Legislature(2005 - 2006)HOUSE FINANCE 519
03/28/2006 02:00 PM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| HB488 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 488 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE BILL NO. 488
An Act repealing the oil production tax and gas
production tax and providing for a production tax on
the net value of oil and gas; relating to the
relationship of the production tax to other taxes;
relating to the dates tax payments and surcharges are
due under AS 43.55; relating to interest on
overpayments under AS 43.55; relating to the treatment
of oil and gas production tax in a producer's
settlement with the royalty owner; relating to flared
gas, and to oil and gas used in the operation of a
lease or property, under AS 43.55; relating to the
prevailing value of oil or gas under AS 43.55;
providing for tax credits against the tax due under AS
43.55 for certain expenditures, losses, and surcharges;
relating to statements or other information required to
be filed with or furnished to the Department of
Revenue, and relating to the penalty for failure to
file certain reports, under AS 43.55; relating to the
powers of the Department of Revenue, and to the
disclosure of certain information required to be
furnished to the Department of Revenue, under AS 43.55;
relating to criminal penalties for violating conditions
governing access to and use of confidential information
relating to the oil and gas production tax; relating to
the deposit of money collected by the Department of
Revenue under AS 43.55; relating to the calculation of
the gross value at the point of production of oil or
gas; relating to the determination of the net value of
taxable oil and gas for purposes of a production tax on
the net value of oil and gas; relating to the
definitions of 'gas,' 'oil,' and certain other terms
for purposes of AS 43.55; making conforming amendments;
and providing for an effective date.
2:10:48 PM
REPRESENTATIVE RALPH SAMUELS, CHAIR, HOUSE RESOURCES
COMMITTEE, attempted to explain the changes made during the
House Resources Committee (HRC) process. That Committee did
not change the general structure of the bill, which would
have changed the system, but instead changed the net profits
after costs were recovered by the industry.
Representative Samuels voiced concern regarding how the
State of Alaska would keep up with the global functions. He
pointed out that the Administration testified that in major
fields, there is more than one owner and already concern.
He said there needs to be safeguards for fields that have
most of the revenue for the State. Other factors addressed
were cost recovery for the State's tax advantage and the
methodology used.
Representative Samuels noted items changed made during the
Committee process:
· Kept the tax rate @ 20% until a price reached $50
dollars per barrel. There was talk about increased
cost to cover inflation. Representative Samuels did
not support adding a dollar figure to the bill. It was
argued that technology could decrease the escalator
determination.
· A separate escalator was tied to the price of gas.
2:16:23 PM
Representative Samuels did not anticipate a problem
resulting from the change to the escalator. The
transitional money was eliminated by an amendment offered in
the Committee. Additionally, a $73 million dollar allowance
was changed to a tax credit. The credit cannot be
transferred or sold.
HRC placed language that does not allow for abandonment cost
fees for tax credits. Private royalty owners will pay a
severance tax on their royalties at a rate set of 5%.
2:18:22 PM
Representative Samuels stated that the contingency
surcharges were left in place, both non-deductible and non-
creditable. Currently, there is a five-cent per barrel
charge, with two-cents suspended; the suspended amount was
lowered to one-cent per barrel and they increased the non-
suspended amount to four cents per barrel.
stst
HRC changed the effective date from the 1 of July to the 1
of April 2006. That change would reach the nearest quarter
after signed, making it easier for the Department of
Revenue's quarterly system.
Representative Samuels noted that the Committee implemented
a tax credit purchase program. The State could buy at full
face value up to ten million gallons per year per company.
A tax credit would be sellable; it would allow them to go to
a big company. In the bill, only 20% of the tax liability
could be paid for the purchased tax credit.
2:20:31 PM
The House Resources Committee decided that the State could
buy up to $10 million dollars per year per company at the
100% value as long as the money was reinvested into lease-
purchases. It was indicated that the $10 million dollars
might not be enough. He encouraged the Finance Committee
reconsider that number and adjust it upward. There are
penalties imposed on underpayment. More penalties were
added in addition to a high interest rate.
Representative Samuels said during the amendment phase,
language was added that costs could not be used as cost
recovery. He noted that the State requires an industry to
have the necessary clean-up machinery. The language of the
bill addresses catastrophic oil spill needs.
