PART, SOUTH OF 68 DEGREES, 15 12 MINUTES, NORTH LATITUDE, AND NOT PART OF A COOK INLET 13 PROSPECT MUST BE INCURRED FOR WORK PERFORMED ON OR AFTER 14 JULY 1, 2003, AND BEFORE JULY 1, 2010,] and 15 (1) may be for seismic or geophysical exploration costs not connected 16 with a specific well; 17 (2) if for an exploration well, 18 (A) must be incurred by an explorer that holds an interest in the 19 exploration well for which the production tax credit is claimed; 20 (B) may be for either an oil or gas discovery well or a dry hole; 21 and 22 (C) must be for goods, services, or rentals of personal property 23 reasonably required for the surface preparation, drilling, casing, cementing, 24 and logging of an exploration well, and, in the case of a dry hole, for the 25 expenses required for abandonment if the well is abandoned within 18 months 26 after the date the well was spudded; 27 (3) may not be for testing, stimulation, or completion costs; 28 administration, supervision, engineering, or lease operating costs; geological or 29 management costs; community relations or environmental costs; bonuses, taxes, or 30 other payments to governments related to the well; or other costs that are generally 31 recognized as indirect costs or financing costs; and
01 (4) may not be incurred for an exploration well or seismic exploration 02 that is included in a plan of exploration or a plan of development for any unit on 03 May 13, 2003. 04 * Sec. 15. AS 43.55.025(f) is amended to read: 05 (f) For a production tax credit under this section, 06 (1) an explorer shall, in a form prescribed by the department and 07 within six months of the completion of the exploration activity, claim the credit and 08 submit information sufficient to demonstrate to the department's satisfaction that the 09 claimed exploration expenditures qualify under this section; 10 (2) an explorer shall agree, in writing, 11 (A) to notify the Department of Natural Resources, within 30 12 days after completion of seismic or geophysical data processing, completion of 13 a well, or filing of a claim for credit, whichever is the latest, for which 14 exploration costs are claimed, of the date of completion and submit a report to 15 that department describing the processing sequence and providing a list of data 16 sets available; if, under (c)(2)(B) of this section, an explorer submits a claim 17 for a credit for expenditures for an exploration well that is located within three 18 miles of a well already drilled for oil and gas, in addition to the submissions 19 required under (1) of this subsection, the explorer shall submit the information 20 necessary for the commissioner of natural resources to evaluate the validity of 21 the explorer's claim that the well is directed at a distinctly separate exploration 22 target, and the commissioner of natural resources shall, upon receipt of all 23 evidence sufficient for the commissioner to evaluate the explorer's claim, make 24 that determination within 60 days; 25 (B) to provide to the Department of Natural Resources, within 26 30 days after the date of a request, specific data sets, ancillary data, and reports 27 identified in (A) of this paragraph; 28 (C) that, notwithstanding any provision of AS 38, information 29 provided under this paragraph will be held confidential by the Department of 30 Natural Resources for 10 years following the completion date, at which time 31 that department will release the information after 30 days' public notice;
01 (3) if more than one explorer holds an interest in a well or seismic 02 exploration, each explorer may claim an amount of credit that is proportional to the 03 explorer's cost incurred; 04 (4) the department may exercise the full extent of its powers as though 05 the explorer were a taxpayer under this title, in order to verify that the claimed 06 expenditures are qualified exploration expenditures under this section; and 07 (5) if the department is satisfied that the explorer's claimed 08 expenditures are qualified under this section, the department shall issue to the explorer 09 a production tax credit certificate for the amount of credit to be allowed against 10 production taxes due under AS 43.55.011(e) [THIS CHAPTER; HOWEVER, 11 NOTWITHSTANDING ANY OTHER PROVISION OF THIS SECTION, THE 12 DEPARTMENT MAY NOT ISSUE TO AN EXPLORER A PRODUCTION TAX 13 CREDIT CERTIFICATE IF THE TOTAL OF PRODUCTION TAX CREDITS 14 SUBMITTED FOR COOK INLET PRODUCTION, BASED ON EXPLORATION 15 EXPENDITURES FOR WORK PERFORMED DURING THE PERIOD 16 DESCRIBED IN (b) OF THIS SECTION FOR THAT PRODUCTION, THAT HAVE 17 BEEN APPROVED BY THE DEPARTMENT EXCEEDS $20,000,000]. 18 * Sec. 16. AS 43.55.025(h) is amended to read: 19 (h) A producer that purchases a production tax credit certificate may apply the 20 credits against its production tax liability under AS 43.55.011(e) [THIS CHAPTER]. 21 Regardless of the price the producer paid for the certificate, the producer may receive 22 a credit against its production tax liability for the full amount of the credit, but for not 23 more than the amount for which the certificate is issued. A production tax credit 24 allowed under this section may not be applied more than once. 25 * Sec. 17. AS 43.55.025(i) is amended to read: 26 (i) For a production tax credit under this section, 27 (1) the amount of the credit that may be applied against the production 28 tax for each tax month may not exceed the total production tax liability under 29 AS 43.55.011(e) of the taxpayer applying the credit for the same month; and 30 (2) an amount of the production tax credit that is greater than the total 31 tax liability under AS 43.55.011(e) of the taxpayer applying the credit for a tax month
01 may be carried forward and applied against the taxpayer's production tax liability 02 under AS 43.55.011(e) in one or more immediately following months. 03 * Sec. 18. AS 43.55.030(a) is amended to read: 04 (a) The tax shall be paid to the department, and the person paying the tax shall 05 file with the department at the time the tax or a portion of the tax is required to be 06 paid a statement, under oath, on forms prescribed by or acceptable to the department, 07 giving, with other information required, the following: 08 (1) a description of each [THE] lease or property from which the oil 09 and [OR] gas were [WAS] produced, by name, legal description, lease number, or 10 [BY] accounting codes [CODE NUMBERS] assigned by the department; 11 (2) the names of the producer and the person paying the tax; 12 (3) the gross amount of oil and the gross amount of [OR] gas 13 produced from each [THE] lease or property, and the percentage of the gross amount 14 of oil and gas owned by each producer for whom the tax is paid; 15 (4) the gross [TOTAL] value at the point of production of the oil 16 and of the [OR] gas produced from each [THE] lease or property owned by each 17 producer for whom the tax is paid; [AND] 18 (5) the name of the first purchaser and the price received for the oil 19 and for the [OR] gas, unless relieved from this requirement in whole or in part by 20 the department; and 21 (6) the producer's lease expenditures and adjustments as 22 calculated under AS 43.55.160 [IF SOLD IN THE STATE]. 23 * Sec. 19. AS 43.55.030(d) is amended to read: 24 (d) Reports by or on behalf of the producer are delinquent the first day 25 following the day the tax is due. [EACH PRODUCER IS SUBJECT TO A PENALTY 26 OF $25 A DAY FOR EACH LEASE OR PROPERTY UPON WHICH THE 27 REPORT IS NOT FILED. THE PENALTY FOR FAILURE TO FILE A REPORT IS 28 IN ADDITION TO THE PENALTY FOR DELINQUENT TAXES, AND IS A LIEN 29 AGAINST THE ASSETS OF THE PRODUCER.] 30 * Sec. 20. AS 43.55.030 is amended by adding new subsections to read: 31 (e) In addition to other required information, the statement required to be filed
