Legislature(1993 - 1994)

05/14/1994 09:00 AM JUD

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
  SB 377 - STATE AGENCY FISCAL PROCEDURES                                      
  CHAIRMAN VEZEY called the House State Affairs Committee to                   
  order at 9:00 a.m. on Saturday, May 14, 1994, convened                       
  jointly with the House Oil & Gas Committee and the House                     
  Judiciary Committee.  Chairman Vezey said, "The subject                      
  before us is SB 377.  I'd like to go back and clear up one                   
  thing on the record, I know that Attorney General, Bruce                     
  Botelho, is with us this morning and Mr. Botelho, you might                  
  could help us here - there is some confusion on the record                   
  as to the address of Mr. Spencer Hosie."                                     
  ATTORNEY GENERAL, BRUCE BOTELHO:  "He is the contract                        
  attorney from San Francisco.  (Undiscernible) Alaska Bar                     
  formerly of Anchorage."                                                      
  CHAIRMAN VEZEY:  "Do we have an address we can use for him?"                 
  MR. BOTELHO:  "Mr. Chairman, I would expect that he would be                 
  here real shortly.  In fact, he's walking in                                 
  CHAIRMAN VEZEY:  "Mr. Hosie, we're trying to clean up a                      
  little detail.  Our transcribing secretary would like to                     
  have an address for you, if possible."                                       
  MR. SPENCER HOSIE:  "510 L Street, Anchorage, Alaska 99501."                 
  CHAIRMAN VEZEY:  "Thank you, very much.  Next on our witness                 
  list I'd like to call Mr. Paul Wessells with BP.  Mr.                        
  Wessells, do you have a statement you'd like to give us or                   
  you just want to take questions, or.."                                       
  PAUL WESSELLS:  "If I might, I have a statement."                            
  CHAIRMAN VEZEY:  "Please.  If you would state your name, and                 
  I have your address on the witness sign-in sheet, so."                       
  Number 037                                                                   
  MR. WESSELLS:  "Good morning, Chairman Vezey, Chairman                       
  Porter, Chairman Green and members of the committee.  My                     
  name is Paul Wessells and I am Director of Tax, BP                           
  Exploration, Alaska.  I'm hear today to testify on behalf of                 
  BP against the proposed retroactive changes in the statutes                  
  of limitation on assessment and collections, as set forth in                 
  Sections 1 and 2 of Senate Bill 377.  Although, oil and gas                  
  taxes may seem like an obscure subject to most people, the                   
  tax administration system in Alaska, at least on paper, is                   
  not a great deal different from others, including the                        
  federal income tax system.  When it's time to do your taxes,                 
  you read the instruction booklet, you fill out a return,                     
  calculate the tax you owe and then write a check.  As I'm                    
  sure some of you are painfully aware from personal                           
  experience with the IRS, that's usually not the end of the                   
  matter.  It's no different for oil and gas producers here in                 
  Alaska.  The auditors in the Department of Revenue examine                   
  the returns we file, ask for explanations of items in these                  
  returns, and then decide whether the correct amount of tax                   
  has been paid.  If the auditors believe we should have paid                  
  more, they give us a bill for the extra tax and some sort of                 
  explanation of how they calculated the bill.  This bill for                  
  additional tax is called an assessment and demand for                        
  payment.  The IRS uses a different name for the bill they                    
  give you when they finish an audit, but the process leading                  
  up to that bill is essentially the same.  Now just because                   
  you get this bill from the IRS or the Department of Revenue                  
  doesn't mean you owe it.  The auditor might have made a                      
  mistake, either in calculating the bill or interpreting the                  
  rules contained in the tax statutes and regulations.                         
  Whatever the nature of the mistake in an assessment,                         
  taxpayers have the right to ask the state and the IRS to                     
  correct the error.  The way a taxpayer asks a correction is                  
  by filing an appeal.  In Alaska, taxpayers usually start the                 
  error correction process by asking for an informal                           
  conference with a Department of Revenue employee.  If all                    
  the errors are not corrected, the taxpayer can request a                     
  formal hearing, presided over by a hearing officer, who is                   
  also a Department of Revenue employee.  After the formal                     
  hearing, the department's hearing officer writes a decision.                 
  The Commissioner of Revenue then reviews that decision.  If                  
  the commissioner approves the decision, it is formally                       
  issued and becomes the official position of the department                   
  on the matter.  At that stage, the taxpayer has 30 days to                   
  appeal that decision to court.  In a nutshell, that's how                    
  the tax audit and appeal system or process works within the                  
  Department of Revenue in Alaska.                                             
  "So how do the statute of limitations fit into this?  Well,                  
  their rules are there to regulate the audit and appeal                       
  process.   Simply put, they give the department three years                  
  from the filing of a tax return to audit it and send the                     
  taxpayer the bill for additional tax that the auditor thinks                 
  should have been paid, and then an additional six years to                   
  get the claim into court for collection.  If the department                  
  doesn't send the bill within the three year period, it can                   
  never claim and collect any additional tax from the                          
  taxpayer.  We're talking about additional tax here.  The                     
  same rule applies to your federal taxes.  If you haven't                     
  heard from the IRS within three years after April 15, you                    
  can throw your records away.  You won't be needing them,                     
  because they won't ever be able to send you a bill for an                    
  extra tax for that year.  Here in Alaska, the six-year                       
  statute is satisfied if within the six years the department                  
  considers and decides a tax appeal and the appeal gets into                  
  court.  In other words, when the appeal gets to court, it                    
  becomes a judicial proceeding of the type that the six-year                  
  statute talks about.  What this means is that if the                         
  Commissioner of Revenue does not make a final administrative                 
  determination of a taxpayer's appeal before the six year                     
  period runs out, the state can't collect the bill.  So it's                  
  three years to audit and six years to collect.  Nine years                   
  "Now I'd like to talk about how Senate Bill 377 would change                 
  these rules.  The amendment contained in Section 1 would                     
  change the three-year audit statute so that even after the                   
  three years are up, the auditors can raise new and unrelated                 
  issues and increase their claims without limit for more tax                  
  at any time, so long as the department has not finished its                  
  consideration of the appeal and issued its formal hearing                    
  decision.  Section 2 of Senate Bill 377 would change the                     
  six-year statute so that the clock for the six years isn't                   
  running while the tax assessment is being appealed within                    
  the Department of Revenue or in court.  This doesn't sound                   
  like a big deal, until you stop and think about what it                      
  really means.  The six-year statute currently sets a time                    
  limit on how slowly the department can consider and decide a                 
  tax appeal.  It has to get its work done on the appeal in                    
  six years.  But under the administration's proposal, the six                 
  year clock won't be running while the department considers                   
  the appeal.  So the department will, under this legislation,                 
  be free to take as many years as it wants to, to make a                      
  final decision.  And under the change proposed to the three-                 
  year statute, at any point during all that time while the                    
  department has the appeal, it can change its mind about what                 
  the tax laws meant years earlier when the taxpayer                           
  originally filed its return.  Can you imagine what you would                 
  think if after an IRS audit, you got a bill for an                           
  additional $1,000.  You filed an appeal explaining why you                   
  didn't think you owed it, and then heard nothing from the                    
  IRS about the disposition of your appeal until nine years                    
  later, at which time you get a bill for an additional $2,000                 
  with an explanation that the IRS has come up with a new                      
  interpretation of the same rules.  And, of course, the                       
  $3,000 has 12 years of interest added to it.  Well after you                 
  managed to calm down, if that were possible, you'd probably                  
  think that something was terribly wrong with the U.S. tax                    
  system.  Now you probably think I have a pretty vivid                        
  imagination to come up with a story like that.  Let me                       
  assure you, that except for the amount of tax, this story is                 
  true and it happened to BP, right here in Alaska.  This                      
  changing of the department's mind during the course of an                    
  extended tax appeal is one of the most troubling problems                    
  Alaska has with its present tax system.  And because of tax                  
  confidentiality, it is one of the most difficult to explain                  
  to the public with real life examples.  In effect, this                      
  institutionalized revision makes it impossible for a                         
  taxpayer to know what the correct amount of tax is when it                   
  files its return and its time to pay.  It's absolutely                       
  "The proposed amendments to the statutes of limitation that                  
  you are being asked to enact in this special session would                   
  ratify this course of conduct.  Even if this is legal, and                   
  we don't think it is, is it a sensible tax policy?                           