2:23:16 PM
Representative Samuels stipulated that there was no action
taken on tax credits for heavy oil. He commented that HRC
choose not to have a separate tax for gas and oil. He knew
that the future of the slope would include heavy oil. There
was discussion, however, no action was taken on tax credits.
Amendments discussed but rejected were:
· Removing "gas" from the bill and replacing it with
simply "oil".
· The tax floor amendment failed and that concern was in
regard to cost recovery.
· Energy assistance failed.
· Moving the effective date back to January failed.
2:25:38 PM
Representative Samuels continued:
· There was debate to move the price point and that
failed.
He admitted there had been major issues.
Representative Samuels urged two points that the member's
not be lobbied on:
· Risk and cost recovery; and
· How much exposure received through the credits.
2:26:56 PM
Co-Chair Meyer inquired why West Texas Intermediate (WTI)
was chosen over Alaska North Slope (ANS). Representative
Samuels acknowledged it was debated. There were variations,
with roughly a $2 dollar per barrel difference. [In
audible].
2:28:34 PM
Co-Chair Meyer asked why the $50 dollars per barrel price
was chosen rather than current market price. Representative
Samuels explained that the Committee attempted to move past
the current bell-curve. He mentioned the $45 dollar per
barrel range, which would have had less impact. During the
Committee process, there was an amendment offered, however,
he warned that prices could get out of control. No one is
expecting the price to remain at $60 dollars per barrel.
2:30:08 PM
Co-Chair Meyer questioned if the "credit-side" had been
mentioned. Representative Samuels replied it had been
discussed and that he believed from testimony heard, some of
the major players could use it. Regardless, they were more
concerned with the tax rate than the credit.
2:30:58 PM
Co-Chair Meyer mentioned action taken in the Senate
Resources Committee and asked how HRC understands the 2 for
1 provision brought forward. Representative Samuels replied
[inaudible].
2:32:17 PM
Representative Holm asked if different rates for incentives
were considered for the majors and the explorers.
Representative Samuels advised that they had looked at the
current tax credits for SB 185 [passed last year], for
premature true exploratory. He believed that most of the
production expenditures occurred in Prudhoe & Kuparuk. He
warned about providing incentives and not adding to the true
production.
2:34:08 PM
Representative Samuels mentioned small changes proposed by
the Alaska Oil and Gas Association (AOGA). The original
bill had the term "the net value of oil and gas" and AOGA
wanted it changed to "taxable value". AOGA requested
applying the Petroleum Production Tax (PPT) against income
taxes; HRC chose not to grant that. Discussions with AOGA
did not happen in Committee; however, they met with the two
Co-Chairs of the House Resources Committee and the
Commissioner of the Department of Revenue, in considering
the letters from AOGA. The Committee made only the
technical changes proposed by AOGA.
2:36:05 PM
Representative Kelly inquired if the Committee had
considered different tax rates. Representative Samuels
replied that there had been many graphs providing various
numbers. There are numerous assumptions regarding how much
investment would be appropriate versus the amount of risk.
He hoped that the ultimate choice would be the middle rate.
2:38:43 PM
Representative Holm asked if there had been assurances made
by any of the oil companies. Representative Samuels stated
that would be impossible.
2:39:34 PM
DAN DICKINSON, CONSULTANT, OFFICE OF THE GOVERNOR, noted
that he would assist Mr. Mintz, Department of Law, to
navigate through the Governor's bill as proposed and the
committee substitute brought forward by the House Resources
Committee.
2:40:21 PM
ROBERT MINTZ, (TESTIFIED VIA TELECONFERENCE), ASSISTANT
ATTORNEY GENERAL, DEPARTMENT OF LAW, ANCHORAGE, referenced
the handout, comprised of two parts: (Copy on File).
· The logical connections of how the new production
tax would work, while attempting to identify the
main differences between the two bills; and
· The second part provides a flow chart identifying
how the calculations had been determined.
Mr. Mintz noted Page 2, indicates the new production tax
provisions, which apply to oil and gas produced on or after,
stst
July 1, 2006 (HB 488) and April 1, 2006, (CS HB 488 RES).
Mr. Mintz referenced Page 3, AS 43.55.011(a) - There is
levied upon the producer, a tax for all oil and gas produced
each month. The tax is equal to 20% of the net value, under
AS 43.55.160. He emphasized that Section was the most
fundamental of the bill.
