Legislature(2005 - 2006)
2006-08-05 House Journal
Full Journal pdf2006-08-05 House Journal Page 4292 HB 3001 The following, which was advanced to third reading from the August 4, 2006, calendar (page 4283), was read the third time: CS FOR HOUSE BILL NO. 3001(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." Representative Kerttula moved and asked unanimous consent that CSHB 3001(FIN) be returned to second reading for the specific purpose of considering Amendment No. 1. There being no objection, it was so ordered. The Speaker stated that, without objection, CSHB 3001(FIN) would be returned to second reading for all amendments. Amendment No. 1 was offered by Representatives Kerttula, Gara, and Guttenberg: Page 1, line 1, through Page 43, line 5 (title amendment): Delete all material and insert: ""An Act relating to oil and gas, and to the oil and gas properties production (severance) tax as it applies to oil; providing for an adjustment to increase the tax collected when oil prices exceed $20 2006-08-05 House Journal Page 4293 per barrel and to reduce the tax collected when oil prices fall below $16 per barrel; providing for relief from the tax when the price per barrel is low or when the taxpayer demonstrates that a reduction in the tax is necessary to establish or reestablish production from an oil field or pool that would not otherwise be economically feasible; delaying until July 1, 2016, the deadline for certain exploration expenditures that form the basis for a credit against the tax on oil and gas produced from a lease or property in the state; relating to the conservation surcharge and additional conservation surcharge on oil; and providing for an effective date." BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA: * Section 1. AS 36.30.850(b)(33) is amended to read: (33) contracts between the Department of Natural Resources or the Department of Revenue, as appropriate, and contractors qualified to evaluate hydrocarbon development, production, transportation, and economics, to assist the commissioner of natural resources or the commissioner of revenue, as appropriate, in evaluating applications for (A) royalty increases or decreases or other royalty adjustments, and evaluating the related financial and technical data, entered into under AS 38.05.180(j); or (B) tax reductions, and evaluating the related financial and technical data, as authorized by AS 43.55.011(i) and (j); * Sec. 2. AS 43.55.011(a) is amended to read: (a) There is levied upon the producer of oil a tax for all oil produced from each lease or property in the state, less any oil the ownership or right to which is exempt from taxation. The tax is equal to, (1) in the case of North Slope oil, either the percentage- of-value amount calculated under (b)(1) [(b)] of this section or the cents-per-barrel amount calculated under (c)(1) [(c)] of this section, whichever is greater; if [, MULTIPLIED BY THE ECONOMIC LIMIT FACTOR DETERMINED FOR THE OIL PRODUCTION OF THE LEASE OR PROPERTY UNDER AS 43.55.013. IF] the amounts calculated under (b)(1) and (c)(1) [(b) AND (c)] of this section are equal, the amount calculated under (b)(1) [(b)] of this section shall be treated as if it were the greater 2006-08-05 House Journal Page 4294 for purposes of this section; (2) in the case of oil that is not North Slope oil, either the percentage-of-value amount calculated under (b)(2) of this section or the cents-per-barrel amount calculated under (c)(2) of this section, whichever is greater, multiplied by the economic limit factor determined for the oil production of the lease or property under AS 43.55.013; if the amounts calculated under (b)(2) and (c)(2) of this section are equal, the amount calculated under (b)(2) of this section shall be treated as if it were the greater for purposes of this section. * Sec. 3. AS 43.55.011(b) is amended to read: (b) The percentage-of-value amount equals, (1) in the case of North Slope oil, the tax rate set out in (e) of this section multiplied by the gross value at the point of production of taxable oil produced from the lease or property; (2) in the case of oil that is not North Slope oil, [12.25 PERCENT OF THE GROSS VALUE AT THE POINT OF PRODUCTION OF TAXABLE OIL PRODUCED ON OR BEFORE JUNE 30, 1981, FROM THE LEASE OR PROPERTY AND] 15 percent of the gross value at the point of production of taxable oil produced from the lease or property, [AFTER JUNE 30, 1981;] except that [FOR A LEASE OR PROPERTY COMING INTO COMMERCIAL OIL PRODUCTION AFTER JUNE 30, 1981,] the percentage-of-value amount equals 12.25 percent of the gross value at the point of production of taxable oil produced from the lease or property in the first five years after the date that is the start of commercial oil production [AND EQUALS 15 PERCENT OF THE GROSS VALUE AT THE POINT OF PRODUCTION OF TAXABLE OIL PRODUCED THEREAFTER FROM THE LEASE OR PROPERTY]. * Sec. 4. AS 43.55.011(c) is