Legislature(2021 - 2022)BARNES 124
09/13/2021 01:00 PM House RESOURCES
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| Audio | Topic |
|---|---|
| Start | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB3005 | TELECONFERENCED | |
HB3005-OIL AND GAS PRODUCTION TAX
1:03:55 PM
CHAIR PATKOTAK announced that the only order of business would
be HOUSE BILL NO. 3005, "An Act relating to the oil and gas
production tax; and providing for an effective date."
1:04:30 PM
REPRESENTATIVE GERAN TARR, Alaska State Legislature, as prime
sponsor of HB 3005, presented an informational PowerPoint. She
presented slide 2, "CONTEXT," which read, "Only constant is
change," and she proposed thinking of the oil and gas industry
as a dynamic environment in which circumstances always change.
She proceeded to slide 3, "HOW OIL TAX WORKS," which displayed a
chart showing values for a $70 barrel of oil:
Transportation: $10.00
Gross Value at the Point of Production (GVPP): $60.00
Subtract Lease Expenditures (43.55.165): $30.00
Production Tax Value (PTV): $30.00
Tax at 35%: $10.50
Subtract Per Barrel Credit: $8.00
Tax Per Net: $2.50
Minimum Tax: $2.40
HIGHER OF: $2.50
REPRESENTATIVE TARR explained that subtracting $10.00 in
transportation costs from the $70 barrel of oil leaves a $60
"gross value at the point of production" (GVPP). Allowable
lease expenditures of $30 are then deducted, leaving a net
profit, otherwise known as production tax value (PTV), of $30.
The tax rate of 35 percent is the applied, yielding $10.50; the
per barrel tax credit of $8 is then applied, resulting in a net
tax of $2.50. She pointed out that the tax owed is either the
higher of the calculated tax, or a minimum tax of 4 percent of
GVPP, or $2.40 per barrel.
1:10:14 PM
REPRESENTATIVE TARR presented slide 4, "SCENARIO 1 HIGHER
SPEND," which displayed a possible tax scenario showing the end
tax result of oil companies spending more on leases:
Transportation: $10.00
Gross Value at the Point of Production (GVPP): $60.00
Subtract Lease Expenditures (43.55.165): $40.00
Production Tax Value (PTV): $20.00
Tax at 35%: $7.00
Subtract Per Barrel Credit: $8.00
Tax Per Net: -$1.00
Minimum Tax: $2.40
HIGHER OF: $2.40
REPRESENTATIVE TARR stressed that this scenario would result in
a default to the minimum per-barrel tax, as the higher of the
two calculations. She then presented slide 5, "SCENARIO 2
HIGHER PRICE," which showed the same cost and tax breakdown as
the previous slides, but assuming a price of $80 per barrel.
The slide showed the cost breakdown and tax results for low
spending on lease expenditures (first number) and the high-spend
scenario (second number):
Transportation: $10.00, $10.00
Gross Value at the Point of Production (GVPP):
$70.00, $70.00
Subtract Lease Expenditures (43.55.165): $30.00,
$40.00
Production Tax Value (PTV): $40.00, $30.00
Tax at 35%: $14.00, $10.50
Subtract Per Barrel Credit: $8.00, $8.00
Tax Per Net: $6.00, $2.50
Minimum Tax: $2.80, $2.80
HIGHER OF: $6.00, $2.80
REPRESENTATIVE TARR said she's seen lease expenditures range
from $20 to $60 per barrel. She explained that a price per
barrel of $80, in a situation where lease expenditures are low,
yields a tax of $6.00 per barrel; if lease expenditures increase
by $10, she said, from $30 to $40, the tax would default to the
minimum of $2.80. She stressed that all scenarios presented use
the current 4 percent minimum tax. Representative Tarr
presented slide 6, "SCENARIO 3 LOWER PRICE," which showed the
costs and taxes if the price of oil was $60 per barrel, with the
first number calculated in the low-spend scenario, and the
second number calculated in the high-spend scenario:
Transportation: $10.00, $10.00
Gross Value at the Point of Production (GVPP):
$50.00, $50.00
Subtract Lease Expenditures (43.55.165): $30.00,
$40.00
Production Tax Value (PTV): $20.00, $10.00
Tax at 35%: $7.00, $3.50
Subtract Per Barrel Credit: $8.00, $8.00
Tax Per Net: -$1.00, -$4.50
Minimum Tax: $2.00, $2.00
HIGHER OF: $2.00, $2.00
REPRESENTATIVE TARR pointed out that the lower price of oil
would result in defaulting to the minimum tax of 4 percent of
GVPP in either scenario.