01 on or before March 31 of a year must show any adjustments or corrections to the 02 statements that were required under (a) of this section to be filed for the months of the 03 preceding calendar year during which the oil or gas was produced. 04 (f) For purposes of AS 43.05.260(a), the statement required to be filed on or 05 before March 31 of a year is considered to be the return for the tax imposed by 06 AS 43.55.011(e) - (g) for oil and gas produced each month of the preceding calendar 07 year. 08 * Sec. 21. AS 43.55.040 is amended to read: 09 Sec. 43.55.040. Powers of Department of Revenue. Except as provided in 10 AS 43.05.405 - 43.05.499, the department may 11 (1) require a person engaged in production and the agent or employee 12 of the person, and the purchaser of oil or gas, or the owner of a royalty interest in oil 13 or gas to furnish, whether by the filing of regular statements or reports or 14 otherwise, additional information that is considered by the department as necessary to 15 compute the amount of the tax; notwithstanding any contrary provision of law, the 16 disclosure of additional information under this paragraph to the producer 17 obligated to pay the tax does not violate AS 40.25.100(a) or AS 43.05.230(a); 18 before disclosing information under this paragraph that is otherwise required to 19 be held confidential under AS 40.25.100(a) or AS 43.05.230(a), the department 20 shall 21 (A) provide the person that furnished the information a 22 reasonable opportunity to be heard regarding the proposed disclosure and 23 the conditions to be imposed under (B) of this paragraph; and 24 (B) impose appropriate conditions limiting 25 (i) access to the information to those legal counsel, 26 consultants, employees, officers, and agents of the producer who 27 have a need to know that information for the purpose of 28 determining or contesting the producer's tax obligation; and 29 (ii) the use of the information to use for that 30 purpose; 31 (2) examine the books, records, and files of such a person;
01 (3) conduct hearings and compel the attendance of witnesses and the 02 production of books, records, and papers of any person; and 03 (4) make an investigation or hold an inquiry that is considered 04 necessary to a disclosure of the facts as to 05 (A) the amount of production from any oil or gas location, or of 06 a company or other producer of oil or gas; and 07 (B) the rendition of the oil and gas for taxing purposes. 08 * Sec. 22. AS 43.55.080 is amended to read: 09 Sec. 43.55.080. Collection and deposit of revenue. Except as otherwise 10 provided under art. IX, sec. 17, Constitution of the State of Alaska, the [THE] 11 department shall deposit in the general fund the money collected by it under 12 AS 43.55.011 - 43.55.180 [AS 43.55.011 - 43.55.150]. 13 * Sec. 23. AS 43.55.135 is amended to read: 14 Sec. 43.55.135. Measurement. For the purposes of AS 43.55.011 - 43.55.180 15 [AS 43.55.011 - 43.55.150], oil is [SHALL BE] measured in terms of a "barrel of oil" 16 and gas is [SHALL BE] measured in terms of a "cubic foot of gas." 17 * Sec. 24. AS 43.55.150(a) is amended to read: 18 (a) For the purposes of AS 43.55.011 - 43.55.180 [AS 43.55.011 - 43.55.150], 19 the gross value at the point of production is [SHALL BE] calculated using the 20 reasonable costs of transportation of the oil or gas. The reasonable costs of 21 transportation are [SHALL BE] the actual costs, except when the 22 (1) [WHEN THE] parties to the transportation of oil or gas are 23 affiliated; 24 (2) [WHEN THE] contract for the transportation of oil or gas is not an 25 arm's length transaction or is not representative of the market value of that 26 transportation; and 27 (3) [WHEN THE] method of transportation of oil or gas is not 28 reasonable in view of existing alternative methods of transportation. 29 * Sec. 25. AS 43.55 is amended by adding new sections to article 1 to read: 30 Sec. 43.55.160. Determination of production tax value of oil and gas. (a) 31 Except as provided in (f) of this section, for purposes of AS 43.55.011(e) and (g), the
01 production tax value of the taxable (1) oil and gas produced during a month from a 02 lease or property in the state that includes land north of 68 degrees North latitude is 03 the gross value at the point of production of the oil and gas taxable under 04 AS 43.55.011(e) and (g) and produced by the producer from that lease or property, 05 less the producer's lease expenditures for the month applicable to that oil and gas, as 06 adjusted under (e) of this section; (2) oil and gas produced during a month from a 07 lease or property in the state outside the Cook Inlet sedimentary basin and south of 68 08 degrees North latitude is the gross value at the point of production of the oil and gas 09 taxable under AS 43.55.011(e) and (g) and produced by the producer from that lease 10 or property, less the producer's lease expenditures for the month applicable to that oil 11 and gas, as adjusted under (e) of this section; (3) oil produced during a month from a 12 lease or property in the Cook Inlet sedimentary basin is the gross value at the point of 13 production of the oil taxable under AS 43.55.011(e) and (g) and produced by the 14 producer from that lease or property, less the producer's lease expenditures for the 15 month applicable to that oil, as adjusted under (e) of this section; (4) gas produced 16 during a month from a lease or property in the Cook Inlet sedimentary basin is the 17 gross value at the point of production of the gas taxable under AS 43.55.011(e) and (g) 18 and produced by the producer from that lease or property, less the producer's lease 19 expenditures for the month applicable to that gas, as adjusted under (e) of this section. 20 However, a production tax value calculated under this subsection may not be less than 21 zero. If a producer does not produce taxable oil or gas during a month, the producer is 22 considered to have generated a positive production tax value if a calculation described 23 in this subsection yields a positive number because the producer's adjusted lease 24 expenditures for a month are less than zero as a result of the producer's receiving a 25 payment or credit under (e) of this section or otherwise. 26 (b) For purposes of administration of (a) of this section, 27 (1) any adjusted lease expenditures that would otherwise be deductible 28 in a month but whose deduction would cause a production tax value calculated under 29 (a) of this section of taxable oil or gas produced during the month to be less than zero 30 may be added to the producer's adjusted lease expenditures for one or more other 31 months in the same calendar year; the total of any adjusted lease expenditures that are