  Apparently the administration does not think so, that's why                  
  their proposal for the future is a rule that gives the                       
  department five years to audit and make its claim for more                   
  tax, and after that tax claim, that claim cannot be                          
  increased after the five years.  Well then I must ask you,                   
  if the amendment to the three-year statute that is being                     
  proposed to deal with years before 94 is not good policy for                 
  the future, why is it fit for the past?                                      
  "Now I'd like to say a few words about our efforts; that is                  
  BP's efforts, in recent weeks to find a compromise on this                   
  legislation.  We've had a number of discussions with the                     
  attorney general, in an effort to find the middle ground.                    
  As you know from the letter you received from our President,                 
  John Morgan, we offered not to claim the six-year collection                 
  statute as a defense in consideration for the administration                 
  dropping its insistence on retroactivity.  We also supported                 
  legislation that would adopt royalty settlement values as a                  
  basis for tax valuation.  The administration rejected these                  
  overtures.  During our several discussions with them, it has                 
  become very clear to us that withdrawing support                             
  retroactivity, especially with regard to the three year                      
  limit on assessments, is an idea that they will not accept.                  
  As you all know from Mr. Sullivan's testimony yesterday, the                 
  Supreme Court is scheduled to hear a case next week that                     
  will determine the proper interpretation of the three year                   
  limit on assessments.  We had hoped that the administration                  
  would conclude that our offer not to claim the six-year                      
  statute would avoid the prospect of amounts being quote                      
  `taken off the table' closed quote, in negotiations and that                 
  a proper judicial determination of the meaning of the three-                 
  year statute would be satisfactory.  BP is prepared to live                  
  by whatever the court decides.  Why isn't the                                
  administration?   Is it concerned that the state might not                   
  prevail?  That is the problem, the message for business in                   
  Alaska is pretty ominous and that is; if the state wants                     
  your money bad enough it will do anything, even change its                   
  laws retroactively in order to get it.  In addition to being                 
  bad policy for the state by sending a very clear stay away                   
  message to investors, SB 377 won't even deliver as                           
  advertised; that is, as a catalyst to settlement of these                    
  old tax claims.  It only adds another procedural twist that                  
  both sides' litigation teams will spar over.  And it won't                   
  save the alleged $3 billion of back taxes from falling off                   
  the table.  Either it is already fallen, or the present law                  
  keeps it from falling off the table.   Thanks for this                       
  opportunity to testify.  I'd  be happy to answer any                         
  questions you might have."                                                   
  Number 260                                                                   
  CHAIRMAN VEZEY:  "Thank you, Mr. Wessells.  Is it, from your                 
  testimony, that your opinion that either the purpose,                        
  objective or effect of this legislation is to influence the                  
  court decision."                                                             
  MR. WESSELLS:  "Mr. Chairman, I listened to the testimony                    
  yesterday and there was a lot about the court decision and                   
  how this legislation might interact with it or how it might                  
  be effected, or might affect the decision, I can't really                    
  answer the question of what the motivation is here.  But you                 
  know, it seems very odd to me that we're here and we spent                   
  all this time talking about this legislation when, indeed,                   
  that is the issue before the court.  At least, on the three-                 
  year statute.  There's been quite a lot of testimony on both                 
  sides about whether this interpretation of the three-year                    
  statute that is going to be before the court, has been, or                   
  the position that is being taken in this legislation, is                     
  longstanding policy in the Department of Revenue.  There's                   
  been  quite a lot of testimony on that and based on what                     
  I've heard, it sounds to me like longstanding can only mean                  
  from 1989 forward and I think, that as far as this process                   
  that we're going through in trying to determine, you're                      
  trying to determine, whether this legislation makes any                      
  sense, you're really being asked to make a finding of                        
  whether this policy was legitimate.  That's really the issue                 
  that is before the court.  When they find it, if they're                     
  allowed to, then it will be the law of the state and no one                  
  will question it, including us.  If you do so, it'll still                   
  be an open question."                                                        
  CHAIRMAN VEZEY:  "Thank you.  Are there questions?                           
  Representative Sitton."                                                      
  Number 293                                                                   
  REPRESENTATIVE JOE SITTON:  "Mr. Chairman, if Mr. Wessells'                  
  has it, I'd appreciate a copy of his remarks.  Do you have a                 
  printed copy?"                                                               
  MR. WESSELLS:  "I do not have it with me, but I will have                    
  one made and get it to you very soon."                                       
  CHAIRMAN VEZEY:  "If you could transmit a copy to the                        
  committee aide, why we can ...."                                             
  MR. WESSELLS:  "I'd be happy to."                                            
  CHAIRMAN VEZEY:  "Yes, Representative Bunde."                                
  Number 298                                                                   
  REPRESENTATIVE CON BUNDE:  "Thank you, Mr. Chairman.  Could                  
  I infer from your remarks that it's an open question that if                 
  we don't allow the courts to settle it now, it will be back                  
  in court again?"                                                             
  MR. WESSELLS:  "Well, I think there's a serious question                     
  about the constitutionality or would be a serious question                   
  about the constitutionality of a law of this sort that                       
  reaches back 18 years and substantially affects the                          
  expectations and rights of people that have been developed                   
  or held over that period of time.  I suspect some taxpayer                   
  is going to challenge that."                                                 
  CHAIRMAN VEZEY:  "Representative Porter."                                    
  REPRESENTATIVE BRIAN PORTER:  "Thank you.  Mr. Wessells, I                   
  understand your position on if Section 1 were in place, that                 
  the affect of that would make Section 2 a forever situation.                 
  But if Section 1 were not in place, would it be your                         
  impression that Section 2, basically represents the state of                 
  the case law now?"                                                           
  MR. WESSELLS:  "Well, there is a decision in Superior Court,                 
  the Tesoro case, bearing on Section 2.  That is a decision                   
  of the Superior Court.  There has not been a decision in the                 
  Supreme Court, so I think that's still an open question."                    
  REPRESENTATIVE PORTER:  "One more, if I may, Mr. Chairman.                   