2:43:39 PM
Mr. Mintz referenced Page 4, Section 5, AS 43.55.011(a) -
there is levied upon the producer, a tax for all oil and gas
produced each month, [except for] a lessor's royalty
interest. The tax is equal to 20% of the production tax
value, under AS 43.55.160.
2:44:56 PM
Page 5, Section 6, AS 43.55.011(e) - There is levied upon
the producer, a tax for all oil and gas produced each month,
the ownership or right to which constitutes a lessor's
royalty interest. The tax is equal to five percent of the
gross value at the point of production.
2:45:53 PM
Mr. Mintz referenced Page 6, AS 43.55.011-(k). There is
levied upon the producer a tax for all oil equal to .30% of
the gross value at the point of production, multiplied by
the oil price index and a tax for all gas, equal to 2% of
the gross value at the point of production multiplied by the
gas price index.
2:46:55 PM
Representative Hawker asked what "lessor" meant on Page 4 &
5; he thought it should be defined. Mr. Mintz advised that
the slides only highlight, and that they do leave out
language. The assumption is "lessor under an oil and gas
lease". It is clear in oil and gas terms and is frequently
referred to in that Industry. He thought if there was
ambiguity, the Department of Revenue could clarify it by
regulation.
2:48:47 PM
Mr. Mintz noted on Page 7, the original bill has a single
production tax of 20% of the net value and in contrast, the
committee substitute has four production tax components:
· 20% of net value except for lessor royalty share
· 5% of gross value for lessor royalty share
· A progressive-rate oil tax on gross value, including
lessor royalty share
· A progressive-rate gas tax on gross value, including
lessor royalty share
2:50:12 PM
Page 8, Section 21, AS 43.55.160(a), provides a
determination of the net value, which is the total of the
gross value at the point of production of oil and gas from
all leases or properties in the State, less lease
expenditures as adjusted and 1/72 of transitional investment
expenditures.
2:51:59 PM
Representative Kelly referred to the 5% royalty rate and
asked what happened to the 12.5%, indicated on Page 7. Mr.
Mintz explained that 12.5% was the typical royalty
percentage, which represents the share production that the
royalty owner (lessor) is entitled to.
Mr. Dickinson clarified that the royalty rates were not
being changed; there would be a royalty in the lease. The
point made is the private royalty share, which the committee
substitute places a 5% tax. He noted that the 5% would
apply to the landowner. On the piece of the private royalty
share, a separate tax would be placed upon that at a lower
rate, to acknowledge the fact that the royalty owner would
not be sharing net costs allowed in the bill.
Representative Weyhrauch noted Section 21 of the original
bill, pointing out that the language indicates all leases
from producers in the State. He asked if that literally
meant "all". Mr. Mintz responded it was meant for a
particular producer. He pointed out that on Page 18, Line
17 of the committee substitute addresses that. There are
leases on properties in the State. Representative Weyhrauch
worried about the ambiguity of that language. Mr. Dickinson
pointed out that language has been in statute for a long
time and is not the issue.
2:56:38 PM
Mr. Mintz stated that Page 9, Section 28, AS 43.55.160(a),
production tax value is the total of the gross value at the
point of production of oil and gas from all leases or
properties in the State, less [progressively taxes on gross
value] and less lease expenditures.
2:57:42 PM
Mr. Mintz highlighted Page 10, Sections 31 [HB 488] and
Section 34, (RES), AS 43.55.900(7), "gross value at the
point of production" means, for oil, the value at the meter
in pipeline quality; for gas, the value where metered [after
any separation or gas processing].
2:59:03 PM
Page 11, AS 43.55.150(a), gross value at the point of
production is calculated using the reasonable costs of
transportation. Most oil is transported to the West Coast
and includes the cost of transportation.
3:00:06 PM
Mr. Mintz referenced Page 12, AS 43.55.150(d), the
Department may allow gross value [to be calculated based
upon] a royalty settlement agreement or a formula that uses
[DNR or the U.S. Department of Interior] royalty, valuation
or another formula that reasonably estimates a value.
3:01:33 PM
Page 13, Section 21, AS 43.55.160©, lease expenditures are
the total costs upstream of the point of production on or
after July 1, 2006, that are the direct, ordinary and
necessary costs of exploring for, developing or producing
oil or gas deposits located in the State.
3:02:18 PM
Mr. Mintz pointed out that Page 14, Section 28, AS
43.5.160©, the lease expenditure are the total costs
upstream of the point of production on or after January 1,
2006, that are the direct, ordinary and necessary costs of
exploring for developing or producing oil or gas deposits
located in the State.