01 not deductible in any month during a calendar year because their deduction would 02 cause a production tax value calculated under (a) of this section of taxable oil or gas 03 produced during one or more months to be less than zero may be used to establish a 04 carried-forward annual loss under AS 43.55.024(b); 05 (2) an explorer that has taken a tax credit under AS 43.55.024(b) or 06 that has obtained a transferable tax credit certificate under AS 43.55.024(d) for the 07 amount of a tax credit under AS 43.55.024(b) is considered a producer, subject to the 08 tax levied under AS 43.55.011(e), to the extent that the explorer generates a positive 09 production tax value as the result of the explorer's receiving a payment or credit 10 described in (e) of this section. 11 (c) For purposes of this section, 12 (1) a producer's lease expenditures for a period are the ordinary and 13 necessary costs upstream of the point of production of oil and gas that are incurred on 14 or after April 1, 2006, by the producer during the period and that are direct costs of 15 exploring for, developing, or producing oil or gas deposits located within the 16 producer's leases or properties in the state or, in the case of land in which the producer 17 does not own a working interest, that are direct costs of exploring for oil or gas 18 deposits located within other land in the state; in determining whether costs are lease 19 expenditures, 20 (A) the department shall give substantial weight to the typical 21 industry practices and standards in the state that determine the costs that an 22 operator is allowed to bill a working interest owner that is not the operator, 23 under unit operating agreements or similar operating agreements that were in 24 effect on or before December 1, 2005, and were subject to negotiation with at 25 least one working interest owner with substantial bargaining power, other than 26 the operator; and 27 (B) as to matters that are not addressed by the industry 28 practices and standards described in (A) of this paragraph or as to which those 29 practices and standards are not clear or are not uniform, the department shall 30 give substantial weight to the standards adopted by the Department of Natural 31 Resources that determine the costs, other than interest, that a lessee is allowed
01 to deduct from revenue in calculating net profits under a lease issued under 02 AS 38.05.180(f)(3)(B), (D), or (E); 03 (2) the Department of Revenue may authorize a producer, including a 04 producer that is an operator, to treat as its lease expenditures under this section the 05 costs, other than items listed in (d) of this section, paid by the producer that are billed 06 to the producer by an operator in accordance with the terms of a unit operating 07 agreement or similar operating agreement if the Department of Revenue finds that 08 (A) the pertinent provisions of the operating agreement are 09 substantially consistent with the Department of Revenue's determinations and 10 standards otherwise applicable under this subsection; and 11 (B) at least one working interest owner party to the agreement, 12 other than the operator, has substantial incentive and ability to effectively audit 13 billings under the agreement; 14 (3) an activity does not need to be physically located on, near, or 15 within the premises of the lease or property within which an oil or gas deposit being 16 explored for, developed, or produced is located in order for the cost of the activity to 17 be a cost upstream of the point of production of the oil or gas; 18 (4) the lease expenditures that are applicable to oil or gas produced 19 from a lease or property shall be determined under regulations adopted by the 20 department that provide for reasonable methods of allocating costs between oil and 21 gas and among leases or properties; 22 (5) "direct costs" include 23 (A) an expenditure, when incurred, to acquire an item if the 24 acquisition cost is otherwise a direct cost, notwithstanding that the expenditure 25 may be required to be capitalized rather than treated as an expense for financial 26 accounting or federal income tax purposes; 27 (B) payments of or in lieu of property taxes, sales and use 28 taxes, motor fuel taxes, and excise taxes; 29 (C) a reasonable allowance, as determined under regulations 30 adopted by the department, for overhead expenses directly related to exploring 31 for, developing, and producing oil or gas deposits located within leases or
01 properties or other land in the state. 02 (d) For purposes of (c) of this section, lease expenditures do not include 03 (1) depreciation, depletion, or amortization; 04 (2) oil or gas royalty payments, production payments, lease profit 05 shares, or other payments or distributions of a share of oil or gas production, profit, or 06 revenue; 07 (3) taxes based on or measured by net income; 08 (4) interest or other financing charges or costs of raising equity or debt 09 capital; 10 (5) acquisition costs for a lease or property or exploration license; 11 (6) costs arising from fraud, wilful misconduct, or gross negligence; 12 (7) fines or penalties imposed by law; 13 (8) costs of arbitration, litigation, or other dispute resolution activities 14 that involve the state or concern the rights or obligations among owners of interests in, 15 or rights to production from, one or more leases or properties or a unit; 16 (9) donations; 17 (10) costs incurred in organizing a partnership, joint venture, or other 18 business entity or arrangement; 19 (11) amounts paid to indemnify the state; the exclusion provided by 20 this paragraph does not apply to the costs of obtaining insurance or a surety bond from 21 a third-party insurer or surety; 22 (12) surcharges levied under AS 43.55.201 or 43.55.300; 23 (13) for a transaction that is an internal transfer or is otherwise not an 24 arm's length transaction, expenditures incurred that are in excess of fair market value; 25 (14) an expenditure incurred to purchase an interest in any corporation, 26 partnership, limited liability company, business trust, or any other business entity, 27 whether or not the transaction is treated as an asset sale for federal income tax 28 purposes; 29 (15) a tax levied under AS 43.55.011; 30 (16) the portion of costs incurred for dismantlement, removal, 31 surrender, or abandonment of a facility, pipeline, well pad, platform, or other