  You mentioned early on in your testimony something that I                    
  quite frankly haven't gotten absolutely clear in my mind.                    
  Without any proprietary information, is it your impression                   
  that generally, all of these claims are claims that the                      
  problem with them or the case in court, for example,                         
  represents a desire not to accept assessments that were made                 
  after the three year period, but that claims have been made                  
  on all oil produced, it's just the increased additional                      
  claims on the same oil that is in dispute."                                  
  MR. WESSELLS:  "I'm not aware of any, I can tell you that we                 
  have, there are no taxable years that are in question for BP                 
  here, in which there would be no liability for additional                    
  claims because of the three-year statute of limitations.  It                 
  is - the issues that we have are with respect to additional                  
  assessments that have been made after that period of time."                  
  REPRESENTATIVE PORTER:  "Thank you."                                         
  CHAIRMAN VEZEY:  "Further questions?  Representative                         
  REPRESENTATIVE CLIFF DAVIDSON:  "Thank you, Chairman Vezey.                  
  I'm sorry, sir, I did not get your name."                                    
  MR. WESSELLS:  "Wessells."                                                   
  REPRESENTATIVE DAVIDSON:  "Mr. Wessells, good English name,                  
  MR. WESSELLS:  "Dutch, actually."                                            
  REPRESENTATIVE DAVIDSON:  "I'm sorry.  Mr. Wessells, the                     
  negotiations about which you spoke, who were all the parties                 
  involved in those negotiations?"                                             
  MR. WESSELLS:  "The negotiations, you mean the conferences                   
  that we've had with the administration concerning this                       
  REPRESENTATIVE DAVIDSON:  "The ones that you mention in your                 
  discussion there.  In your written statement, you talked                     
  about negotiations.  Who were all the parties represented in                 
  MR. WESSELLS:  "I don't recall, Mr. Chairman, mentioning any                 
  negotiations.  I did mention, though, that we did have                       
  conferences with members of the administration concerning                    
  attempts to reach a middle ground on this legislation and                    
  the discussion that I had, and the president of the company                  
  had, was with the attorney general."                                         
  REPRESENTATIVE DAVIDSON:  "Were there, was there legislative                 
  involvement in those negotiations?"                                          
  CHAIRMAN VEZEY:  "Representative Davidson, for clarity, I                    
  think we're all aware that there have been negotiations                      
  going on between the administration and the taxpayers."                      
  REPRESENTATIVE DAVIDSON:  "Are you attempting to...."                        
  CHAIRMAN VEZEY:  "Representative Davidson."                                  
  REPRESENTATIVE DAVIDSON:  "...what's in the record, Mr.                      
  CHAIRMAN VEZEY:  "Representative Davidson, you're out of                     
  order.  Representative Davidson, we are aware that                           
  negotiations are going on.  Those negotiations are                           
  privileged information regarding litigation.  It would not                   
  be appropriate to try to interject the content of those                      
  negotiations into this meeting."                                             
  REPRESENTATIVE DAVIDSON:  "All I'm trying to establish, Mr.                  
  Chairman, is the fact that apparently there was legislative                  
  involvement in those negotiations.  The content is of no                     
  consequence, to me, in making the point for the record."                     
  CHAIRMAN VEZEY:  "I think you're going too far,                              
  Representative Davidson.  You're out of order.  You may ask                  
  if they're in negotiations, that's as far as you can go."                    
  REPRESENTATIVE DAVIDSON:  "Are there negotiations with                       
  legislative parties?"                                                        
  Number 373                                                                   
  MR. WESSELLS:  "Mr. Chairman, I'm not sure I understand the                  
  question in terms of what negotiations we're referring to                    
  here.  I've said we did have discussions concerning the                      
  proposed legislation, not only with members of the                           
  legislature, but also with the attorney general."                            
  CHAIRMAN VEZEY:  "Representative Davidson will have to                       
  clarify his questions because negotiation is a broad term."                  
  REPRESENTATIVE DAVIDSON:  "Well, Mr. Chairman, I don't want                  
  to go against your ruling, so what I'll do is move onto my                   
  second question, if I may."                                                  
  CHAIRMAN  VEZEY:  "Please."                                                  
  REPRESENTATIVE DAVIDSON:  "You raised the specter of                         
  constitutional issues.  What are those constitutional                        
  MR. WESSELLS:  "The issue in this case would be if this                      
  legislation were passed, whether a bill or a law                             
  retroactively affecting rights of taxpayers for a period of                  
  18 years would be constitutional."                                           
  REPRESENTATIVE DAVIDSON:  "So does that involve the right of                 
  due process, is that what you're talking about?"                             
  MR. WESSELLS:  "That would be one issue, I would suppose,                    
  REPRESENTATIVE DAVIDSON:  "On that supposition, Mr.                          
  Wessells, it is my understanding and it's footnote 3 on page                 
  8 of the court opinion, the Superior Court judge indicates                   
  that the court finds no merit in these constitutional                        
  arguments, so how do you respond to that?"                                   
  MR. WESSELLS:  "Well, I would say that we're only                            
  speculating about a case in the future that might occur.                     
  That would only occur if this legislation were passed, and                   
  there hasn't been any ruling in  the state of Alaska, that                   
  I'm aware of, of this sort on legislation of this sort."                     
  REPRESENTATIVE DAVIDSON:  "I have another line of                            
  questioning, Mr. Chairman.  Thank you.  You've talked - you                  
  gave the fantastic story about the IRS, it was a good one.                   
  Let me ask, if in fact what would be the position of your                    
  company if, at the end of those nine years, there was new                    
  information or new discoveries made that resulted in say,                    
  tens of millions of dollars or maybe even hundreds of                        
  millions of dollars going back to your company, would you                    
  then think that it was a travesty or would your company take                 
  that money?"                                                                 
  MR. WESSELLS:  "Mr. Chairman, I think the question is                        
  whether, if the Department of Revenue during the course of                   
  an audit or appeals process disclosed a new position or had                  
  a new interpretation of the law, or indeed, new facts came                   
  to light, which I think was the point, whether in a                          
  circumstance where the statute of limitations on assessments                 
  had actually run out, whether I would think that that was a                  
  travesty.  Well, it's a value judgment on whether it's a                     
  travesty or not, is one matter.  What the law is, is what                    
  really counts.  And if the law says that those claims could                  
  not be made, then we have to comply with the law."                           
  REPRESENTATIVE DAVIDSON:  "What is your company's, Mr.                       
  Wessells, what is your company's understanding of, when the                  
  SOL clock starts regards new information that is discovered                  
  in the course of the appeals process, initiated by                           
  MR. WESSELLS:  "The only information that would, I think the                 
  only information that came - that would come to light or                     
  might come to light in the course of the appeals process                     
  that would allow the statute of limitations to continue to                   
  be opened would be some finding or evidence of fraud."                       