Mr. Dickinson interjected that the Administration addresses
that differently from Representative Samuels. He noted the
transitional investment expenditures for five years, which
was entirely removed. There was a separate amendment
regarding the taxation date.
3:03:59 PM
Mr. Mintz noted a question in HRC regarding if those terms
were defined. The producer can add on the cost anywhere in
the State. The costs of exploration and development are all
combined. It is not necessary to distinguish between those
stages. He added that there are a few minor exceptions.
The term direct, ordinary and necessary are addressed on
Page 15.
3:05:20 PM
Page 15, AS 43.55.160©, Section 21/28, explains that in
determining direct, ordinary and necessary costs, the
Department shall give substantial weight to typical industry
practices and standards as to billable costs under unit
operating agreements and the Department of Natural Resources
net profits share lease regulations.
3:06:42 PM
Mr. Mintz referenced Page 16, Section 28, AS
43.55.160(j)(2), and that the committee substitute adds a
definition of "ordinary and necessary" to make it clear that
Internal Revenue Code (IRC) meaning is adopted.
3:07:04 PM
Mr. Mintz noted that Page 17, Section 28, AS 43.55.160©,
continues language that the lease expenditures do not
include catastrophic oil discharge expenses or damages.
3:07:31 PM
Page 18, AS 43.55.160(d) provides specific examples of and
exclusions from "direct costs". The committee substitute
has several improvements recommended by the Administration:
· (d)(1)(A) and (d)(2)(A), clarifying treatment of
capitalized expenditures
· (d)(2)(L), ensuring that conservation surcharges are
not deductible
Page 19, AS 43.55.160(e) - [Lease expenditures must be
adjusted by subtracting payments the producer receives for:
(1) Another's use of a production facility;
(2) Reimbursement, e.g. field costs paid by State, that
offset lease expenditures; and
(3) Sale of assets acquired through lease expenditures
or of non-taxable oil or gas used in lease
operations.]
3:10:14 PM
Mr. Mintz referenced Page 20, Section 28, AS 43.55.160(a),
(b)(2), and (e). At the recommendation of the
Administration, the committee substitute addressed potential
timing mismatches between lease expenditures and adjustment
that would be recognized even if a producer or explorer has
no production or has low lease expenditures, and when an
adjustment payment is received.
Representative Hawker inquired who had identified the issue
on Page 20. Mr. Mintz believed it was an internal catch.
Representative Hawker recommended it would be easier to
understand if a separate section addressed mis-matches. Mr.
Dickinson replied that could be considered, acknowledged it
would add important clarification.
3:14:54 PM
ROBYNN WILSON, DIRECTOR, DIVISION OF TAX, DEPARTMENT OF
REVENUE, acknowledged that was a long section. She deferred
to the Department of Law attorneys.
3:15:45 PM
Mr. Mintz referenced Pages 21 & 22, Section 21, AS
43.55.160(g)&(i), regarding the transitional investment
expenditures being capital expenditures less the sale of
assets acquired as a result of those expenditures. A
producer that is qualified may reduce the net value by
deducting an allowance. The total of the allowance during
the calendar year does not exceed $73 million dollars. An
unused allowance may not be carried forward.
3:16:44 PM
Page 23, AS 43.55.020(a), the tax levied under AS 43.55.011,
net of any credits applied under that chapter, is due. The
tax levied under AS 43.55.0119(a), net any credits applied
under that chapter are due.
Mr. Mintz continued Page 24, explains that a producer that
incurs a qualified capital expenditure may elect to take a
tax credit in the amount of 20% of that expenditure.
3:18:39 PM
Mr. Mintz identified the types of credits found on Page 25:
· Qualified capital expenditure - a lease expenditure for
G&G exploration, intangible drilling costs and other
expenditures capitalized under IRC; and
· Does not include purchase of a previously acquired or
used asset.
3:20:40 PM
Page 26, Section 14, AS 43.55.024(i)(2), "qualified capital
expenditure" does not include an expenditure incurred for an
extended period of disuse, dismantlement, removal or
abandonment or for the restoration of a lease, field, etc.
Representative Hawker asked if that would provide an
adequate "comfort zone"; he worried it might be too broad.
Mr. Dickinson replied they were receptive to any additional
thoughts. Traditionally, the individuals regulated are
usually three years behind. The Senate is looking closely
at that also.
