Legislature(2015 - 2016)SENATE FINANCE 532
04/12/2016 09:00 AM Senate FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB100 | |
| HB77 | |
| HB155 | |
| HB143 | |
| HB41 | |
| HB137 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HB 100 | TELECONFERENCED | |
| + | HB 77 | TELECONFERENCED | |
| HB 155 | |||
| + | HB 143 | TELECONFERENCED | |
| += | HB 41 | TELECONFERENCED | |
| += | HB 137 | TELECONFERENCED | |
| + | TELECONFERENCED |
CS FOR HOUSE BILL NO. 100(FIN)
"An Act establishing a credit against the net income
tax for an in-state processing facility that
manufactures urea, ammonia, or gas-to-liquid products;
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, ammonia, or gas-to- liquid products;
and providing for an effective date."
9:06:27 AM
REPRESENTATIVE MIKE CHENAULT, SPONSOR, discussed HB 100. He
reviewed the basic issues in the bill.
DONALD BULLOCK, HOUSE MAJORITY ATTORNEY, introduced
himself.
9:09:49 AM
9:09:50 AM
AT EASE
9:10:16 AM
RECONVENED
Co-Chair MacKinnon confirmed that Speaker Chenault would
provide the committee with a sponsor statement at a later
date.
Mr. Bullock discussed the sectional analysis (copy on
file):
Section 1. Adds a new subsection to AS 38.05.180, the
oil and gas leasing statute. Provides for the use of
the price established in a contract between a lessee
and an in-state processing facility whose primary
function is the manufacture and sale of urea, ammonia,
or gas to liquids products to be the value of the gas
for royalty purposes. Requires the commissioner of
natural resources to make a written finding that
accepting the contract price is in the best interest
of the state and that the price is not unreasonably
low. Requires that the lessee is not affiliated with
the owner of the processing facility or with a
purchaser of more than 10 percent of the products of
the plant. Provides a definition for "gas-to-liquid
product."
Section 2. Adds AS 43.20.052 to AS 43.20 (Alaska Net
Income Tax Act) to provide an income tax credit to an
in-state processing facility that produces urea,
ammonia, or gas to liquids products for sale to third
parties. Provides that the credit is equal to the
amount of royalty paid on natural gas produced from
state leases and delivered to the processing facility.
Limits the taking of the credit to an amount that will
not reduce the taxpayer's income tax below zero.
Prevents any unused credit from applying to a tax in a
subsequent taxable year. Requires reporting to the
state by the taxpayer of the leases supplying the gas,
the names of the lessees, the quantities purchased,
price paid, and ownership of the processing facility.
Section 3. Repeals AS 43.20.052, the credit provision.
Section 6 makes the repeal effective January 1, 2024.
Section 4. Makes the credit applicable to gas from
state leases that is delivered for use at the
processing plant during the period on or after July 1,
2017 and before January 1, 2024.
Section 5. Makes sections 1, 2, and 4 take effect on
July 1, 2017.
Section 6. Repeals the tax credit January 1, 2024.
9:12:54 AM
Co-Chair Kelly queried the reason and determination of the
credits.
Mr. Bullock stated that the credits were to give the
company a tax credit based on the amount of gas that they
purchased.
Co-Chair Kelly surmised that the credit was for the
production of the product.
Mr. Bullock answered in the affirmative.
Senator Hoffman queried a cap on the tax credit.
Speaker Chenault detailed that there was a cap on the tax
credits.
Senator Hoffman wondered if there was a cap on the tax
liability.
Mr. Bullock was unsure if the percentages were considered,
and detailed that the credit calculation was based on the
royalty on the gas purchased.
9:16:49 AM
Senator Dunleavy wondered how long the plant had been shut
down.
Speaker Chenault replied that it closed in 2007.
Senator Dunleavy asked whether Agrium was owned by people
in state, or whether it was a subsidiary.