01 structure, or for the restoration of a lease, field, unit, area, body of water, or right-of- 02 way in conjunction with dismantlement, removal, surrender, or abandonment, that is 03 attributable to production in barrels of oil equivalent of oil or gas occurring before 04 April 1, 2006; the portion is calculated as a ratio of the amount of oil and gas 05 production associated with the facility, pipeline, well pad, platform, or other structure, 06 lease, field, unit, area, body of water, or right-of-way occurring before April 1, 2006, 07 to the total amount of oil and gas production in barrels of oil equivalent associated 08 with that facility, pipeline, well pad, platform, or other structure, lease, field, unit, 09 area, body of water, or right-of-way through the end of the calendar month before 10 commencement of the dismantlement, removal, surrender, or abandonment; a cost is 11 not excluded under this paragraph if the dismantlement, removal, surrender, or 12 abandonment for which the cost is incurred is undertaken for the purpose of replacing, 13 renovating, or improving the facility, pipeline, well pad, platform, or other structure; 14 (17) losses or damages resulting from an unpermitted oil discharge that 15 is not confined to a pad, platform, or other structure, or costs to contain, clean up, or 16 remediate such an unpermitted oil discharge to the extent that those costs exceed the 17 routine costs of operation for a producer or explorer that would otherwise be incurred 18 as lease expenditures in the absence of the unpermitted oil discharge; this paragraph 19 does not apply to the cost of developing and maintaining an oil discharge prevention 20 and contingency plan under AS 46.04.030; 21 (18) costs incurred to satisfy a work commitment under an exploration 22 license under AS 38.05.132. 23 (e) Unless the payment or credit has already been subtracted in calculating 24 billed costs under (c)(2) of this section, a producer's lease expenditures must be 25 adjusted by subtracting certain payments or credits received by the producer or by an 26 operator acting for the producer, as provided in this subsection. If one or more 27 payments or credits subject to this subsection are received by a producer or by an 28 operator acting for the producer during a month or, under (f) of this section, during a 29 calendar year, and if either the total amount of the payments or credits exceeds the 30 amount of the producer's lease expenditures or the producer has no lease expenditures, 31 the producer shall nevertheless subtract those payments or credits from the lease
01 expenditures or from zero, respectively, and the producer's adjusted lease expenditures 02 for that month or calendar year are a negative number and shall be applied to the 03 calculation under (a) of this section as a negative number. The payments or credits that 04 a producer shall subtract from the producer's lease expenditures, or from zero, under 05 this subsection are payments or credits, other than tax credits, received by the producer 06 or by an operator acting for the producer for 07 (1) the use by another person of a production facility in which the 08 producer has an ownership interest or the management by the producer of a production 09 facility under a management agreement providing for the producer to receive a 10 management fee; 11 (2) a reimbursement or similar payment that offsets the producer's 12 lease expenditures, including an insurance recovery from a third-party insurer and a 13 payment from the state or federal government for reimbursement of the producer's 14 upstream costs, including costs for gathering, separating, cleaning, dehydration, 15 compressing, or other field handling associated with the production of oil or gas 16 upstream of the point of production; 17 (3) the sale or other transfer of 18 (A) an asset, including geological, geophysical, or well data or 19 interpretations, acquired by the producer as a result of a lease expenditure or an 20 expenditure that would be a lease expenditure if it were incurred on or after 21 April 1, 2006; for purposes of this subparagraph, 22 (i) if a producer removes from the state, for use outside 23 the state, an asset described in this subparagraph, the value of the asset 24 at the time it is removed is considered a payment received by the 25 producer for sale or transfer of the asset; 26 (ii) for a transaction that is an internal transfer or is 27 otherwise not an arm's length transaction, if the sale or transfer of the 28 asset is made for less than fair market value, the amount subtracted 29 must be the fair market value; and 30 (B) oil or gas 31 (i) that is not considered produced from a lease or
01 property under AS 43.55.020(e); and 02 (ii) the cost of acquiring which is a lease expenditure 03 incurred by the person that acquires the oil or gas. 04 (f) In place of the adjusted lease expenditures for a month under (a) of this 05 section, a producer may, at any time, elect to substitute, for every month of a calendar 06 year, 1/12 of the producer's adjusted lease expenditures for the calendar year. For 07 every month of a calendar year in which the price index for a producer determined 08 under AS 43.55.011(h) is greater than zero for one or more months, the producer shall 09 substitute, in place of the adjusted lease expenditures under (a) of this section, 1/12 of 10 the producer's adjusted lease expenditures for the calendar year. A substitution made 11 under this subsection applies to the calculation of the tax under AS 43.55.011(e) and 12 (g). 13 (g) The department shall specify or approve a reasonable allocation method 14 for determining the portion of a cost that is appropriately treated as a lease expenditure 15 under (c) of this section if a cost that would otherwise constitute a lease expenditure 16 under (c) of this section is incurred to explore for, develop, or produce 17 (1) both an oil or gas deposit located within land outside the state and 18 an oil or gas deposit located within a lease or property, or other land, in the state; or 19 (2) an oil or gas deposit located partly within land outside the state and 20 partly within a lease or property, or other land, in the state. 21 (h) For purposes of AS 43.55.024(a) and (b) and only as to expenditures 22 incurred to explore for an oil or gas deposit located within land in which an explorer 23 does not own a working interest, the term "producer" in (b), (c), and (e) of this section 24 includes "explorer." 25 (i) Notwithstanding any contrary provision of AS 43.55.150, for purposes of 26 (a) of this section, if the price index determined under AS 43.55.011(h) is greater than 27 zero for any month during a calendar year, the gross value at the point of production of 28 the oil and gas taxable under AS 43.55.011(e) and (g) must be calculated for every 29 month of that calendar year under regulations adopted by the department that provide 30 for using a monthly average of the producer's costs of transportation for the calendar 31 year.
