Legislature(2005 - 2006)
05/04/2005 04:52 PM House FIN
| Audio | Topic |
|---|---|
| SB155 | |
| HB280 | |
| HB243 | |
| SB110 | |
| Adjourn | |
| Start | |
| HB280 | |
| HB283 | |
| SB158 | |
| SB155 |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE BILL NO. 280
"An Act relating to the taxation of mining property;
relating to contracts approved by municipalities for
payments in lieu of taxes; and providing for an
effective date."
JIM POUND, STAFF, REPRESENTATIVE JAY RAMRAS, spoke in
support of the legislation. He read from the sponsor
statement:
CSHB 280 is interestingly enough a bill requested of
this body by the industry. Under its language, mines
operating in the state would be taxed by the state on
the true and real value of real and tangible property.
Precious metal exploration has continued in the state
and several of the locations being developed are not
located in organized boroughs. Without the language of
CSHB 280 development companies are operating with an
uncertain and potentially unstable set of rules for
taxation. Using AS 14.17.410 (b) (2) as a tax base,
mines in unorganized boroughs would be assessed a four-
mill levy. Boroughs forming later would be allowed to
tax at their established property tax rate.
Language in the bill also creates a special mining
property tax account and allows the legislature to
appropriate that money into the public education fund.
Essentially this is an offer by the mining industry to
assure funding for Alaska's Education System.
HB 280 is limited to large producers only. Mines
producing less than $10,000,000 are exempt from the tax
formula. This keeps what is left of our once profitable
mom and pop mines in operation.
In a world market, stability both politically and
financially are critical to success for these companies
that invest millions of dollars just searching for
precious metals. Creating a stable tax base for an
industry that creates hundreds of jobs in Alaskan
communities makes sound fiscal sense. It also gives
unorganized areas of the state a clear understanding of
the income they will receive from a mine, once they
become a borough and can receive the tax benefit.
4:53:42 PM
Co-Chair Chenault asked if there was a current limit on what
municipalities could tax. Mr. Pound noted that there was
not. He thought that the Fairbanks North Star Borough taxed
the Fort Knox Mine at the existing mil levy on property (14
mils). The Red Dog Mine pays the Northwest Arctic Borough a
severance tax based on mineral production (3 percent). The
Usebelli Mine also pays the Denali Borough a severance tax.
4:54:43 PM
Co-Chair Chenault asked the effect on the Donlin Creek Mine
and the Kensington Mine. He asked about the tax structure.
Representative Weyhrauch explained that the City and Borough
of Juneau has a two-tier tax structure. These mines
currently pay 6.6 mils. If they connect to services the mil
rate would increase to 11.
In response to a question by Representative Chenault, Mr.
Pound noted that the legislation would not affect any
current mines operating within an organized borough. A 4-mil
levy on personal property would be imposed on mines
operating outside of a municipality. There is nothing in the
legislation, which would prevent a municipality from
annexing a mine, but they would be required to come in under
the existing property tax structure. The state tax would end
when the mine is annexed. The legislation does not affect
the municipality's tax.
4:56:40 PM
Vice-Chair Stoltze referenced AS 43.67.020 on page 3. Mr.
Pound explained that for a period of 15-years, the tax
language in place under AS 43.67.020 would be restricted to
the particular taxes listed "except where a municipality may
comes in and do personal property tax on a new one". After
the 15-year period, the door opens up and there are no
exemptions at all on what can and cannot be taxed.
Vice-Chair Stoltze mentioned gas line provisions. He
questioned the affect of the legislation on constitutional
issues. Mr. Pound discussed his understanding of the intent
of section 20. He explained that prior to [a mine] being
annexed into a municipality, for a period of 15-years taxes
are levied based on the items on the list:
(1) taxes on the sale or use of minerals;
(2) taxes on or measured by gross or net income from
the taxable property, including income from the
exploration for, production of, or of minerals or
taxable property; and
(3) any license, excise, fee, charge, severance,
throughput, or other tax on or pertaining to the
taxable property or services used in or associated with
the taxable property or in its maintenance or operation
unless the tax is also levied on property not subject
to tax under AS 43.67.010(a).
Vice-Chair Stoltze wanted to make sure that the legislation
was on solid constitutional ground.