amended to read: (c) The cents-per-barrel amount equals, (1) in the case of North Slope oil, $0.80 per barrel for taxable crude oil produced from the lease or property, as adjusted by AS 43.55.012, multiplied by the economic limit factor determined for oil production of the lease or property under AS 43.55.013 and by the price adjustment factor set out in (e)(2)(D) of this section; (2) in the case of oil that is not North Slope oil, [$0.60 2006-08-05 House Journal Page 4295 PER BARREL OF TAXABLE OLD CRUDE OIL PRODUCED FROM THE LEASE OR PROPERTY, AND] $0.80 per barrel for [ALL OTHER] taxable crude oil produced from the lease or property, [BOTH] as adjusted by AS 43.55.012. * Sec. 5. AS 43.55.011 is amended by adding new subsections to read: (e) This subsection and (f) - (k) of this section apply only to North Slope oil. Except as provided in (h) of this section for heavy oil, the tax rate is the lesser of (1) 30 percent; or (2) the product of the volume adjusted tax rate multiplied by the price adjustment factor; for purposes of (A) this paragraph, the volume adjusted tax rate is the greater of (i) the applicable tax rate determined under (C) of this paragraph, except that, if during a month in which the average ANS West Coast price per barrel of oil is less than $12, the applicable tax rate is zero and the volume adjusted tax rate is determined only by the application of (ii) of this subparagraph; or (ii) the economic limit factor determined for the oil production of the lease or property under AS 43.55.013 multiplied by the nominal tax rate; (B) subparagraph (A) of this paragraph, the nominal tax rate is (i) 12.25 percent during the first five years from the date that is the start of commercial oil production; and (ii) 15 percent after the first five years from the date that is the start of commercial oil production; (C) sub-subparagraph (A)(i) of this paragraph, during each month in which the average ANS West Coast price per barrel of oil averages (i) at least $16, the applicable rate is five percent; (ii) at least $15, but less than $16, the applicable rate is four percent; (iii) at least $14, but less than $15, the applicable rate is three percent; (iv) at least $13, but less than $14, the applicable rate is two percent; and 2006-08-05 House Journal Page 4296 (v) at least $12, but less than $13, the applicable rate is one percent; and (D) this paragraph and for the purpose of determining the cents-per-barrel amount under (c)(1) of this section, the price adjustment factor is one, except that the price adjustment factor is the average ANS West Coast price per barrel of oil for the month divided by (i) 16 during each month in which the average ANS West Coast price per barrel of oil is less than $16 per barrel; (ii) 20 during each month in which the average ANS West Coast price per barrel of oil is more than $20 per barrel. (f) During a month in which the average ANS West Coast price per barrel of oil is less than $10 per barrel, the payment of (1) one-half of the tax due and payable under this chapter is waived; and (2) the remaining one-half of the tax due and payable under this chapter is deferred, subject to the following: (A) the amount of tax payment that is deferred under this paragraph is payable by the taxpayer (i) during each month in which the average ANS West Coast price per barrel of oil is at least $16 per barrel; and (ii) sequentially on a month-for-month basis in the order in which the tax payment was deferred based on payment of one month's deferred tax during each month that the average ANS West Coast price per barrel of oil is at least $16 per barrel; and (B) amounts due and payable because of a payment deferral under this paragraph bear interest at the rate of a 10- year note of the United States treasury at the time of the deferral. (g) Before February 1 of each year, the commissioner shall review the prices described in (e) and (f) of this section and the related denominators set out in (e)(2)(D)(i) and (ii) of this section and recommend to the legislature whether the prices and denominators should be adjusted. (h) Notwithstanding (e) of this section, the tax rate for heavy oil is the volume adjusted tax rate provided in this subsection. The 2006-08-05 House Journal Page 4297 volume adjusted tax rate for heavy oil is determined by multiplying the economic limit factor determined for the oil production of the lease or property under AS 43.55.013 by the tax rate set out in (e)(2)(A)(i) and (ii) of this section. In this subsection, "heavy oil" means oil equal to or less than 20 degrees API gravity. (i) A producer of North Slope oil may apply for a reduction of the tax due under (e), (j), and (k) of this section on the production of North Slope oil (1) if and to the extent that the amount calculated under (A) of this paragraph is greater than the amount calculated under (B) of this paragraph, but a reduction of the tax may not