01 (j) The department may adopt regulations that establish additional standards 02 necessary to carrying out the purposes of this section, including the incorporation of 03 the concepts of 26 U.S.C. 482 (Internal Revenue Code), as amended, the related or 04 accompanying regulations of that section, and any ruling or guidance issued by the 05 United States Internal Revenue Service that relates to that section. 06 (k) For purposes of this section, 07 (1) "explore" includes conducting geological or geophysical 08 exploration, including drilling a stratigraphic test well; 09 (2) "ordinary and necessary" has the meaning given in 26 U.S.C. 162 10 (Internal Revenue Code), as amended, and regulations adopted under that section; 11 (3) "stratigraphic test well" means a well drilled for the sole purpose of 12 obtaining geological information to aid in exploring for an oil or gas deposit and the 13 target zones of which are located in the state. 14 Sec. 43.55.170. Additional nontransferable tax credits. (a) For a month for 15 which a producer's tax liability under AS 43.55.011(e) on oil and gas produced from 16 leases or properties outside the Cook Inlet sedimentary basin and south of 68 degrees 17 North latitude exceeds zero before application of any credits under this chapter, a 18 producer that is qualified under (e) of this section may apply a tax credit against that 19 liability of up to $500,000. 20 (b) A producer may not take a tax credit under (a) of this section for any 21 month that ends the later of 22 (1) April 30, 2016; or 23 (2) the 10th anniversary of the last day of the month for which the 24 producer first has commercial oil or gas production before May 1, 2016, from at least 25 one lease or property in the state outside the Cook Inlet sedimentary basin and south of 26 68 degrees North latitude, if the producer did not have commercial oil or gas 27 production from a lease or property in the state outside the Cook Inlet sedimentary 28 basin and south of 68 degrees North latitude before April 1, 2006. 29 (c) For a month for which a producer's tax liability under AS 43.55.011(e) 30 exceeds zero before application of any credits under this chapter, other than a credit 31 under (a) of this section, but after application of any credit under (a) of this section, a
01 producer that is qualified under (e) of this section and whose average amount of oil 02 and gas produced a day and taxable under AS 43.55.011(e) is less than 100,000 barrels 03 of oil equivalent a day may apply a tax credit under this section against that liability. A 04 producer whose average amount of oil and gas produced a day and taxable under 05 AS 43.55.011(e) is 06 (1) not more than 50,000 barrels of oil equivalent may apply a tax 07 credit of up to $1,000,000 for the month; 08 (2) more than 50,000 and less than 100,000 barrels of oil equivalent 09 may apply a tax credit of up to the following fraction of $1,000,000 for the month: 10 1 - [2 x (AP - 50,000)]/100,000, 11 where AP = the average amount of oil and gas, expressed as barrels of oil equivalent, 12 produced a day during the month and taxable under AS 43.55.011(e). 13 (d) A producer may not take a tax credit under (c) of this section for any 14 month that ends the later of 15 (1) April 30, 2016; or 16 (2) the 10th anniversary of the last day of the month for which the 17 producer first has commercial oil or gas production before May 1, 2016, from at least 18 one lease or property in the state, if the producer did not have commercial oil or gas 19 production from a lease or property in the state before April 1, 2006. 20 (e) On written application by a producer, including any information the 21 department may require, the department shall determine whether the producer 22 qualifies under this section for a calendar year. To qualify under this section, a 23 producer must demonstrate that its operation in the state or its ownership of an interest 24 in a lease or property in the state as a distinct producer entity would not result in the 25 division among multiple producer entities of any production tax liability under 26 AS 43.55.011(e) that would be reasonably expected to be attributed to a single 27 producer entity if the tax credit provisions of (a) or (c) of this section did not exist. 28 (f) A tax credit authorized by (a) of this section may not be applied to reduce a 29 producer's tax liability for any month under AS 43.55.011(e) on oil and gas produced 30 from leases or properties outside the Cook Inlet sedimentary basin and south of 68 31 degrees North latitude below zero. An unused portion of a tax credit authorized by (a)
01 of this section that could otherwise be applied for a month, but whose application 02 would cause the producer's tax liability for the month on oil and gas produced from 03 leases or properties outside the Cook Inlet sedimentary basin and south of 68 degrees 04 North latitude to be less than zero, may be applied for one or more other months in the 05 same calendar year to the extent otherwise allowed under this section. 06 (g) A tax credit authorized by (c) of this section may not be applied to reduce 07 a producer's tax liability under AS 43.55.011(e) for any month below zero. An unused 08 portion of a tax credit that could otherwise be applied for a month but whose 09 application would cause the producer's tax liability under AS 43.55.011(e) for the 10 month to be less than zero may be applied for one or more other months in the same 11 calendar year to the extent otherwise allowed under this section. 