  REPRESENTATIVE DAVIDSON:  "Well, I understand there's two                    
  other things, but you didn't get to my question in the way                   
  that I thought you would.  Does this mean then, that when,                   
  you call it new interpretation, I would say it also involves                 
  a new understanding of the materials that you have presented                 
  in your tax return.  Are you saying that a new understanding                 
  which results in the amount that goes back and forth between                 
  the parties goes either way, that there should not be a new                  
  billing offered?"                                                            
  MR. WESSELLS:  "Mr. Chairman, I think that the best way I                    
  can answer that is that to try to respond to what I think is                 
  the policy in the statute of limitations.  And it is to seek                 
  closure in the debate over a tax liability.  Certainly new                   
  understandings of the existing facts could occur 20 years                    
  after the fact - at any time, after the return is filed.  I                  
  think that there is a policy though in this statute of                       
  limitations that says at some point, the parties have to cut                 
  to the chase, decide what the bill is, and argue that out.                   
  And that's the end of the matter.  That's the way I feel                     
  about it and I think that was the intention in the statute                   
  and the policy behind it."                                                   
  Number  451                                                                  
  REPRESENTATIVE DAVIDSON:  "So, then if I understand you                      
  correctly, it is your position that the appeals process does                 
  not suspend the statute of limitations clock."                               
  MR. WESSELLS:  "That's correct.  The three-year statute of                   
  limitations, that is correct.  The only thing that suspends                  
  it is a finding of fraud or an agreement."                                   
  REPRESENTATIVE DAVIDSON:  "Well, Mr. Chairman, I have                        
  additional questions that regards the negotiations, but I'm                  
  sure that you wouldn't permit them, so I'll close at that."                  
  CHAIRMAN VEZEY:  "Representative Davidson, you're not clear                  
  on which negotiation you're referring to.  If you're                         
  referring to settlement negotiations, those are a matter of                  
  attorney-client privilege and not a proper subject for this                  
  hearing.  If there's some other negotiation you're referring                 
  to, please be specific."                                                     
  REPRESENTATIVE DAVIDSON:  "Ah, I am referring to                             
  negotiations that should, in view, I think, of the                           
  overwhelming amount of the public sentiment, be at least,                    
  discussed in a public forum."                                                
  CHAIRMAN VEZEY:  "I'm sorry, that's not our privilege.  We                   
  can't make that determination here."                                         
  REPRESENTATIVE DAVIDSON:  "All I was trying to do is to, at                  
  least for purposes of establishing on the record, that who                   
  is it that should be involved in these negotiations.  It                     
  seems that we've got some confusion as to who's negotiating                  
  what for whom and I'm trying to understand, Mr. Chairman,                    
  are there legal breaches, are there things that we should be                 
  examining as public servants, serving the public interest,                   
  that we can't get to because of attorney-client privilege                    
  and thereby exclude some kind of legislative closure to                      
  those negotiations.  I understand it's a very difficult                      
  thing, and I appreciate your generous offer to give me                       
  CHAIRMAN VEZEY:  "Representative Davidson, as legislators we                 
  need to, more than most people, respect the issue of                         
  separation of powers and it is not our place to interject                    
  ourselves into the court system and their process."                          
  REPRESENTATIVE DAVIDSON:  "Well stated."                                     
  CHAIRMAN VEZEY:  "Further questions of Mr. Wessells before                   
  we start going through the bill section by section?"                         
  REPRESENTATIVE DAVIS:  "Mr. Chairman."                                       
  CHAIRMAN VEZEY:  "Representative Davis."                                     
  Number 482                                                                   
  REPRESENTATIVE GARY DAVIS:  "Thank you.  Mr. Wessells, in                    
  practical terms, due to the complexities of the audits of                    
  this, you indicated that, you know, the policy should be to                  
  reach closure.  Should that not be there, because of the                     
  complexities, you could probably go on forever changing                      
  numbers and looking at codes, and looking at issues, and                     
  chasing down a barrel of oil, or, isn't that true, if there                  
  isn't a policy of some closure, a statute of limitations                     
  number that should probably come up as - could be almost                     
  MR. WESSELLS:  "I would agree with that.  I think that is                    
  why I emphasized earlier, I think that, different                            
  jurisdictions, different states, will have different means                   
  of effecting that, either in the policies or the laws                        
  affecting what their departments of revenue do during the                    
  course of hearing a taxpayer's appeal.  It happens that in                   
  Alaska, there is an awful lot of latitude that the                           
  department has, and the commissioner has, in reaching a                      
  final determination in the scheduling of that - has a lot of                 
  authority in terms of setting the schedule - how long it                     
  takes and so forth.  And the statute here in this case kind                  
  of sets an outer limit to that.  It's a statute that can be                  
  extended, by the way, of course by mutual consent, so it's                   
  not draconian in the sense that it forces the administration                 
  or, excuse me, the commissioner to not have enough                           
  (indiscernible).  And, of course, the commissioner always                    
  has the ability to levy a jeopardy assessment, if time is                    
  running short and the taxpayer is not cooperative in terms                   
  of giving time.   So, I would agree that some sort of limit                  
  on the process is necessary, not only for the taxpayers; it                  
  is necessary for the state, as well.  You have a situation                   
  where you get to open tax years that stretch for over 15                     
  years, you as the people that figure out how to run this                     
  state, are not sure at all, because of, as you well know,                    
  what amount of tax is actually going to be collected.  And                   
  it affects the planning, I'm sure it does - it must.  So I                   
  think it's in everybody's interest to have a closure on                      
  these matters."                                                              
  REPRESENTATIVE G. DAVIS:  "Mr. Chairman, if I might."                        
  CHAIRMAN VEZEY:  "Please, Mr. Davis, Representative Davis."                  
  REPRESENTATIVE DAVIS:  "Mr. Wessells, has it been BP's                       
  policy to agree to extend the three years?"                                  
  MR. WESSELLS:  "Yes.  I have not been in Alaska for this                     
  whole period of time and I've not been engaged in these                      
  matters before - directly before 1992, but we did a rough                    
  reconnaissance and found that we had - we knew of 34 times,                  
  at least, that we had extended this three-year statute of                    
  limitations, and we didn't get through all the files.  So,                   
  that is why in John Morgan's letter to the legislature, he                   
  mentioned (indiscernible due to background noise on the                      
  tape).  I'm not aware of a time, any time, that we've been                   
  requested to extend the three-year statute of limitation,                    
  that we denied that request."                                                
  CHAIRMAN VEZEY:  "Representative Sitton."                                    
  REPRESENTATIVE SITTON:  "Mr. Chairman.  And why would you do                 
  that, Mr. Wessells?  Why are you agreeable to all these                      
  extensions all the time?"                                                    
  MR. WESSELLS:  "Well, because we're trying to work with the                  
  Department of Revenue to resolve these issues in a business-                 
  like way.  And we recognize that it does take time to deal                   
  with these very complicated matters.  So, it is in the                       
  interest of both parties, to try to settle these issues in a                 
  sort (indiscernible)  way, rather than to have a face-off in                 
  a litigation over every single item that might arise as an                   
  issue in a tax return."                                                      
  CHAIRMAN VEZEY:  "Representative John Davies."                               