1:13:49 PM
REPRESENTATIVE TARR said that the combined forces of the price
of oil and spending practices have caused a consistent default
to the minimum tax; additional investments won't be made in the
lease until oil prices are higher. She recalled that oil prices
were approximately $100 per barrel when SB 21 was being written,
and she opined that the same tax system may not have been
written in a significantly lower-priced environment. She then
presented slide 7, "WHAT BILL DOES," which read as follows
[original punctuation provided]:
upsilon PAUSE ALL COMPONENTS OF OIL AND GAS TAX SYSTEM FOR
TWO YEARS
upsilon FUNCTIONS AS A GROSS TAX VS NET PROFITS TAX
upsilon RAISES MINIMUM TAX FROM 4% TO 6%
upsilon PROVIDE MORE PREDICTABLE REVENUE FOR TWO YEARS
upsilon MINIMIZE ADMINISTRATIVE BURDEN
upsilon DEFAULTS TO CURRENT TAX AFTER TWO YEARS
1:20:16 PM
REPRESENTATIVE HANNAN asked whether "pause all components" in
the first bullet point of slide 7 would mean the current tax
structure would be suspended for two years, using instead the
gross tax with a minimum of 6 percent.
REPRESENTATIVE TARR responded "yes."
REPRESENTATIVE HANNAN concluded that the pause would sunset in
two years unless some legislative action was taken.
REPRESENTATIVE TARR agreed.
REPRESENTATIVE HANNAN asked pointed out that changing a tax
system on a biannual basis is problematic, yet the bill seems to
be set up specifically to do so. She then referred to the
bullet point "minimize administrative burden" and expressed that
it seems restructuring a system for only two years would not do
so.
REPRESENTATIVE TARR explained the proposal is clear on the
temporary nature of the change, instead of making statutory
changes that may not work. Regarding the administrative burden,
she said the audits of lease expenditures are part of the
current system, which would no longer be necessary under the
proposed legislation.
REPRESENTATIVE HANNAN expressed concern that the two-year sunset
didn't match with the two-year taxation; there's a substantial
lag, she said, between two years of oil production and two years
of tax collection.
REPRESENTATIVE TARR responded that the delay results from
substantiating the costs. Typically, she said, tax changes are
synced to calendar years; however, fiscal years cause the lag.
Tax payments are made more regularly than that, she said, and
the audit is what takes the most time.
1:25:37 PM
REPRESENTATIVE RAUSCHER expressed that the proposed legislation
would negatively affect oil companies when prices are low, or
when they're "running at a loss." He talked about wanting to
stabilize the industry, and he characterized HB 3005 as
"destabilizing." He asked whether any analysis has been done on
how the proposed legislation would affect the oil and gas
markets in Alaska.
REPRESENTATIVE TARR allowed that oil companies may not agree
with the minimum tax due to net profits. She said the revenue
forecast book for the spring 2021 forecast showed that if the
prices dipped dramatically, consideration would be different.
She said the original version of SB 21 included a 10 percent
tax, which was reduced to 4 percent, and she discussed Alaska's
reliance on oil taxes as the only source of revenue.
REPRESENTATIVE RAUSCHER expressed that the industry is having
problems finding investors due to stability issues.