result in collection of tax due under this section that is less than the amount calculated under (B) of this paragraph: (A) the amount of tax on the production of the oil that results from applying the provisions of (e) of this section; (B) the amount of tax on the production of the oil that would result from applying the provisions of (a)(2) and (b)(2) of this section as if the oil were not North Slope oil; and (2) if the commissioner in consultation with the commission of natural resources determines that the application meets the requirements of AS 38.05.180(j)(1)(A), (j)(1)(B), or (j)(1)(C). (j) When the commissioner receives an application under (i) of this section, the commissioner (1) may not approve a tax reduction (A) unless the applicant makes a clear and convincing showing that the tax reduction meets the requirements of (i) of this section and this subsection and is in the best interests of the state; (B) that reduces the amount of the tax recovered to less than the amount determined under (i)(1)(B) of this section; (C) without including an explicit condition that the tax reduction is not assignable without the prior written approval, which may not be unreasonably withheld, of the commissioner; in the preliminary and final findings and determinations prepared under this subsection, the commissioner shall set out the conditions under which the tax reduction may be assigned; 2006-08-05 House Journal Page 4298 (2) shall require the applicant to submit financial and technical data that demonstrate that the requirements of (i) of this section and this subsection are met; the commissioner (A) may require disclosure of only the financial and technical data related to development, production, and transportation of oil and gas or gas only from the field or pool that are reasonably available to the applicant; and (B) shall, at the request of the applicant, keep confidential under AS 38.05.035(a)(9) and AS 43.05.230 the dates described in (A) of this paragraph; the confidential data may be disclosed by the commissioner to legislators and to the legislative auditor and, if authorized by the chair or vice- chair of the Legislative Budget and Audit Committee, to the director of the division of legislative finance, the permanent employees of their respective divisions who are responsible for evaluating a tax reduction, and to agents or contractors of the legislative auditor or the legislative finance director who are engaged under contract to evaluate the tax reduction if each signs an appropriate confidentiality agreement; (3) may require the applicant for the tax reduction under (i) of this section and this subsection to pay for the services of an independent contractor, selected by the applicant from a list of qualified consultants compiled by the commissioner, to evaluate hydrocarbon development, production, transportation, and economics and to assist the commissioner in evaluating the application and financial and technical data; if, under this paragraph, the commissioner requires payment for the services of an independent contractor, the total cost of the services to be paid for by the applicant may not exceed $150,000 for each application, and the commissioner shall determine the relevant scope of the work to be performed by the contractor; selection of an independent contractor under this paragraph is not subject to AS 36.30; (4) shall make and publish a preliminary findings and determination on the tax reduction application, give reasonable public notice of the preliminary findings and determination, and invite public comment on the preliminary findings and determination during a 30-day period for receipt of public comment; (5) shall offer to appear before the Legislative Budget 2006-08-05 House Journal Page 4299 and Audit Committee, on a day that is not earlier than 10 days and not later than 20 days after giving public notice under (4) of this subsection, to provide the committee a review of the commissioner's preliminary findings and determination on the tax reduction application and administrative process; if the Legislative Budget and Audit Committee accepts the commissioner's offer, the committee shall give notice of the committee's meeting to all members of the legislature; (6) shall make copies of the preliminary findings and determination available to (A) the presiding officer of each house of the legislature; (B) the chairs of the legislature's standing committees on resources; and (C) the chairs of the legislature's special committees on oil and gas, if any; and (7) shall, within 30 days after the close of the public comment period under (4) of this subsection, (A) prepare a summary of the public response to the commissioner's preliminary findings and determination; (B) make a final findings and determination; the commissioner's final findings and determination prepared under this subparagraph regarding a tax reduction is