  Number 537                                                                   
  REPRESENTATIVE DAVIES:  "Thank you.  Mr. Chair, I apologize                  
  for being late this morning and if this question has been                    
  asked, I beg the indulgence of the members here, but one of                  
  the issues that you've raised here is the one of closure,                    
  you know and some sort of end to the process, and I just                     
  wonder if you would comment on the route that's available to                 
  you through the formal hearing process and being able to                     
  close off the process that way.  You know, assuming that - I                 
  guess I'm a little confused too, maybe you could preface                     
  that with an answer to another related question which is,                    
  if, as is the case, and I've no doubt to believe that's it's                 
  true, that every time the state is asking for an extension,                  
  you have, and we had substantially similar testimony from                    
  Exxon - the representative from Exxon yesterday, why are we                  
  arguing about the statute then, if every single time the                     
  state asks you for an extension, you extend it, then what                    
  are we doing here?"                                                          
  MR. WESSELLS:  "Two questions.  I'll answer them in order.                   
  As far as the choice of formal hearing or formal conference                  
  as a methodology for drawing closure, first of all let me                    
  say that's it not clear in every instance that that will                     
  indeed draw closure to the administrative process.   We                      
  heard Mr. Sullivan of Exxon yesterday related to us a story                  
  about a formal conference decision that was, at least                        
  initially, approved by the commissioner that was remanded to                 
  the division - the audit division - for computations and                     
  findings, that is still open as far as I know, so it - or at                 
  least I was left with that impression.  So, because you                      
  choose that route, doesn't necessary mean that, at least in                  
  that instance, that you get a final determination.  But on a                 
  more, a less legalistic and on a more practical level, BP is                 
  not a very litigious company and our experience in dealing                   
  with, it's not something we prefer to do, it's quite                         
  expensive - these formal hearings, as we are learning                        
  presently, because we have elected to go through the formal                  
  hearing process, is quite involved in terms of the time it                   
  takes and the cost that's associated with it.  Our                           
  experience has been with other tax jurisdictions, that we've                 
  managed to work out reasonable agreements about tax                          
  liability in a reasonable amount of time.  This is true,                     
  both with the federal tax authorities and with other states.                 
  So, it is not something that 10 years ago we would have                      
  thought was the normal course of events to choose.  Indeed,                  
  I must tell you, that during the last several years of                       
  trying to resolve our tax liabilities with the state of                      
  Alaska, on occasion, we have had at least one employee in                    
  the Department of Revenue - one official - implore us not to                 
  take that route, to continue to discuss these matters on an                  
  informal basis, because it seemed like we were making some                   
  sort of progress toward resolution.  So, I think that the                    
  notion that taxpayers can always draw things to a close and                  
  it's desirable to do so, by electing the formal route is a                   
  notion that is not necessarily in the best interest of both                  
  parties (indiscernible)."                                                    
  REPRESENTATIVE DAVIES:  "Mr. Chairman, may I follow up with                  
  one more."                                                                   
  CHAIRMAN VEZEY:  "Please."                                                   
  REPRESENTATIVE DAVIES:  "One other potential way to close it                 
  off would be to pay the tax that was claimed that was owed                   
  and then to follow up with a refund.  And it's my                            
  understanding, that that does really foreclose the                           
  possibility of the state making further increases, which                     
  seems to be one of the...."                                                  
  MR. WESSELLS:  "Well, I would have thought it would, be                      
  under this, as I read Senate Bill 377, that wouldn't work                    
  either because the statute of limitations on assessments                     
  would be open even during the course of a claim for refund.                  
  So that if you - the only way to really gain closure, if                     
  this were the law, would be to pay the assessment and go                     
  REPRESENTATIVE DAVIES:  "So you read this to say that if the                 
  issue was reopened by filing for the refund, that then the                   
  state could continue to up the assessments even during that                  
  MR. WESSELLS:  "If we look at Section 1 (a) (1), the added                   
  language, however, any time during the administrative                        
  consideration of a taxpayer grievance, or of a claim for                     
  refund, or a claim for credit or refund, what that says to                   
  mean is that I could choose the route that you just                          
  described, pay the assessment, claim it as a refund, and                     
  then get another assessment, because I've reopened the                       
  process by making a claim for refund.  At least that's what                  
  it seems to say to me."                                                      
  REPRESENTATIVE DAVIES:  "Thank you."                                         
  MR. WESSELLS:  "You had another question though, I don't                     
  think I answered."                                                           
  REPRESENTATIVE DAVIES:  "No, I think you answered them,                      
  thank you."                                                                  
  CHAIRMAN VEZEY:  "Representative Davidson."                                  
  Number 607                                                                   
  REPRESENTATIVE DAVIDSON:  "Thank you, Mr. Chairman.  Mr.                     
  Wessells, you talked about 34 extensions - I don't know how                  
  you broke that down, or if you did.  How many of those were                  
  requested by the state and how many were requested by your                   
  company, do you know?"                                                       
  MR. WESSELLS:   "They were all requested by the state."                      
  REPRESENTATIVE DAVIDSON:  "Have you requested any extensions                 
  on appeal?"                                                                  
  MR. WESSELLS:  "No, not that I'm aware of."                                  
  REPRESENTATIVE DAVIDSON:  "Not that you're aware of.  What                   
  kind of information or events have typically resulted in                     
  different assessments for your company?"                                     
  MR. WESSELLS:  "The ones that come to mind immediately, are                  
  ones where the Department of Revenue has either changed its                  
  view of an interpretation of the law or regulation, or has -                 
  actually, the ones that I can recall, that I can think of,                   
  are ones where the department has taken a different position                 
  from one that had been taken before on the meaning of a                      
  statute or a regulation."                                                    
  REPRESENTATIVE DAVIDSON:  "Primarily then, differing                         
  opinions in regards to interpretation."                                      
  MR. WESSELLS:  "That's right."                                               
  REPRESENTATIVE DAVIDSON:  "So, that brings me to this                        
  question of what kinds of information may the state have                     
  access to, once the appeals process kicks in, that before                    
  that, they did not have available to them?"                                  
  MR. WESSELLS:  "If my understanding of the law is correct,                   
  the department can gain access to any information through                    
  the subpoena process.  And I don't think that that changes                   
  at all during the course of an appeal, an administrative                     
  appeal.  The rules that are agreed to or ordered by a                        
  hearing officer in a formal hearing context may be more                      
  specific or a little different, but in terms of the ability                  
  to access information, there is not a difference."                           
  REPRESENTATIVE DAVIDSON:  "Would it be fair to say though,                   
  that information available in the appeals process might very                 
  well, legitimate result in a different assessment, up or                     
  MR. WESSELLS:  "Well, I suppose that it's possible, but it's                 
  still the same information that would have been available                    
  during an audit process."                                                    
  REPRESENTATIVE DAVIDSON:  "If you had enough information or                  
  understanding, right?"                                                       
  MR. WESSELLS:  "Right."                                                      
  REPRESENTATIVE DAVIDSON:  "Mr. Chairman, I have just one                     
  other question, if I may."                                                   
  CHAIRMAN VEZEY:  "Please."                                                   
  Number 639                                                                   
  REPRESENTATIVE DAVIDSON:  "Thank you.  I asked this question                 
  yesterday of another company and the question is, what                       
  pushes the pace of your company's response to the appeals                    
  process or court proceedings?"                                               
  MR. WESSELLS:  "Well, when we receive an assessment, we have                 
  60 days from the date of the receipt of the assessment, to                   
  either pay it or to file an appeal.  When we file an appeal,                 
  we file what is called a protest, which sets out, at length,                 
  the reasons why we think the assessment is incorrect, is in                  
  error.  Once that is filed, at the time it is filed, there                   
  is a presumption in the procedures that one will have an                     
  informal conference, unless it is waived when you file that                  
  appeal.  On only one occasion, have we waived that right to                  
  an informal conference.  So then, our experience is                          
  primarily with filing the protest and setting up or seeking                  
  the informal conference resolution process.  From that point                 
  on, taxpayers, at least BP in its experience, have no                        
  control over the timing issues.  It's in the hands of the                    
  Department of Revenue, at that stage.  The only thing that                   
  we could do to control the situation from that point on, is                  
  actually to pay the assessment."                                             
  REPRESENTATIVE DAVIDSON:  "So, if the chronological goal                     
  line is three years, your company would never delay to reach                 
  that goal line, is that a fair statement, then?"                             