Representative Hawker pointed out the amount of regulatory
authority needed and was concerned with about the amount of
time essential to create regulations.
3:23:32 PM
Ms. Wilson pointed out that the bill specifically address
asset credits i.e. capitalization. She noted on that issue,
the Department believes that to the extend the ordinary and
necessary, if there are transactions occurring that generate
a price over fair market value, it would not be ordinary,
necessary or direct. She agreed that there could be
language added to tighten it.
3:24:53 PM
Mr. Mintz advised, there is a need for extensive regulation
implementation. One of the provisions of the bill provides
authority to the Department of Revenue to provide
retroactive regulations. Representative Hawker worried
about "retroactive regulations".
Representative Weyhrauch inquired if the Legislature would
have to authorize retroactive regulations by statute. Mr.
Mintz said it is important for the Legislature to
specifically authorize that. The Administrative Procedures
Act recognizes two types of regulations:
· Legislative regulations and
· Interpretative regulations.
3:27:49 PM
Mr. Mintz highlighted Page 27, AS 43.55.024(b), which
addresses that a producer may elect to take a tax credit of
20% of a carried-forward annual loss, which is the amount of
a previous year's lease expenditures that were not
deductible because they would have reduced the net value of
the oil and gas below zero.
Mr. Mintz explained that on Page 28, a producer entitled to
a tax credit might apply to the Department of Revenue for a
transferable tax credit certificate. Once issued, the
certificate may be used for its face value, but a transferee
may not apply for a certificate to reduce its tax liability
by more than 20% during a calendar year.
3:32:10 PM
Representative Hawker inquired if the intent was to be
limited to producers only. He thought that the explorers
should be included in the provisions. Mr. Mintz replied
that was correct and true in the original bill. It would
only matter to an explorer that is not also a producer.
Representative Hawker pointed out that it is language found
in the original bill, not the committee substitute.
Ms. Wilson informed members that there are two parts of the
bill indicating purposes of that section and that an
"explorer" is considered a producer. It is already taken
care of.
3:36:57 PM
Mr. Mintz referred to Page 29, Section 14, AS 43.55.024(f),
the Department of Revenue shall issue a cash refund for a
transferable tax credit certificate if:
· Producer's total refunds in calendar year do not exceed
$10 million dollars;
· Producer invests or buys an oil and gas lease for at
least the amount of the refund;
· Producer owes no delinquent taxes.
Mr. Mintz explained Page 30, Section 28, AS 43.55.170-
Additional nontransferable credits. Up to $12 million
dollars in a calendar year may be taken as a tax credit if
taken under AS 43.55.024 or 43.55.025 for the same
expenditure.
· Unused credit may not be carried forward or
transferred;
· The provision expires April 1, 2016
3:40:24 PM
Representative Weyhrauch referenced Page 29, Section 14,
regarding issuance of the tax credit by the Department. He
asked if the intent was that no credit be paid if it were in
dispute. Mr. Mintz replied that would depend on the
definition of "delinquent". He offered to check the
statute.
Mr. Dickinson added that the policy call requested by the
Department is if there is an amount legally owed, no checks
would be issued until it was resolved.
Representative Hawker followed up regarding provisions for
refunding the credit; he wondered about the terminology of
an investigative audit. He questioned if accepting the
audit would compromise the State's ability to provide other
audits.
3:43:54 PM
Ms. Wilson mentioned the production audits the State
provides. Mr. Dickinson added if there was an ongoing
income tax audit, a person would not hold up the issuance or
refunding of a credit if there was no delinquency.
Representative Hawker asked if the State had the human
resources to actually investigate the claims. Ms. Wilson
affirmed that the fiscal note would provide sufficient
support.
Mr. Mintz added that the State is not precluded from future
audits as long as the statute of limitation has not run out.
3:45:45 PM
Mr. Mintz pointed out that Page 31, AS 43.55.170(b), the
producer's qualification for the additional nontransferable
credit. It is an anti-splitting provision to prevent abuse
of the $12 million dollar per producer credit. It is
essential that the same anti-splitting provision is in
Section 21 of the original bill, for the $73 million dollar
per producer allowance.
3:48:01 PM
Page 32 - the original bill allowed a credit to be taken for
conservation surcharge payments and the committee substitute
does not, but reduces Section 201 surcharge from $.02 to
$.01 per barrel and increases Section 300 surcharge from
$.03 to $.04 per barrel.