12 (h) An unused tax credit or portion of a tax credit under this section is not 13 transferable and may not be carried forward to or used in a later calendar year. 14 Sec. 43.55.180. Required reports. (a) The Department of Revenue shall 15 (1) study 16 (A) the effects of the tax rates under AS 43.55.011(f) and of 17 potential changes in those tax rates on state revenue and on oil and gas 18 exploration, development, and production on private land; and 19 (B) the fairness of the tax rates under AS 43.55.011(f) and of 20 potential changes in those tax rates for private landowners; and 21 (2) prepare a report on or before the first day of the 2013 regular 22 session of the legislature on the results of the study made under (1) of this subsection, 23 including a recommendation as to whether those tax rates should be changed; the 24 department shall notify the legislature that the report prepared under this paragraph is 25 available. 26 (b) The Department of Revenue shall 27 (1) study the effects of the credits authorized by AS 43.55.025 and 28 43.55.170 on state revenue, on the encouragement of exploration, development, and 29 production of oil and gas deposits located in the state, and on the encouragement of 30 new entrants into the oil and gas industry in the state; and 31 (2) prepare a report on or before the first day of the 2015 regular
01 session of the legislature on the results of the study made under (1) of this subsection, 02 and shall include with the report a recommendation as to whether the legislature 03 should extend the availability of the credits under AS 43.55.025 and 43.55.170; the 04 department shall notify the legislature that the report prepared under this paragraph is 05 available. 06 * Sec. 26. AS 43.55.201 is amended to read: 07 Sec. 43.55.201. Surcharge levied. (a) Every producer of oil shall pay a 08 surcharge of $.01 [$.02] per barrel of oil produced from each lease or property in the 09 state, less any oil the ownership or right to which is exempt from taxation. 10 (b) The surcharge imposed by (a) of this section is in addition to the tax 11 imposed by AS 43.55.011 and is due on the last day of the month on oil produced 12 from each lease or property during the preceding month. The surcharge [SHALL 13 BE PAID IN THE SAME MANNER AS THE TAX IMPOSED BY AS 43.55.011 - 14 43.55.150; AND] is in addition to the surcharge imposed by AS 43.55.300 - 15 43.55.310. 16 (c) A producer of oil shall make reports of production in the same manner and 17 under the same penalties as required under AS 43.55.011 - 43.55.180 [AS 43.55.011 - 18 43.55.150]. 19 * Sec. 27. AS 43.55.201 is amended by adding a new subsection to read: 20 (d) Oil not considered under AS 43.55.020(e) to be produced from a lease or 21 property is not considered to be produced from a lease or property for purposes of this 22 section. 23 * Sec. 28. AS 43.55.300 is amended to read: 24 Sec. 43.55.300. Surcharge levied. (a) Every producer of oil shall pay a 25 surcharge of $.04 [$.03] per barrel of oil produced from each lease or property in the 26 state, less any oil the ownership or right to which is exempt from taxation. 27 (b) The surcharge imposed by (a) of this section is in addition to the tax 28 imposed by AS 43.55.011 and is due on the last day of the month on oil produced 29 from each lease or property during the preceding month. The surcharge [SHALL 30 BE PAID IN THE SAME MANNER AS THE TAX IMPOSED BY AS 43.55.011 - 31 43.55.150; AND] is in addition to the surcharge imposed by AS 43.55.201 -
01 43.55.231. 02 (c) A producer of oil shall make reports of production in the same manner and 03 under the same penalties as required under AS 43.55.011 - 43.55.180 [AS 43.55.011 - 04 43.55.150]. 05 * Sec. 29. AS 43.55.300 is amended by adding a new subsection to read: 06 (d) Oil not considered under AS 43.55.020(e) to be produced from a lease or 07 property is not considered to be produced from a lease or property for purposes of this 08 section. 09 * Sec. 30. AS 43.55.900(6) is repealed and reenacted to read: 10 (6) "gas" means 11 (A) all natural, associated, or casinghead gas; 12 (B) all hydrocarbons that 13 (i) are recovered by mechanical separation of well 14 fluids or by gas processing in a gas processing plant; and 15 (ii) exist in a gaseous phase at the completion of 16 mechanical separation and any gas processing in a gas processing plant; 17 and 18 (C) all other hydrocarbons produced from a well not defined as 19 oil; 20 * Sec. 31. AS 43.55.900(7) is repealed and reenacted to read: 21 (7) "gross value at the point of production" means 22 (A) for oil, the value of the oil at its point of production 23 without deduction of any costs upstream of that point of production; 24 (B) for gas, the value of the gas at its point of production 25 without deduction of any costs upstream of that point of production; 26 * Sec. 32. AS 43.55.900(10) is repealed and reenacted to read: 27 (10) "oil" means 28 (A) crude petroleum oil; and 29 (B) all liquid hydrocarbons that are recovered by mechanical 30 separation of well fluids or by gas processing in a gas processing plant; 31 * Sec. 33. AS 43.55.900 is amended by adding new paragraphs to read:
01 (17) "barrel of oil equivalent" means 02 (A) in the case of oil, one barrel; 03 (B) in the case of gas, 6,000 cubic feet; 04 (18) "Cook Inlet sedimentary basin" has the meaning given in 05 regulations adopted to implement AS 38.05.180(f)(4); 06 (19) "explorer" means a person who, in exploring for new oil or gas 07 reserves, incurs expenditures; 08 (20) "gas processing" 09 (A) means processing a gaseous mixture of hydrocarbons 10 (i) by means of absorption, adsorption, externally 11 applied refrigeration, artificial compression followed by adiabatic 12 expansion using the Joule-Thomson effect, or another physical process 13 that is not mechanical separation; and 14 (ii) for the purpose of extracting and recovering liquid 15 hydrocarbons; 16 (B) does not include gas treatment; 17 (21) "gas processing plant" means a facility that 18 (A) extracts and recovers liquid hydrocarbons from a gaseous 19 mixture of hydrocarbons by gas processing; and 20 (B) is located upstream of any gas treatment and upstream of 21 the inlet of any gas pipeline system transporting gas to a market; 22 (22) "gas treatment" 23 (A) means conditioning gas and removing from gas 24 nonhydrocarbon substances for the purpose of rendering the gas acceptable for 25 tender and acceptance into a gas pipeline system; 26 (B) includes incidentally removing liquid hydrocarbons from 27 the gas; 28 (C) does not include 29 (i) dehydration required to facilitate the movement of 30 gas from the well to the point where gas processing takes place; 31 (ii) the scrubbing of liquids from gas to facilitate gas
01 processing; 02 (23) "landowner's royalty interest" means 03 (A) a lessor's royalty interest under an oil and gas lease; or 04 (B) a royalty interest that is 05 (i) held by a surface owner of land from which oil or 06 gas is produced; and 07 (ii) granted in exchange for the right to use the surface 08 of that land or as compensation for damage to the surface of that land; 09 (24) "oil and gas lease" includes an oil and gas lease, a gas only lease, 10 and an oil only lease; 11 (25) "point of production" means 12 (A) for oil, the automatic custody transfer meter or device 13 through which the oil enters into the facilities of a carrier pipeline or other 14 transportation carrier in a condition of pipeline quality; in the absence of an 15 automatic custody transfer meter or device, "point of production" means the 16 mechanism or device to measure the quantity of oil that has been approved by 17 the department for that purpose, through which the oil is tendered and accepted 18 in a condition of pipeline quality into the facilities of a carrier pipeline or other 19 transportation carrier or into a field topping plant; 20 (B) for gas, other than gas described in (C) of this paragraph, 21 that is 22 (i) not subjected to or recovered by mechanical 23 separation or run through a gas processing plant, the first point where 24 the gas is accurately metered; 25 (ii) subjected to or recovered by mechanical separation 26 but not run through a gas processing plant, the first point where the gas 27 is accurately metered after completion of mechanical separation; 28 (iii) run through a gas processing plant, the first point 29 where the gas is accurately metered downstream of the plant; 30 (C) for gas run through an integrated gas processing plant and 31 gas treatment facility that does not accurately meter the gas after the gas
01 processing and before the gas treatment, the first point where gas processing is 02 completed or where gas treatment begins, whichever is further upstream. 03 * Sec. 34. AS 43.55.011(a), 43.55.011(b), 43.55.011(c), 43.55.012, 43.55.013, 43.55.016, 04 43.55.025(k)(1), 43.55.025(k)(3), 43.55.900(1), 43.55.900(8), 43.55.900(11), 43.55.900(12), 05 and 43.55.900(16) are repealed. 06 * Sec. 35. The uncodified law of the State of Alaska is amended by adding a new section to 07 read: 08 APPLICABILITY. (a) Sections 5, 7 - 10, 12, 13, 15 - 18, 20, 24, and 26 - 34 of this 09 Act and AS 43.55.160 and 43.55.170, enacted by sec. 25 of this Act, apply to oil and gas 10 produced after March 31, 2006. 11 (b) Section 11 of this Act applies to oil and gas produced before, on, or after the 12 effective date of sec. 11 of this Act. 13 * Sec. 36. The uncodified law of the State of Alaska is amended by adding a new section to 14 read: 15 TRANSITIONAL PROVISIONS. (a) Notwithstanding any contrary provision of 16 AS 43.55.024(a), enacted by sec. 12 of this Act, for oil and gas produced after March 31, 17 2006, and before January 1, 2007, the phrase "every month an annualized tax credit in an 18 amount equal to 1 2/3 percent" in AS 43.55.024(a)(1)(B), enacted by sec. 12 of this Act, shall 19 be replaced by the phrase "every month during the period April 1, 2006, through 20 December 31, 2006, an annualized tax credit in an amount equal to 2.222 percent." 21 (b) Notwithstanding any contrary provision of AS 43.55.024(e), enacted by sec. 12 of 22 this Act, for oil and gas produced after March 31, 2006, and before January 1, 2007, the 23 phrase "a calendar year" in AS 43.55.024(e), enacted by sec. 12 of this Act, shall be replaced 24 by the phrase "the last nine months of the calendar year." 25 (c) Notwithstanding any contrary provision of AS 43.55.024(j)(2), enacted by sec. 12 26 of this Act, for oil and gas produced after March 31, 2006, and before January 1, 2007, 27 (1) the number "1/120" in AS 43.55.024(j)(2)(B), enacted by sec. 12 of this 28 Act, shall be replaced by the number "1/90"; 29 (2) the phrase "calendar year" in AS 43.55.024(j)(2)(B), enacted by sec. 12 of 30 this Act, shall be replaced by the phrase "last nine months of the calendar year." 31 (d) Notwithstanding any contrary provision of AS 43.55.160(f), enacted by sec. 25 of