  MR. WESSELLS:  "Well, the three years as I described the                     
  process earlier, three years is, I think, there in order                     
  that an audit can be done and that an initial assessment can                 
  be made.  And as I said earlier, the extensions that we have                 
  given, have been in the context of allowing those audits to                  
  be completed.  After the audits are completed, indeed they                   
  may take more than three years, because, and that's what the                 
  extensions are about, and we've done what we can in terms of                 
  trying to get the work done."                                                
  REPRESENTATIVE DAVIDSON:  "So, when that chronological goal                  
  line has been reached, does that mean there's a different                    
  kind of approach or attitude that your company takes toward                  
  the appeals process?"                                                        
  MR. WESSELLS:  "No, as I said earlier, that we have, we try                  
  to, as we do with other taxing jurisdictions, we try to                      
  operate as best we can, or most often on as informal of                      
  basis as we can, in order to try to resolve issues.  And, so                 
  as far as we're concerned, the process itself, is not                        
  changed all that much.  The thing that is different, is from                 
  that point in time when the audit process closes, we know                    
  exactly what the claims of the state are regarding our tax                   
  liability, and we know what the discussion is about, and                     
  don't expect to have new claims or new positions develop                     
  during that appeals process."                                                
  REPRESENTATIVE DAVIDSON:  "Not even if the relation back                     
  doctrine falls into place or relates to the issue?"                          
  MR. WESSELLS:  "Sorry, Mr. Chairman, I'm not sure I                          
  understand the relevance of the relation back doctrine to                    
  this appeals process that we're discussing."                                 
  CHAIRMAN VEZEY:  "I'm not positive that I do either.  Could                  
  you elaborate, Representative Davidson."                                     
  REPRESENTATIVE DAVIDSON:  "Well, it's my understanding from                  
  what I learned yesterday, and it's pretty interesting to be                  
  learning law by doing it, I guess, but that in the process                   
  of appeal, if something new is learned that it relates back                  
  to what the original figures were and that because of that                   
  new information and that relationship of that new                            
  information to what the tax was issued back there, that it                   
  is legal and right for the sovereign power to, I guess, as I                 
  learned yesterday, in any civil matter, the new information                  
  can force a new situation.  Maybe I should leave it at that,                 
  because I'm certainly not legally trained, but I'm getting                   
  more respect for those in that profession all the time.                      
  MR. WESSELLS:  "Well, I think, that if the question,                         
  relating back to yesterday's testimony, is whether the                       
  Superior Court's decision in the Exxon case, is one that our                 
  company thinks is correct, and that is that the three-year                   
  statute of limitations says what it means and that is, that                  
  after the three years there's not an ability to issue a new                  
  assessment, then I would say `yes' our company agrees with                   
  that interpretation."                                                        
  REPRESENTATIVE DAVIDSON:  "So you've agreed with the                         
  Superior Court's decision regarding that aspect of the case,                 
  but when that same court says that these constitutional                      
  issues that due process...                                                   
  TAPE 94-64, SIDE B                                                           
  Number 000                                                                   
  REPRESENTATIVE DAVIDSON, CONTINUED: "...in fact would you                    
  continue appeal, if in fact, you disagreed with the lower                    
  court's decision regarding the constitutional issues.  Do                    
  you understand my question, Mr. Chairman?"                                   
  Number 010                                                                   
  CHAIRMAN VEZEY:  "I'm not thoroughly understanding it, but                   
  I'm beginning to get your drift.  I'm having a little                        
  difficulty separating the issue of three years-statute of                    
  limitations on filing an assessment and the issue of                         
  bringing new facts into an appeal case.  I'm not sure where                  
  you're drawing the line and I believe the testimony we have                  
  received, no one has disputed the fact that during the                       
  course of an appeal, new facts can be brought in.  There is                  
  dispute over the authority of the state to increase the                      
  assessment during that process.  But I'm not quite sure                      
  where you're coming from."                                                   
  Number 020                                                                   
  REPRESENTATIVE DAVIDSON:  "Well, I guess what I'm not quite                  
  sure is about where you understand that, I mean, it seems to                 
  me in this bill, we have a definitive five year cap on                       
  everything.  It seems to me that what that Section 2, I                      
  believe, does is it throws out the doctrine of relation                      
  back.  And what I don't understand is what your position is                  
  regarding well, if in fact, we have new, and remember, we're                 
  talking about a period of time when we had a huge case of                    
  separate accounting go to court, we're talking about a tax                   
  return that was filed in June of 79, right in the middle of                  
  when separate accounting was in effect, and then went to                     
  court.  The state won that case and found that they could do                 
  separate accounting, but we chickened out and changed the                    
  law, what I don't understand about your position, Mr.                        
  Chairman, is do you think that, even after three years and                   
  new information is brought to light, because of new                          
  understanding of what something meant or how it relates to                   
  the bottom line, how much taxes are paid, the state does not                 
  have the right to collect that?  Because often times the                     
  appeals process is started by the taxpayer himself."                         
  CHAIRMAN VEZEY:  "It's not my position that we're                            
  discussing, Representative Davidson.  I was trying to relate                 
  to you what I had heard in testimony to help you phrase your                 
  REPRESENTATIVE DAVIDSON:  "I appreciate that, Mr. Chairman."                 
  CHAIRMAN VEZEY:  "And we do, I think, tend to jump around a                  
  little bit and mix apples and oranges some.  The.."                          
  UNIDENTIFIED SPEAKER:  "It is a fruit basket, I promise."                    
  CHAIRMAN  VEZEY:  "I don't think that the testimony is not                   
  disputed that new facts can be brought up during the case of                 
  an appeal.  But I believe it's been Mr. Wessells' testimony                  
  that they do not believe the state has a right after three                   
  years to file an assessment, nor does, I believe I                           
  interpreted his testimony to mean that after three years,                    
  they do not have a right to increase an assessment.  Maybe                   
  I'm wrong on interpreting his testimony, but that's what I                   
  think I've heard."                                                           
  REPRESENTATIVE DAVIDSON:  "To have the right to decrease                     
  that assessment."                                                            
  CHAIRMAN VEZEY:  "Yes.  That would be my understanding of                    
  the testimony.  And, Mr. Wessells can elaborate on that if                   
  that clarifies the question."                                                
  MR. WESSELLS:  "I would agree.  Yes, that's right."                          
  REPRESENTATIVE DAVIDSON:  "I guess it puts the public                        
  interest at a disadvantage, from my perspective."                            