3:49:30 PM
Mr. Mintz discussed Page 34, Section 7, 90% of the
production tax, net credits, is due each month. The
st
remainder is due March 31 of the next calendar year.
Mr. Mintz observed that 100% of the total production tax,
net credits are due each month. Payment of less than 90% of
the total tax due triggers an automatic 5% penalty on the
deficiency.
3:51:31 PM
Representative Weyhrauch referred to Page 35, addressing
payment of less than 90% without facing a penalty. Mr.
Mintz stated that anytime there is an underpayment, it
automatically triggers an interest obligation.
3:52:57 PM
Representative Hawker clarified that in the original
version, every month, 90% of the estimated amount of the
obligation would be paid; the last 10% would be paid at the
end of the calendar year and that the final report would be
st
due on March 31. Ms. Wilson agreed.
Representative Hawker said that the committee substitute
indicates they would pay every month, 100% of the
obligation. He mentioned the penalty provision.
3:55:33 PM
Ms. Wilson agreed, pointing out the offset; she requested
that Mr. Mintz add further clarification.
3:55:53 PM
Representative Hawker reiterated his concerns, noting he was
worried that it would require the State to audit on a
monthly cycle. Ms. Wilson understood that there would be
monthly returns and when an audit occurs for the production
tax, that information is considered discrete and the returns
are audited monthly.
Mr. Dickinson stated that the production tax currently does
not have a 90% repay; it is due monthly. Representative
Hawker commented that is a policy call.
3:57:52 PM
Representative Holm asked why the interest rate was tied to
a fixed number; in normal circumstances, it is prime + a
number. Mr. Dickinson replied that they do that and add a
floor of 11%; interest rates in the early '80's were above
11%, the federal discount rate number used, San Francisco
plus 5%.
3:59:05 PM
Mr. Mintz referenced "safe-harbors" providing a monthly
calculation and tax and has the option of annualizing the
lease expenditures over the course of a calendar year. The
language provides the option of deducting 1/12 of the annual
expenditures versus the monthly expenditure.
4:00:31 PM
Mr. Mintz referenced Page 36, which addresses the royalty
share. The producer may deduct from royalty the amount of
the tax paid on taxable royalty oil and gas.
· The original bill provides a default formula for
allocating the 20% tax on net value to the royalty
share.
· The committee substitute provides a slightly different
formula for allocating the 20% tax on net value to the
non-lesser royalty share.
Mr. Mintz informed members that the remainder of the handout
illustrates the steps used in determining the tax
calculations.
4:03:22 PM
He continued, Page 38, AS 43.55.150, AS 43.55.900, itemizes
the gross value of oil in the State. Oil should be kept
separate from gas. The numbers provide the total statewide
gross value of producer's oil.
4:04:09 PM
Page 39, AS 43.55.150, AS 43.55.900, highlights the gross
value of total gas statewide, value of producer's gas.
Page 40, AS 43.55.150, AS 43.55.900, provides a calculation
of the gross value of oil and gas and the total statewide
gross value of producer's oil and gas.
Page 41, AS 43.55.160(b)-(f) highlights the lease
expenditures, which provide the:
· Exploration, development & production costs
· Adjusted lease expenditures
· Deductible lease expenditures
Mr. Mintz continued, Page 42, AS 43.55.160(a), provides the
production tax value including the total gross value of oil
and gas leading to the production tax value of oil and gas
including the progressive rate tax on gross value and lease
expenditures.
4:06:29 PM
Page 43, AS 43.55.170, highlights Nontransferable Credits,
including qualified producer, qualified capital expenditures
with credit amounts, and credit up to $12 million dollars.
Mr. Mintz continued, Page 44, Section 024, Tax Credits, AS
43.55.024(a)&(b) highlights excess lease expenditures in a
calendar year carried forward, the annual loss credit,
qualified capital expenditures, and the qualified capital
expenditure credit.
4:08:41 PM
Page 45, Transferable Tax-credit Certificates, AS
43.55.024(d)-(g). The page summarizes the producer's tax
credit application to the Department of Revenue and approval
from that Department, leading to the transferable tax credit
certificate.