final and not appealable to the court; (C) transmit a copy of the final findings and determination to the lessee; and (D) make copies of the final findings and determination available to each person who submitted comment under (4) of this subsection and who has filed a request for the copies. (k) In this section, "North Slope oil" means oil produced from a portion of a reservoir located north of 68 degrees North latitude. * Sec. 6. AS 43.55.012(b) is amended to read: (b) The cents-per-barrel amount set out in AS 43.55.011(c)(1) and (2) [AS 43.55.011(c)] applies to oil of 27 degrees API gravity. For each degree of API gravity less than 27 degrees, the cents-per-barrel amount shall be reduced by $.005 and for each degree of API gravity greater than 27 degrees the cents-per-barrel amount shall be increased by $.005 except that oil above 40 2006-08-05 House Journal Page 4300 degrees API gravity shall be taxed as 40 degree oil. In applying the gravity adjustment under this subsection, fractional degrees of API gravity shall be disregarded. * Sec. 7. AS 43.55.025(b) is amended to read: (b) To qualify for the production tax credit under (a) of this section, an exploration expenditure must be incurred for work performed on or after July 1, 2003, and before July 1, 2016 [2007], except that an exploration expenditure for a Cook Inlet prospect must be incurred for work performed on or after July 1, 2005, [AND BEFORE JULY 1, 2010, AND EXCEPT THAT AN EXPLORATION EXPENDITURE, IN WHOLE OR IN PART, SOUTH OF 68 DEGREES, 15 MINUTES, NORTH LATITUDE, AND NOT PART OF A COOK INLET PROSPECT MUST BE INCURRED FOR WORK PERFORMED ON OR AFTER JULY 1, 2003, AND BEFORE JULY 1, 2010,] and (1) may be for seismic or geophysical exploration costs not connected with a specific well; (2) if for an exploration well, (A) must be incurred by an explorer that holds an interest in the exploration well for which the production tax credit is claimed; (B) may be for either an oil or gas discovery well or a dry hole; and (C) must be for goods, services, or rentals of personal property reasonably required for the surface preparation, drilling, casing, cementing, and logging of an exploration well, and, in the case of a dry hole, for the expenses required for abandonment if the well is abandoned within 18 months after the date the well was spudded; (3) may not be for testing, stimulation, or completion costs; administration, supervision, engineering, or lease operating costs; geological or management costs; community relations or environmental costs; bonuses, taxes, or other payments to governments related to the well; or other costs that are generally recognized as indirect costs or financing costs; and (4) may not be incurred for an exploration well or seismic exploration that is included in a plan of exploration or a plan of development for any unit on May 13, 2003. * Sec. 8. AS 43.55.201(a) is amended to read: (a) Every producer of oil shall pay a surcharge of $.01 [$.02] 2006-08-05 House Journal Page 4301 per barrel of oil produced from each lease or property in the state, less any oil the ownership or right to which is exempt from taxation. * Sec. 9. AS 43.55.201(b) is amended to read: (b) The surcharge imposed by (a) of this section is in addition to the tax imposed by AS 43.55.011 and is due on the last day of the month on oil produced from each lease or property during the preceding month. The surcharge [SHALL BE PAID IN THE SAME MANNER AS THE TAX IMPOSED BY AS 43.55.011 - 43.55.150; AND] is in addition to the surcharge imposed by AS 43.55.300 - 43.55.310. * Sec. 10. AS 43.55.201 is amended by adding a new subsection to read: (d) Oil not considered under AS 43.55.020(e) to be produced from a lease or property is not considered to be produced from a lease or property for purposes of this section. * Sec. 11. AS 43.55.221(d) is amended to read: (d) If the commissioner of administration reports that the sum reported under (b) of this section equals or exceeds $71,000,000 as adjusted under AS 43.55.225 [$50,000,000], the commissioner of revenue shall suspend imposition and collection of the surcharge levied and collected under AS 43.55.201. Suspension of the imposition and collection of the surcharge begins on the first day of the calendar quarter next following the commissioner's receipt of the commissioner of administration's report under (b) of this section. Before the first day of a suspension authorized by this subsection, the commissioner shall make a reasonable effort to notify all persons who are known to the department to be paying the surcharge under AS 43.55.201 that the surcharge will be suspended. * Sec. 12. AS 43.55.221(e) is amended to read: (e) Except as provided in AS 43.55.231, if the commissioner of administration reports that the sum reported under (b) of this section is less than $71,000,000 as adjusted under AS 43.55.225 [$50,000,000], the commissioner of revenue