Legislature(2015 - 2016)BARNES 124
03/25/2015 01:00 PM House RESOURCES
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| Audio | Topic |
|---|---|
| Start | |
| HB100 | |
| HB128 | |
| Confirmation Hearing(s): Board of Game | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 100 | TELECONFERENCED | |
| + | HB 128 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| + | TELECONFERENCED |
HB 100-UREA/AMMONIA FACILITY TAX CREDIT
1:03:08 PM
CO-CHAIR NAGEAK announced that the first order of business is
HOUSE BILL NO. 100, "An Act establishing a credit against the
net income tax for an in-state processing facility that
manufactures urea or ammonia; and providing for an effective
date."
1:03:23 PM
REPRESENTATIVE SEATON moved to adopt Amendment 1, labeled 29-
LS0423\H.3, Nauman, 3/18/15, which read:
Page 1, line 10, following "delivered":
Insert "in the taxable year of the taxpayer"
Page 1, line 13, following "zero.":
Insert "An unused tax credit or portion of a tax
credit received under this section may not be carried
forward for use in a taxable year of the taxpayer
after the taxable year in which the credit is earned."
CO-CHAIR TALERICO objected for the purpose of discussion.
1:04:28 PM
REPRESENTATIVE SEATON explained Amendment 1 would ensure that
the credits are available for that year in that if the royalty
credits are greater than the corporate tax credit it cannot be
carried on for future years. He explained this is a 10-year
program that is available and those credits each year are
available, but must be used in that year.
CO-CHAIR TALERICO removed his objection. There being no further
objection, Amendment 1 passed.
1:05:58 PM
REPRESENTATIVE SEATON moved to adopt Amendment 2, labeled 29-
LS0423\H.6, Nauman, 3/24/15, which read:
Page 1, line 10, following "to":
Insert "the in-state processing facility owned
by"
REPRESENTATIVE JOHNSON objected for the purpose of discussion.
1:06:20 PM
REPRESENTATIVE SEATON indicated that Amendment 2 clarifies
language and asked the sponsor to address the amendment.
DONALD BULLOCK, House Majority Staff, Alaska State Legislature,
explained that the purpose of Amendment 2 is in response to a
concern expressed by the Department of Revenue to narrow the
credit to the gas delivered to a taxpayer for the processing
into urea of ammonia. He offered the scenario that an owner of
a plant bought gas to heat another facility and they bought the
gas to be used in the processing plant, only the gas delivered
to the processing plant owned by that taxpayer would be eligible
to generate the credit.
1:07:45 PM
REPRESENTATIVE JOHNSON removed his objection. There being no
further objection, Amendment 2 passed.
1:08:08 PM
REPRESENTATIVE SEATON moved to adopt Amendment 3, labeled 29-
LS0423\H.7, Nauman, 3/24/15, which read:
Page 1, line 2, following "ammonia;":
Insert "relating to establishing the value of the
state's royalty share of gas production based on
contracts with certain in-state processing facilities
that manufacture urea or ammonia;"
Page 1, following line 3:
Insert a new bill section to read:
"* Section 1. AS 38.05.180 is amended by adding a
new subsection to read:
(ll) For a contract that is entered into on or
after the effective date of this subsection, within 90
days after the written request of a lessee of a lease
issued under this section, in order to establish the
value of the state's royalty share of gas production
sold by the lessee under the contract, the
commissioner may enter into an agreement with the
lessee to use or accept as a price for the gas an
amount that is not less than the price established in
the contract between the lessee and an in-state
processing facility whose primary function is the
manufacturing and sale of urea or ammonia to third
parties in arm's length transactions, not to exceed
the amount that would otherwise be due under the
lease. The commissioner may enter into an agreement
under this subsection if
(1) the commissioner makes a written
finding that
(A) it is in the best interest of the
state; and
(B) based on clear and convincing evidence,
the contract price is not unreasonably low; and
(2) the primary function of the in-state
processing facility is to engage in the production of
urea or ammonia, and the owner of the in-state
processing facility with which the lessee has entered
into the contract is not affiliated with the lessee or
with a subsequent purchaser of more than 10 percent of
the urea or ammonia produced; for purposes of this
paragraph, the parties to a contract or purchase are
affiliated if, in the judgment of the commissioner,
one of the parties to the contract or purchase
exercises substantial influence over the policies and
actions of the other as evidenced by relationship
based on common ownership or family interest or by
action taken in concert without regard to whether that
influence is based on stockholdings, stockholders,
officers, or directors."
Page 1, line 4:
Delete "Section 1"
Insert "Sec. 2"
Renumber the following bill sections accordingly.