01 this Act, for oil and gas produced after March 31, 2006, and before January 1, 2007, the 02 phrase "for every month of a calendar year, 1/12 of the producer's adjusted lease expenditures 03 for the calendar year" in AS 43.55.160(f), enacted by sec. 25 of this Act, shall be replaced by 04 the phrase "for each of the last nine months of 2006, one-ninth of the producer's adjusted lease 05 expenditures for that nine-month period." 06 (e) For oil and gas produced before April 1, 2006, the provisions of AS 43.55, and 07 regulations adopted under AS 43.55, that were in effect before April 1, 2006, and that were 08 applicable to the oil and gas continue to apply to that oil and gas. 09 (f) Notwithstanding any contrary provision of AS 43.55.020(a), as repealed and 10 reenacted by sec. 7 of this Act, for oil and gas produced after March 31, 2006, and before the 11 first day of the first month that begins at least 270 days after the effective date of sec. 7 of this 12 Act, 13 (1) the amount of the taxes that would have been levied on the producer by 14 AS 43.55, as the provisions of that chapter read on March 31, 2006, is due on the last day of 15 each calendar month on the oil and gas that was produced from each lease or property during 16 the preceding month; 17 (2) the amount, if any, of the taxes levied by AS 43.55.011(e) - (g), enacted by 18 sec. 5 of this Act, net of any credits applied as allowed by law, that exceeds the amount due 19 under (1) of this subsection, is due on the last day of the first month that begins after the last 20 payment under (1) of this subsection is due. 21 (g) Notwithstanding any contrary provision of AS 43.55.030(a), as amended by sec. 22 18 of this Act, for oil and gas produced after March 31, 2006, and before the first day of the 23 first month that begins at least 270 days after the effective date of sec. 18 of this Act, the 24 person paying the tax shall file with the Department of Revenue, at the time an amount of tax 25 is due 26 (1) under (f)(1) of this section, the statement required under former 27 AS 43.55.030(a), as that subsection read on March 31, 2006; and 28 (2) under (f)(2) of this section, the statements required under AS 43.55.030(a), 29 as amended by sec. 18 of this Act. 30 (h) Notwithstanding any contrary provision of AS 43.55.201(a) or (b), as amended by 31 sec. 26 of this Act, or AS 43.55.300(a) or (b), as amended by sec. 28 of this Act, for oil
01 produced after March 31, 2006, and before the first day of the first month that begins at least 02 270 days after the effective date of secs. 26 and 28 of this Act, 03 (1) the amount of the surcharges that would have been imposed on the 04 producer under AS 43.55, as the provisions of that chapter read on March 31, 2006, is due on 05 the last day of each calendar month on oil produced from each lease or property during the 06 preceding month; 07 (2) the amount, if any, of the surcharges imposed under AS 43.55.201(a), as 08 amended by sec. 26 of this Act, and AS 43.55.300(a), as amended by sec. 28 of this Act, that 09 exceeds the amount due under (1) of this subsection, is due on the last day of the first month 10 that begins after the last payment under (1) of the subsection is due. 11 (i) Notwithstanding any contrary provision of AS 43.55.201(c), as amended by sec. 12 26 of this Act, or AS 43.55.300(c), as amended by sec. 28 of this Act, for oil produced after 13 March 31, 2006, and before the first day of the first month that begins at least 270 days after 14 the effective date of secs. 26 and 28 of this Act, at the time an amount of surcharge is due 15 (1) under (h)(1) of this section, the producer shall file the report of production 16 required under former AS 43.55.201(c) and 43.55.300(c), as those provisions read on 17 March 31, 2006; and 18 (2) under (h)(2) of this section, the producer shall file the report of production 19 required under AS 43.55.201(c), as amended by sec. 26 of this Act, and AS 43.55.300(c), as 20 amended by sec. 28 of this Act. 21 (j) For purposes of taxes to be calculated and due under (f)(1) of this section and 22 statements to be filed under (g)(1) of this section, regulations that were adopted by the 23 Department of Revenue under AS 43.55, as the provisions of that chapter read on March 31, 24 2006, and that were in effect on that date apply to those taxes and statements. 25 * Sec. 37. The uncodified law of the State of Alaska is amended by adding a new section to 26 read: 27 TRANSITION: RETROACTIVITY OF REGULATIONS. Notwithstanding any 28 contrary provision of AS 44.62.240, a regulation adopted by the Department of Revenue to 29 implement, interpret, make specific, or otherwise carry out the provisions of secs. 5, 7 - 10, 30 12, 13, 15 - 18, 20, 24 - 34, and 36 of this Act may apply retroactively as of April 1, 2006, if 31 the Department of Revenue expressly designates in the regulation that the regulation applies
01 retroactively to that date. 02 * Sec. 38. The uncodified law of the State of Alaska is amended by adding a new section to 03 read: 04 REVISOR'S INSTRUCTION. The revisor of statutes is instructed to change the 05 heading of 06 (1) AS 43.55 from "Oil and Gas Production Taxes and Oil Surcharge" to "Oil 07 and Gas Production Tax and Oil Surcharge"; 08 (2) article 1 of AS 43.55 from "Oil and Gas Properties Production Taxes" to 09 "Oil and Gas Production Tax"; 10 (3) AS 43.55.011 from "Oil production tax" to "Oil and gas production tax"; 11 (4) AS 43.55.025 from "Tax credit for oil and gas exploration or gas only 12 exploration" to "Alternative tax credit for oil and gas exploration"; 13 (5) AS 43.55.150 from "Determination of gross value" to "Determination of 14 gross value at the point of production." 15 * Sec. 39. The uncodified law of the State of Alaska is amended by adding a new section to 16 read: 17 RETROACTIVITY OF PROVISIONS OF ACT. Sections 5, 7 - 10, 12, 13, 15 - 18, 18 and 24 - 38 of this Act are retroactive to April 1, 2006. 19 * Sec. 40. This Act takes effect immediately under AS 01.10.070(c).