1:31:15 PM
REPRESENTATIVE HOPKINS discussed oil production investment in
the North Sea, and he said the area has a fluid tax system that
reacts to fluctuations in price. He asked Representative Tarr
took specific price demands into account when considering
changes to the tax structure.
REPRESENTATIVE TARR discussed the importance of oil tax
legislation and operating from a place of caution. She
described modeling several different scenarios, hoping to
replicate one that would have the influence she hoped for, and
she expressed that she's "learned enough to feel a little bit
concerned" about the implications of various models. She
pointed out that with the lack of a state income tax, there
needs to be a broad-based revenue measure, and she acknowledged
the public's discomfort with income and sales taxes. She
stressed that the two-year pause proposed in HB 3005 would buy
some time to be thoughtful in studying possible legislation.
1:44:39 PM
REPRESENTATIVE RAUSCHER what kind of impacts HB 3005 would have
on new development.
REPRESENTATIVE TARR responded that if a company is not currently
an oil producer in Alaska, it would be important to ensure the
company retains the ability to have carry-forward losses; when
the company transitions from development to production, she
said, the carry-forward losses would be used against tax
liability. With respect to existing tax payers, she said, the
legislature would need testimony about possible impacts.
REPRESENTATIVE RAUSCHER asked whether the proposed sales tax
would raise industry tax, since it includes services.
REPRESENTATIVE TARR replied that it's a "sales and use tax," and
she said she's hoping to get a proportional breakdown from the
Department of Revenue.
1:47:49 PM
REPRESENTATIVE FIELDS asked whether the additional permanent
fund dividend (PFD) would total approximately $250 per person.
REPRESENTATIVE TARR replied that she didn't do a per person
calculation.
REPRESENTATIVE FIELDS said, "If that is the goal ... I think
it's just good for the public to understand ... how much you
actually increase a dividend check with a given amount of
taxation."
1:48:25 PM
REPRESENTATIVE TARR said she would share the information
regarding the proportional breakdown.
1:49:01 PM
REPRESENTATIVE CRONK expressed concern about oil companies'
investment hesitancy.
1:49:46 PM
CHAIR PATKOTAK discussed being able to consider many options.
1:51:02 PM
REPRESENTATIVE TARR remarked that her math shows a dividend
increase of $238 per person, and she added that the per-barrel
tax credit is linked to the 35 percent tax rate. She said the
value of establishing a fiscal plan is in the ability to
diversify the state's revenue stream and protect against changes
in any one industry.
1:53:26 PM
CHAIR PATKOTAK announced that HB 3005 was held over.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB3005 Legal Memo 9.13.2021.pdf |
HRES 9/13/2021 1:00:00 PM |
HB3005 |
| HB3005 Supporting Document AK Journal of Commerce Article 9.13.2021.pdf |
HRES 9/13/2021 1:00:00 PM |
HB3005 |
| HB3005 Sectional Analysis 9.13.2021.pdf |
HRES 9/13/2021 1:00:00 PM |
HB3005 |
| HB3005 Supporting Document DNR North Slope Map 9.13.2021.pdf |
HRES 9/13/2021 1:00:00 PM |
HB3005 |
| HB3005 Supporting Document Petroleum News Article 9.13.2021.pdf |
HRES 9/13/2021 1:00:00 PM |
HB3005 |
| HB3005 Sponsor Statement 9.13.2021.pdf |
HRES 9/13/2021 1:00:00 PM |
HB3005 |
| HB3005 Supporting Document Tax Credits History 9.13.2021.pdf |
HRES 9/13/2021 1:00:00 PM |
HB3005 |
| HB3005 Supporting Document Sponsor Tables 9.13.2021.pdf |
HRES 9/13/2021 1:00:00 PM |
HB3005 |
| HB3005 HRES Presentation Tarr 9.13.2021.pdf |
HRES 9/13/2021 1:00:00 PM |
HB3005 |