5:00:11 PM
Representative Holm expressed concern with the ability to
exempt previous taxing authorities. He felt it would be
appropriate for the state of Alaska to have an even playing
field. He recommended that the "grandfather provision" be
reviewed. He pointed out that the residents of the state own
the resource, not the municipality adjacent to the resource.
The state of Alaska cannot constitutionally allow the
municipality to tax the resource. He suggested that the
activity could not be grandfathered in because it is illegal
in the first place, even though it has been occurring. Mr.
Pound agreed that there are constitutional questions that
must be addressed by the courts.
5:03:10 PM
Representative Holm recommended that the issue be addressed
before it is passed out of Committee.
5:05:51 PM
Vice-Chair Stoltze referenced similar provisions relating to
the gas line. He asked about the 15-year exemption.
BRETT FRIED, ECONOMIST, TAX DIVISION, DEPARTMENT OF REVENUE,
noted that he was not qualified to answer that question.
5:06:52 PM
ETHAN FALATKO, ASSISTANT ATTORNEY GENERAL, DEPARTMENT OF
LAW, did not feel there would be a constitutional issue with
the statute. He noted that Article X allows the state of
Alaska very broad authority to delegate taxing authority to
municipalities.
5:08:44 PM
JAMES FUEG, PLACER DOME, JOINT VENTURE, referenced the
handout from the Donlin Creek project. He commented on the
size of the project. A mine in that area would employee over
400 people. There are benefits in addition to those listed
in HB 280. He read from prepared testimony:
• The handout presented to you is a brief description of
the ongoing work at the Donlin Creek Project. As you
can see, if a decision is made to move forward with
development of a mine at Donlin Creek this will be one
of the largest and most complex resource development
projects in Alaska. Current estimated capital costs
for the project are welt in excess of $1 billion
dollars. A mine at Donlin Creek would employ ~ pay
royalties to the shareholders of Alaskan Native
Corporation of Calista Corporation, the mineral
est~iho1der for the deposit, and pay Mining License
Taxes and Corporate Income Taxes to the State. These
benefits are in addition to the potential payments
proposed under HB 280.
• One of the biggest uncertainties facing mineral
development in the unorganized borough of Alaska., and
hence the Donlin Creek Project, amongst others, is the
lack of any defined tax structure at the local level.
This makes it extremely difficult to accurately
predict future operating margins and costs when one is
developing the complex economic models that must be
completed prior to making a billion dollar investment
decision, such as we are facing at Donlin Creek. This
in turn makes it harder to achieve a positive decision
on such large investments.
• HB 280 presents several mechanisms for companies, who
wish to invest in mine development in Alaska, to
address these uncertainties, while at the same time
providing a mechanism for the industry to contribute to
the cost of education in their communities and, should
a local government be formed at some point in the
future, contribute to the cost of funding local
government.
5:11:30 PM
KEVIN RITCHIE, ALASKA MUNICIPAL LEAGUE, JUNEAU, noted that
the League represents future municipalities that might form.
He noted that there have been improvements to the
legislation. He observed that taking away taxing authority
in any manner is of concern to the municipalities. He
addressed section 2 (c), which allows a municipality to
negotiate a payment in lieu of taxes unless the property is
subject to a state contract. He felt that the subsection
would take away the authority, which is granted in other
parts of the bill, for the municipality to define what is
needed to pay for schools, roads, public safety and other
services. He encouraged the Committee to review the language
more closely.
Mr. Ritchie discussed section 3. Section 3 would broaden the
severance tax issue to all municipalities. The provision was
recently added. Previously, the bill only impacted the
formation of new boroughs. He did not think there was a
current severance tax on minerals.
5:14:56 PM
STEVE VAN SANT, STATE ASSESSOR, DEPARTMENT OF COMMERCE,
COMMUNITY AND ECONOMIC DEVELOPMENT, (via teleconference)
offered to answer questions of the Committee.
5:15:34 PM
STEVE BORELL, ALASKA MINERS' ASSOCIATION, ANCHORAGE, (via
teleconference) noted that the mining industry is
volunteering to pay a new tax, through HB 280. The tax would
be on large mines operating in the unorganized borough at a
constant rate for a period of 15 years from the first
production at the mine. The industry already pays several
taxes to the state depending on the type of land where the
mining occurs. A mining license tax is paid to the state
regardless of whether the land is on state, federal or
private land. Mining also pays corporate income tax, mining
claim rentals, production royalty on state owned land, and
property tax when the mine is in the organized borough.