4:09:32 PM
Mr. Mintz pointed out Page 46, Tax Calculations, AS
43.55.011(a), 43.55.024, 43.55.025, and 43.55.170. These
sections indicate production tax value of oil and gas at the
20% tax before credit, minus the producer's own credit by
subtracting up to 20% of the remainder of the tax and then
determining the payable tax.
4:10:45 PM
Page 47, Tax Calculations, AS 43.55.011(f)-(h) highlights
the chart providing the additional taxes payable. The tax
is deductible from the gross value.
Page 48, Tax Calculation, as 43.55.011(i)-(k), demonstrates
the same calculation for the tax rate based on the
percentage index providing the tax payable.
Page 49, Tax Calculation, AS 43.55.011(e), speaks to the
gross value at the point of production of the lessor's
royalty share of oil and gas multiplied by 5%, creating the
tax payable.
Mr. Mintz concluded with the presentation, addressing Page
50, Tax Payment, AS 43.55.020(a), (g), and (h).
· (a)-Tax payable under AS 43.55.011(a)
· (e)-Tax payable under AS 43.55.011(e)
· (f)-Tax payable under AS 43.55.011(f)
· (i)-Tax payable under AS 43.55.011(i)
· This total would be due at the end of the following
month.
4:13:36 PM
Co-Chair Chenault referenced Page 48 and asked how that tax
rate would apply to Cook Inlet. Mr. Mintz replied it
applies to the total statewide gross value of the producer's
gas, including Cook Inlet.
Mr. Dickinson noted that Cook Inlet prices are usually not
as high as the Henry Hub area. There is only one contract
tied to it. He thought that the averages fell below Henry
Hub. The point is that it applies to the lower price
contracts even if they are triggered by payment, then it
would apply on the gross value.
4:15:56 PM
Representative Holm asked if the 5% penalty was compounded
annually. Ms. Wilson explained, it is a "one time penalty",
specific to that month. The general penalty provisions do
apply but does have an offset.
4:16:37 PM
Ms. Wilson reviewed the fiscal note dated 3/25/06. She
referenced Page 3 of the note, which provides three price
assumptions, the first based on the Department of Revenue's
forecast. The second was based on a medium price of $40
dollars per barrel; the third, based on a high price
scenario @ $60 dollars per barrel. Modeling corrections
have been made to the original fiscal note, which indicate
the recalculation of effects of the corporate income tax.
That information is separately shown in columns 4 & 5, on
Page 3.
Ms. Wilson continued, Page 4 of the fiscal note, indicates
the spring forecast of production and price. Columns 6, 7,
and 8 apply the spring forecast. The last three columns
show all changes made to the proposed committee substitute.
4:20:12 PM
A detail analysis and assumptions are explained on Page 2 of
the fiscal note. Overall, the Department is requesting
three auditor positions with a net increase of six auditors.
In addition, the contractual expenses are included for
writing the regulations, with numbers summarized on Page 1.
4:22:22 PM
Co-Chair Chenault inquired if the three unfilled requested
positions were current departmental positions. Ms. Wilson
explained there would be three new auditor positions added.
4:23:01 PM
Representative Joule asked if the three new requested audit
positions would give a total of six for the Department. Ms.
Wilson stated that currently, the Department has three
vacant positions and if the bill passes, those would be
filled, with the addition of the three vacant positions, a
total new hire of six positions.
4:23:55 PM
Representative Joule inquired if the fiscal request
represented the number of auditors needed. Ms. Wilson
replied it was part of the request and that passage of the
legislation clearly requires new audit positions.
Representative Joule questioned the Department about the
auditing procedures for these companies. He thought it
would not be good "self-policing".
Mr. Dickinson commented that the Department has attempted to
establish a standard, regarding as long as the operating
agreements do not change, there will be cost obligations to
address those concerns and the State is obligated under
statute to do just that.
4:26:31 PM
Representative Kelly agreed with Representative Joule.
4:27:02 PM
Co-Chair Chenault questioned if the three unfilled positions
had been funded positions for the Department. Ms. Wilson
responded they were funded positions.
4:27:44 PM
Representative Hawker advised that there is a bill currently
in the House Finance Committee addressing funding of
unfilled positions. He added that the salary ranges for the
State's audit positions are not competitive. The State
needs to put out a competitive salary; he urged that the
Legislature "step up to the plate" to address such concerns.
Co-Chair Chenault commented that the State could get some
auditors cheaper.
4:28:50 PM
HB 488 was HELD in Committee for further consideration.
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