shall require imposition and collection of the surcharge authorized under AS 43.55.201. If the surcharge is not in effect, reimposition of the surcharge begins on the first day of the calendar quarter next following the commissioner's receipt of the commissioner of administration's report under (b) of this section. Before the first 2006-08-05 House Journal Page 4302 day of reimposition of the surcharge authorized by this subsection, the commissioner shall make a reasonable effort to notify all persons who are known to the department to be required to pay the surcharge under AS 43.55.201 that the surcharge will be reimposed. * Sec. 13. AS 43.55 is amended by adding a new section to read: Sec. 43.55.225. Adjustment of dollar amounts. (a) The dollar amounts in AS 43.55.221(d) and (e) change, as provided in this section, according to and to the extent of changes in the Consumer Price Index for all urban consumers for the Anchorage metropolitan area compiled by the Bureau of Labor Statistics, United States Department of Labor (the index). The index for January 2006 is the reference base index. (b) The dollar amounts change on October 1 of each year according to the percentage change between the index for January of that year and the most recent index used to determine whether to change the dollar amounts. After calculation of the new amounts, the resulting amounts shall be rounded to the nearest cent. (c) If the index is revised, the percentage of change is calculated on the basis of the revised index. If a revision of the index changes the reference base index, a revised reference base index is determined by multiplying the reference base index applicable by the rebasing factor furnished by the Bureau of Labor Statistics, United States Department of Labor. If the index is superseded, the index referred to in this section is the one represented by the Bureau of Labor Statistics as reflecting most accurately changes in the purchasing power of the dollar for Alaska consumers. (d) The department shall adopt a regulation announcing, (1) on or before June 30 of each year, the changes in dollar amounts required by (b) of this section; and (2) promptly after the changes occur, changes in the index required by (c) of this section, including, if applicable, the numerical equivalent of the reference base index under a revised reference base index and the designation or title of any index superseding the index. * Sec. 14. AS 43.55.300(a) is amended to read: (a) Every producer of oil shall pay a surcharge of $.05 [$.03] per barrel of oil produced from each lease or property in the state, 2006-08-05 House Journal Page 4303 less any oil the ownership or right to which is exempt from taxation. * Sec. 15. AS 43.55.300(b) is amended to read: (b) The surcharge imposed by (a) of this section is in addition to the tax imposed by AS 43.55.011 and is due on the last day of the month on oil produced from each lease or property during the preceding month. The surcharge [SHALL BE PAID IN THE SAME MANNER AS THE TAX IMPOSED BY AS 43.55.011 - 43.55.150; AND] is in addition to the surcharge imposed by AS 43.55.201 - 43.55.231. * Sec. 16. AS 43.55.300 is amended by adding a new subsection to read: (d) Oil not considered under AS 43.55.020(e) to be produced from a lease or property is not considered to be produced from a lease or property for purposes of this section. * Sec. 17. The uncodified law of the State of Alaska is amended by adding a new section to read: RETROACTIVITY. Sections 2 - 10 and 14 - 16 of this Act are retroactive to January 1, 2006, and apply to oil produced after December 31, 2005. * Sec. 18. This Act takes effect immediately under AS 01.10.070(c)." Representative Kerttula moved and asked unanimous consent that Amendment No. 1 be adopted. Representative Hawker objected. **The presence of Representative Weyhrauch was noted. Representatives Meyer, Hawker, and Chenault moved and asked unanimous consent that they be allowed to abstain from voting because of a conflict of interest. Objection was heard, and the members were required to vote. **The presence of Representative Kapsner was noted. Representative Coghill rose to a point of order regarding impugning the motives of members of the body. 2006-08-05 House Journal Page 4304 The Speaker cautioned members to confine remarks to the amendment. The question being: "Shall Amendment No. 1 be adopted?" The roll was taken with the following result: CSHB 3001(FIN) Second Reading Amendment No. 1 YEAS: 12 NAYS: 27 EXCUSED: 0 ABSENT: 1 Yeas: Berkowitz, Cissna, Crawford, Croft, Gara, Gardner, Gruenberg, Guttenberg, Joule, Kapsner, Kerttula, Salmon Nays: Anderson, Chenault, Coghill, Dahlstrom, Elkins, Foster, Gatto, Harris, Hawker, Holm, Kelly, Kohring, Kott, LeDoux, Lynn, McGuire, Meyer, Neuman, Olson, Ramras, Rokeberg, Samuels, Seaton, Stoltze, Thomas, Weyhrauch, Wilson Absent: Moses And so, Amendment No. 1 was not adopted.