Mines would also pay taxes to future boroughs. He stressed
the need for tax certainty.
5:17:53 PM
Co-Chair Chenault asked about AS 43.56 properties assessed
by the state and the tax proposed on the mining industry.
Mr. Van Sant observed that AS 43.56 oil and gas properties,
which are assessed by the state and cross-jurisdictional
lines between communities, are levied a 20-mil tax by the
state. Municipalities levy their mil rate against the 20-mil
tax. Oil companies do not pay more than 20 mils on any
evaluation. The State would retain authority to assess a tax
on mining property contained within certain boundaries,
which don't cross-jurisdictional lines. The 4-mil assessment
would come directly to the state unless a municipality was
formed.
5:20:54 PM
Co-Chair Chenault inquired how the value of the 4 mils would
be determined. Mr. Van Sant responded that the bill would
require them to value property based on the cost approach,
which is based on actual costs. This approach is used on the
Red Dog Mine. The state also uses this approach on AS 43.56
property along with market and income approach to value.
5:22:07 PM
Vice-Chair Stoltze asked if there were legal concerns.
KATHRYN KURTZ, ATTORNEY, LEGISLATIVE LEGAL SERVICES, (via
teleconference) pointed out that the state has the power of
taxation and has the authority to set a tax rate.
Vice-Chair Stoltze asked if there were potential problems
with locking into the rate. Ms. Kurtz could not address the
gas line issue. She commented that the bill would give the
state of Alaska the power in lieu of taxes. It does not
cause a great deal of legal concern because of the scope of
the issue. She acknowledged that a surrender of the state's
taxing power would be unconstitutional.
5:26:42 PM
Representative Holm asked if the state has the right to give
away the taxing authority on minerals owned by the residents
of the state and allow municipalities to impose a severance
tax. Ms. Kurtz pointed out that the state of Alaska has
broad powers in determining the taxing power of
municipalities. The state currently has a taxing structure,
which allows municipalities to impose property taxes, sales
and use powers.
5:29:17 PM
Representative Joule asked if the bill would change the
arrangements of existing borough operations. Mr. Pound did
not think it would affect existing operations.
5:31:02 PM
Co-Chair Chenault asked if 4 mils was a reasonable amount
and how it is determined. Mr. Van Sant responded that the 4
mils levy is determined by the school contribution in Title
XIV, which changes each year depending on the value of the
mine. The value of the mine is determined by cost. The tax
value would increase as the investment increases. He noted
that AS 43.56 property is 20 mils times the value. The value
would go down each year if new dollars were not invested in
the mine. The 4-mil rate is not based on the ore extracted
but on the investment in the property.
5:35:08 PM
Representative Holm MOVED to ADOPT Amendment 1:
Page 4, line 2
Insert new subsection (c)
(c) Property tax imposed by a municipality under AS
29.45 is in place of the tax levied under AS 43.67.010.
In the case of a municipality incorporated after
January 1, 2005, the transition provisions of AS
29.05.140 govern the transition from assessment by the
department to assessment by the municipality.
Re letter the remaining subsection accordingly
Page 5, line 20
Following "after"
Delete "an assessment"
Insert "a determination"
Page 6, line 26
Insert new (2)
(2) "department" means the Department of Revenue or the
Department of Commerce, Community, and Economic
Development;
Re number the remaining paragraphs accordingly
Page 7, line 6
Following "The Department of Revenue"
Insert "and the Department of Commerce, Community, and
Economic Development"
Vice-Chair Stoltze OBJECTED.
5:35:33 PM
Mr. Pound noted that the amendment deals with how property
tax is imposed on a municipality under Title 29. A new
borough would have up to two years for transition. The time
line for appeals was restructured to allow 30 days after a
determination. The Department of Commerce, Community and
Economic Development was added under the definition of
department and given the power to formulate regulations.
5:37:44 PM
Co-Chair Chenault asked for the definition of determination.
Mr. Pound clarified that there are 50 days.
Vice-Chair Stoltze WITHDREW his objection. There being NO
further OBJECTION, Amendment 1 was adopted.
HB 280 was HELD over.
HOUSE BILL NO. 280
"An Act relating to the taxation of mining property;
relating to contracts approved by municipalities for
payments in lieu of taxes; and providing for an
effective date."