  CHAIRMAN VEZEY:  "Well, as a committee, we can debate this                   
  at a later time, but if we would confine our questions, at                   
  this time, to the written (indiscernible)."                                  
  REPRESENTATIVE DAVIDSON:  "Sure."                                            
  CHAIRMAN VEZEY:  "Representative John Davies."                               
  Number 099                                                                   
  REPRESENTATIVE DAVIES:  "Thank you, Mr. Chair.  Mr. Wessell,                 
  I'm sorry, I did lead you astray a little bit, with a follow                 
  up question and we didn't get to one of the questions that I                 
  did ask, you were right.  And that question was, following                   
  on your testimony that, I take it, that essentially all the                  
  time that the state asks for an extension, that you have                     
  granted that to complete the assessment process."                            
  MR. WESSELLS:  "To my knowledge, yes, that's correct."                       
  REPRESENTATIVE DAVIES:  "And so my question was just simply,                 
  if that's true, then why are we debating this?  I mean, why                  
  are we here, what's the problem then?"                                       
  MR. WESSELLS:  "Because, I think the reason is, because the                  
  state or the Department of Revenue, has not asked for                        
  extensions of the statute during the course of the appeal.                   
  I'm not aware of a single time, and I must qualify this,                     
  because I'm not aware in my own experience or I have been                    
  told my anyone else in our company, that there has ever been                 
  such a request."                                                             
  REPRESENTATIVE FRAN ULMER:  "Mr. Chairman."                                  
  CHAIRMAN VEZEY:  "Representative Ulmer."                                     
  REPRESENTATIVE ULMER:  "That's a very interesting point that                 
  I guess we ought to think a little bit about - you have not                  
  objected to extensions before the appeal was filed, but.."                   
  MR. WESSELLS:  "Whenever we've been asked.  Excuse me..."                    
  REPRESENTATIVE ULMER:  "Whenever you've been asked, but you                  
  weren't asked during the appeal, and so you're taking the                    
  position that because of that, because the appeal was filed                  
  and because you weren't asked for an extension, that those                   
  claims are lost to the state.  And, that's a very different                  
  way of looking at this issue, because if the position of the                 
  industry was that you were objecting to the retroactive                      
  change because you wanted some finality, you didn't mind not                 
  having the finality before the appeal was filed - you                        
  granted the extensions, but once the appeal was filed, you                   
  changed your position and decided that you didn't, at that                   
  point, feel as though additional time was in the industry's                  
  best interest.  I guess, I don't know..."                                    
  Number 146                                                                   
  MR. WESSELLS:  "That's, Mr. Chairman, that is really, that's                 
  not correct."                                                                
  REPRESENTATIVE ULMER:  "Okay, let's talk about it."                          
  MR. WESSELLS:  "As I said earlier, we grant and continue to                  
  grant extensions so that the audit process can be completed.                 
  That is what the extension is for.  The statute of                           
  limitations is there to draw closure on the claims that the                  
  state can make for additional tax, which is what the audit                   
  process is designed to accomplish.  In terms of how we                       
  approach the appeals process, in the same way the state                      
  approaches it, or at least we thought it did, was that the                   
  issues of liability are then defined in terms of - and we                    
  had been given a bill based on those claims, and we proceed                  
  to try to get that bill corrected through the appeals                        
  process.  At that stage, in our view, and in my view, the                    
  fact-finding has been completed and the issues                               
  (indiscernible), and we know what we're talking about and                    
  that's how we proceed to try to resolve those issues.  We                    
  have given, in every instance that I'm aware of, extensions                  
  in order that the audit process for defining those issues                    
  can be thorough and complete.  Once that process is closed                   
  through the receipt of an assessment, then we either pay it                  
  - which I might add, we've done on some occasions - or we                    
  actually file the protest and commence the appeal process."                  
  REPRESENTATIVE ULMER:  "Mr. Chairman, I guess I'm just                       
  saying that the commencement of the appeal process - seems                   
  to me it would be unfair to use that to bar the previous                     
  claims.  Because neither party can necessarily control how                   
  long the appeals process takes."                                             
  MR. WESSELLS:  "Well, first of all, it would not bar that                    
  process, if the process commenced within the three year                      
  period, which it can do, or during an extension of that                      
  three year period.  Because under the statute, then the                      
  statute of limitations for assessment would still be open."                  
  REPRESENTATIVE ULMER:  "But isn't that what happened?  I                     
  mean, you did grant the extensions, I thought you said you                   
  granted all the extensions until the appeal process began                    
  and then you are just contesting the fact that the state                     
  didn't ask for, and you did not grant any extensions after                   
  the appeal process began."                                                   
  MR. WESSELLS:  "Well, we were never...  No.  I can't tell                    
  you the timing on each case, but it is possible in some of                   
  these instances that the three-year statute on assessments                   
  was still open when the appeals process commenced, because                   
  it had, in our case, it would have been extended for some                    
  period of time and perhaps we received the assessment before                 
  that period concluded.  So there was technically, and                        
  actually legally, there would have been an opportunity to                    
  issue a new assessment in a situation like that."                            
  REPRESENTATIVE ULMER:  "Well, I think it is an important                     
  point and maybe I'm headed down a path that others aren't                    
  interested in, so I won't ask any more questions about it,                   
  but I would like some additional information from whomever                   
  in the room that has some about this question of whether the                 
  objection to the length of time that we're talking about is                  
  only because the state did not ask for and you did not give                  
  an extension after the appeals began; as opposed to simply                   
  objecting - the arguments that I've been hearing have been                   
  pretty much, we object to the lack of timeliness because of                  
  freshness, staleness, difficulty of maintaining records, et                  
  cetera.  But yet, I hear you saying you didn't object to any                 
  of those extensions until the appeal process began.  And                     
  just using the fact that the state didn't ask for an                         
  extension after the appeal process should not somehow close                  
  the door on those claims, just doesn't seem fair to me."                     
  Number 232                                                                   
  MR. WESSELLS:  "Mr. Chairman, in order that the record                       
  reflect the intent of my statement, or that my answer to                     
  your question, there has been no objection during the course                 
  of an appeals process to any view on the statute of                          
  limitations taken by the Department of Revenue, because,                     
  indeed, there was never any question that arose during that                  
  period of time.  I mean if a statute of limitations                          
  extension is requested, then we have the choice of either                    
  granting the extension or consenting to the extension                        
  mutually during any period, as long as the statute has not                   
  terminated as of that time (indiscernible).  Well, if the                    
  question is never raised, there's not a possibility of an                    
  objection.  So we are not objecting to anything."                            
  CHAIRMAN VEZEY:  "Representative Phillips, did you have a                    
  question?  Representative Hudson."                                           
  REPRESENTATIVE BILL HUDSON:  "Thank you, Mr. Chairman.  Mr.                  