Page 1, following line 13:
Insert a new subsection to read:
"(c) To claim a credit under this section, the
taxpayer shall report to the department the name of
each lessee delivering natural gas to the in-state
processing facility, the identification and quantity
of natural gas from each state lease that is the
source of the natural gas, and the price for the
natural gas established in a contract between the
owner of the in-state processing facility and the
lessee delivering the natural gas."
Page 2, line 3:
Delete "sec. 1"
Insert "sec. 2"
Page 2, line 6:
Delete "Sections 1 and 3"
Insert "Sections 1, 2, and 4"
Page 2, line 7:
Delete "Section 2"
Insert "Section 3"
1:08:23 PM
REPRESENTATIVE JOHNSON objected for the purpose of discussion.
1:08:45 PM
MR. BULLOCK described Amendment 3 as an interesting credit as
unlike an investment tax credit, where the taxpayer buys
something and they know what they paid for it and can figure out
what the credit is. This credit is based upon the royalty due
on the leases that produce the gas that the taxpayer will use in
the processing plant. He advised this is similar to existing
law in the oil & gas leasing statute. Currently, the statute
addresses gas that is sold and contracts for sale to certain
electric utilities, and there is another provision allowing the
contract to set the price for agricultural chemicals. Amendment
3, he noted, parallels the existing language in that the lessee
first of all negotiate with the processing plant, which he
describes as an arm's length transaction with the goal to set a
reasonable market price, or a price the state would otherwise
use to value the gas royalty purposes. By doing this ahead of
time, the lessee selling the gas to the processing facility
submits the contract to the commissioner of the Department of
Natural Resources (DNR). The commission then would review it
and determine whether it is a reasonable contract with no games
being played, the parties aren't too close, and with the goal to
get it to the price that would have resulted if the gas was
later audited for royalty purposes. He described it as a check
in determining that it is a legitimate price. He explained that
by doing it this way, rather than subjecting the royalty to a
later audit, the taxpayer knows what the credits will be as
there is a contract price and a percentage of the contract price
represents the royalty. The taxpayer knows that the producer,
the lessee, has some stability in knowing what their royalty
will be on that gas and the commissioner would have reviewed it
and determined it is the price that makes sense. He opined it
is better than the alternative to try and say that the taxpayer
takes a credit and then down the road, it turns out that the gas
wasn't worth as much, or worth more. He opined that raises the
question of, what should be done with the credits since the
credit is based on the royalty, and the royalty has changed. He
commented that Amendment 3, deals with that issue upfront as
everyone know what the credit is and the lessee selling the gas
knows what their royalty is.
1:11:48 PM
[The committee treated the objection as removed.] There being
no further objection, Amendment 3 passed.
1:12:37 PM
CO-CHAIR TALERICO moved to report HB 100, labeled 29-LS0423\H,
as amended, out of committee with individual recommendations and
the accompanying fiscal notes from committee.
1:13:09 PM
REPRESENTATIVE SEATON objected for the purpose of discussion,
and offered that there is discomfort with credits across the
industry. He pointed out that this is fairly small, targeted
specifically to the amount of corporate income tax offset by gas
that would be purchased for instate use. He noted it has a 10-
year window and if not used within 10-years, or any portion of
that 10-years, it is not a rolling 10-years so he is comfortable
that sideboards are tight enough that it would be a benefit to
the state to get the additional work done and add to the
benefits of restarting an industry. He expressed his general
feeling is that broad tax credits are a problem to the state,
and this bill is not as it is based on actual profitability. He
described the bill as a well-crafted tax credit as opposed to
those that could put the state at risk as being very broad
based, based upon the amount of investment someone makes.
1:15:10 PM
REPRESENTATIVE JOSEPHSON said he fully associates himself with
Representative Seaton's comments, and added he doesn't
understand why the applicant says they will spend $275 million
and want just a few million dollars of assistance in the form of
a credit. He opined the case made is compelling and will not
object to the bill leaving committee.
1:15:55 PM
REPRESENTATIVE TARR said she shares in the comments of
Representative Josephson and appreciates how the bill is
targeted. She recalled in previous budgets there was a
consideration of funds to help support the plant when it was
having difficult times. She researched the issue, and in 2007
the legislature gave the plant a $5 million capital project to
help the company continue when there was a natural gas shortage.
She opined that the investments being made sound substantial and
other issues have been resolved so going forward the committee
will not have to consider some of the same options again should
they find themselves in trouble. She said she looks forward to
a number of jobs and the $275 million of investment in Alaska.
She expressed her hope that the legislature plans better in the
future for potential gas shortages and it won't have to come
back on this issue.
1:17:18 PM
REPRESENTATIVE SEATON removed his objection. There being no
further objection, HB 100, as amended, with individual
recommendations and the accompanying fiscal notes was reported
from the House Resources Standing Committee.