Vice-Chair Stoltze referred to Article IX [Alaska
Constitution], and questioned if there is a problem with the
legislature surrendering the power of taxation. Mr. Pound
restated that legal counsel, as indicated by Ms. Kurtz, does
not have a problem with it.
8:52:14 AM
Representative Kelly referred to Vice-Chair Stoltze's
question and summarized that the question is if the state
has the right to transfer taxing authority to another
entity.
Representative Holm said he spoke with Jack Chenoweth from
the Alaska Legislative Legal. He referred to a memo, which
states that the legislature has the right to restrict
taxation authority and to give it away. The legislature has
prohibited municipalities from taxing oil or gas. He noted
that the legislation would change a severance tax to a mil
tax, which would allow municipalities to tax the
infrastructure but not the minerals. He maintained that the
legislature has a fiduciary obligation to set state policy
that clarifies that the resources are owned collectively and
should benefit all Alaskans. He maintained that resources
need should be brought into the community pot and it would
be bad policy to allow individual communities to benefit.
8:56:46 AM
Mr. Pound corrected earlier testimony by clarifying that the
Northwest Borough does not collect a severance tax.
8:57:20 AM
Representative Holm MOVED to ADOPT Amendment 2:
Page 2, Lines 18-19
DELETE [other than a tax imposed before January 1,
2006]
Co-Chair Chenault OBJECTED for discussion purposes.
Representative Holm explained that the amendment would
remove the retroactivity provision. This would prevent
municipalities from charging a severance tax on a mineral
resource. Mr. Pound stated a concern that some boroughs
already use a severance tax.
8:58:12 AM
STEVE VAN SANT, STATE ASSESSOR, DEPARTMENT OF COMMERCE,
COMMUNITY AND ECONOMIC DEVELOPMENT, (via teleconference)
commented on Amendment 2. He explained that Denali Borough
collects a severance tax on gravel and coal, which results
in approximately $56 thousand. The Kodiak Island Borough
collects a severance tax on timber. He thought that the Lake
and Peninsula Borough also has a severance tax, which has
not been collected.
9:00:42 AM
Co-Chair Chenault asked Representative Holm to clarify the
intent of the amendment. Representative Holm stated that the
amendment would prevent any re-cooping or retroactivity. He
questioned if those communities that currently have
severance taxes in place could collect a mil tax.
9:01:48 AM
Mr. Van Sant replied that they could have a sales tax or a
property tax, but it would take some work. He pointed out
that the 4-mil levy is for the unorganized boroughs.
Representative Holm thought the bill might have some
unintended consequences. He asked if the Denali Borough
currently has a property tax. Mr. Van Sant noted that the
Denali Borough does not collect property tax. The Borough
collects a bed tax and severance tax. Representative Holm
noted that the [severance tax collected in the Denali
Borogh: $56 thousand) is insignificant.
9:05:02 AM
Representative Kelly requested an opinion from the mining
industry.
9:06:20 AM
At ease.
9:14:31 AM
JAMES FUEG, PLACER DOME, MEMBER COUNCIL OF ALASKAN
PRODUCERS, testified via teleconference. He addressed the
mining perspective on granting severance taxes. He said, in
general, the mining industry does not support them, but is
in favor of grandfathering in existing severance taxes.
Representative Holm asked if this was a constitutional
position. Mr. Fueg said no.
9:16:31 AM
Representative Joule asked for clarification. Representative
Holm replied.
A roll call vote was taken on the motion to ADOPT Amendment
2.
IN FAVOR: Kelly, Holm
OPPOSED: Joule, Moses, Stoltze, Weyhrauch, Foster, Hawker,
Chenault, Meyer
The MOTION FAILED (2-8).
Representative Joule MOVED to report CSHB 280 (FIN) out of
Committee with individual recommendations and the
accompanying fiscal impact notes.
Representative Holm OBJECTED.
A roll call vote was taken on the motion to report CSHB 280
(FIN) out of Committee.
IN FAVOR: Stoltze, Foster, Hawker, Joule, Chenault, Meyer
OPPOSED: Moses, Weyhrauch, Holm, Kelly
The MOTION PASSED (6-4).
CSBH 280 (FIN) was REPORTED out of Committee with a "no
recommendation" recommendation and with a new fiscal impact
note by the Department of Revenue, and with a new fiscal
impact note by the Department of Commerce, Community and
Economic Development.
9:22:13 AM
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