Representative Chenault replied that Agrium was owned by a
Canadian corporation.
Senator Dunleavy asked if there was anything to prevent the
parent company from selling Agrium after two or three year.
Representative Chenault did not think there was anything to
prevent the company from selling. He explained that they
must use state royalty gas in order to qualify for the
credit.
Senator Dunleavy recalled that the parent company could
sell the plant.
Representative Chenault agreed.
Mr. Bullock stated that the focus of the credit was to
produce urea, ammonia, and gas to liquids produced. He
stressed that the legislation was not owner-specific.
Senator Bishop had not had a chance to fully examine the
bill. He was interested in Mr. Bullock's comments
pertaining to the increasing price of fertilizer. He was
concerned about Alaska's ability to produce its own food.
Senator Bishop referred to a small refinery credit. He
discussed the price of asphalt in the Interior. He hoped
the bill would aid in driving down the price of fertilizer
in the Interior.
Representative Chenault replied that Agrium had sold to the
state at a reasonable price.
9:21:50 AM
Vice-Chair Micciche thought there would be approximately
$159 million per year in revenue to generate the tax. He
remarked that it was a break in corporate income tax. He
surmised that it would be $60 million in revenue to the
state, but only $12 million in corporate income tax
credits.
Mr. Bullock was not able to answer the question, he was not
familiar with the company's operations.
9:23:20 AM
Senator Olson referred to the controversial tax credits in
other areas of the industry. He did not want to see a
similar situation. He queried the administration's position
on the bill.
Representative Chenault had not had such conversations with
the administration. Under HB 100, it was incumbent upon the
company to produce a minimum amount before being able to
take advantage of a tax credit.
Vice-Chair Micciche referred to a conversation in the
Senate Resources Committee, in which the administration
indicated it would design tax credits with a similar
composition to the one proposed in the bill. He thought the
proposed tax could be likened to a "corporate tax holiday".
Representative Chenault answered in the affirmative.
9:26:28 AM
Co-Chair MacKinnon opened public testimony.
9:26:55 AM
AARON PLIKAT, BUILDING TRADES COUNCIL OF SOUTH CENTRAL
ALASKA, ANCHORAGE (via teleconference), testified in favor
of the bill. He did not think the bill concerned union
versus non-union issues. He thought the bill was
differentiated from other tax credit formats.
Co-Chair Kelly wanted to correct the record to say. He
asserted that all the tax credits for the Cook Inlet
required investment.
Representative Chenault agreed
9:29:23 AM
RICK KOCH, CITY MANAGER, CITY OF KENAI (via
teleconference), testified in support of the bill. He
thought that fertilizer production was not the only issue.
He recounted that the urea cost (for use at the airport)
had tripled upon the closure of the previous facility. He
mentioned Alaska value-added products. He did not think the
tax credit proposed in the bill was similar to other tax
credit structures. He relayed that d had met with the
governor, and the governor had expressed his support. He
did not observe a negative component in the legislation.
Senator Bishop asked Mr. Koch to elaborate on the
significance of the urea used at the airport.
Mr. Koch replied that the airport did use urea for de-
icing.
9:33:36 AM
STEVE WENDT, MANAGER, AGRIUM, KENAI (via teleconference),
testified in favor of the bill. He discussed the closure of
Agrium due to insufficient supply.
Co-Chair MacKinnon asked if the Agrium company operated
with a board of directors, and whether they looked at a
return on investment.
Mr. Wendt affirmed that the board of directors. He thought
the bill would enable the company to offset the large
initial investment able to compete in the corporation for
the limited corporate dollars.
Senator Bishop referred to the previous testifier, Mr.
Plikat, and wanted to make sure that the jobs would be
available.
Mr. Wendt stated that the company planned on hiring all
Alaskans for the 140 jobs that would be created. He
detailed that the company only worked a seven day on/seven
day off schedule.
HB 100 was HEARD and HELD in committee for further
consideration.