  Wessells, just trying to understand better the practice of                   
  granting extensions, were the extensions, for the most past,                 
  limited by agreement to the scope; that is, I'm trying to                    
  figure out if, when extensions were granted beyond the three                 
  year period, if they may have at certain times, increased                    
  the assessment; that is, the state's value of assessments                    
  that might have been agreed upon by the company and paid by                  
  the company.  I'm trying to decide just what affect the                      
  increases beyond the three year period of time - the                         
  mutually agreed upon openings or increases -  were they                      
  limited by scope and do you recall if there has ever been a                  
  case when they were granted that they also increased the                     
  assessment?  The state's assessment."                                        
  MR. WESSELLS:  "Well, I'm not aware of any that have been                    
  limited as to scope.  Really, the ones that I know about,                    
  that I've seen, or even executed myself, have been for the                   
  specific tax.  They have to be specific to the tax in the                    
  year they address.  But in terms of limiting them to any                     
  specific issues, I'm not aware of that happening for our                     
  REPRESENTATIVE HUDSON:  "Thank you.  May I have another                      
  question, please, Mr. Chairman.  Just so that I can clearly                  
  understand it, yesterday, I asked of Mr. Sullivan whether or                 
  not claims prior to the three year, up to the three year,                    
  and during those periods of agreed upon extensions remained                  
  alive - the impression that I've gotten, at any rate from                    
  the Department of Law, is that at risk is if you don't                       
  complete this within three years or if we don't pass this                    
  bill, that everything back, is dead.  And, I think,                          
  yesterday we heard, and I'm sure that I misinterpreted that,                 
  so I just want to try to understand it, is it your                           
  understanding that all of the claims that the state has, up                  
  to the three year periods of time and during those agreed                    
  upon extensions, remain alive -is it just the period beyond                  
  that time where there is no agreed upon extensions that is                   
  at risk or potential at risk?"                                               
  MR. WESSELLS:  "I think that the only ones that could be                     
  referred to as being at risk that were, these are                            
  assessments now that we're talking about or claims, that                     
  were validly made during the three year period, before it                    
  had closed, that would be at risk would be those the might                   
  be foreclosed from collection by the six-year statute of                     
  CHAIRMAN VEZEY:  "Representative Davidson."                                  
  Number 301                                                                   
  REPRESENTATIVE DAVIDSON:  "Thank you.  I think                               
  Representative Hudson asked a very important question there                  
  so, I'd like to ask, if I may, what I heard you say in                       
  response to his question, and my understanding of the                        
  question was, if the appeals was started and resulted in an                  
  increased amount for the state but the three year period ran                 
  out, then the appeals process was completed after that three                 
  year chronological goal line that some people can reach for                  
  advantage, you're saying that then, it's your understanding                  
  that the six year period kicks in because despite the fact                   
  that the appeals process was not complete within the three                   
  year goal line, it's too bad for the state, you just lost                    
  that money?   Or did you say that the state can, in fact, go                 
  ahead and collect that increased amount because there's                      
  still that six year period?"                                                 
  MR. WESSELLS:  "During the appeals process, there's no                       
  final, if I understand, Mr. Chairman, the question                           
  correctly, the appeals process is the period of hearing or                   
  during which a formal hearing takes place where there's an                   
  informal conference concerning the tax liability, and it                     
  proceeds and continues until there is a final determination                  
  - an administrative determination that is made by the                        
  Commissioner of Revenue.  As I stated in my testimony, it's                  
  pretty clear in the statutes that, during this period of                     
  time, at least by our interpretation, during this period of                  
  time, the six-year statute of collections is running.  It                    
  runs from the date on which the assessment is received, for                  
  six years.  That sets the time limit for the Department of                   
  Revenue to get the appeals process completed.  Mind you, the                 
  Department of Revenue can make a final administrative                        
  determination any time it wishes to during (indiscernible).                  
  It can issue a letter saying, `we've listened to your                        
  complaints, this is our final determination,' so it is not                   
  necessarily within the power of the taxpayer to prolong this                 
  process in such a way that it can say, `Aha, you haven't                     
  REPRESENTATIVE DAVIDSON:  "And so, Mr. Chairman, at that                     
  point then, in your response to Representative Hudson's                      
  question, it was my understanding that the appeals process                   
  on the amount to be determined for the assessment was not                    
  complete.  Now, you're telling me that, well hey, the                        
  commissioner can just, two minutes before the time the three                 
  years period is up, say, `This is what you owe' and then we                  
  get into the six year period.  Is that what you're saying?"                  
  MR. WESSELLS:  "No.  The question that I was responding to                   
  was,  `What is the nature of the, and what is the time that                  
  it takes to, or what is the nature of the appeals process                    
  and the length of it' and my response that that is within                    
  the power of the Department of Revenue to determine."                        
  REPRESENTATIVE DAVIDSON:  "But, Mr. Chairman, Representative                 
  Hudson asked the question and the way he formed the question                 
  was if the appeals process - if there was an appeal running,                 
  and that was not complete at the end of three years, and                     
  then from what I heard this man say it was, `but the state                   
  still has the right to collect on that increased amount,                     
  because that six year period is still running.'  Now he's                    
  saying that the guillotine of the three years came down on                   
  the goal line -I mean, it's very confusing here, I'd like to                 
  have some clarification from the answering of his question                   
  or if you could shed some light on this (indiscernible), I'd                 
  appreciate it."                                                              
  CHAIRMAN VEZEY:  "I didn't quite hear it that way,                           
  Representative Davidson.  Is that question in Representative                 
  Davidson's mind clear to you, Mr. Wessell?"                                  
  MR. WESSELL:  "Not at all.  If I might give a try to a                       
  response that would..."                                                      
  CHAIRMAN VEZEY:  "I think he's saying that you're                            
  (indiscernible) on what can happen during the appeals                        
  process.  I haven't heard that, but that's what he - I                       
  believe that's what you're saying, is it - you're saying                     
  that you heard two different testimonies on what can happen                  
  during the appeals process."                                                 
  REPRESENTATIVE DAVIDSON:  "Essentially."                                     
  MR. WESSELLS:  "Let me try to set the record straight and                    
  clear on this.  As I said in my prepared testimony, the                      
  statute of limitations sets a nine year period from the time                 
  a return is filed.  There is an initial three year period                    
  that the Department of Revenue has to issue an assessment or                 
  claim for additional tax.  The Department of Revenue then                    
  has six years from the date of that claim, if it is valid,                   
  if it falls within the three year period, to collect, to get                 
  that case into court for collection.  It's not actually to                   
  collect the money, but to get the case out of the appeals                    
  process and into the court proceeding for collection."                       
  CHAIRMAN VEZEY:  "Does that answer your question,                            
  Representative Davidson?"                                                    
  REPRESENTATIVE DAVIDSON:  "Well, it's still a little fuzzy,                  
  because it seems like that's not the way Representative                      
  Hudson asked the question."                                                  
  CHAIRMAN VEZEY:   "No, Representative Hudson didn't ask the                  
  question that way, you're correct."                                          
  REPRESENTATIVE DAVIDSON:  "Well, what I heard Mr. Wessell                    
  just now say is that...well, he still didn't make the                        
  definitive separation between what he means by the end of                    
  the three year period and beginning of the six year period,                  
  as it affects an appeal in progress."                                        
  REPRESENTATIVE PORTER:  "Mr. Chairman."                                      
  CHAIRMAN VEZEY:  "Representative Porter."                                    
  REPRESENTATIVE PORTER:  "If I may, that's the dispute."                      
  REPRESENTATIVE  DAVIDSON:  "Fair enough."                                    
  CHAIRMAN VEZEY:  "Representative James."                                     
  Number 309                                                                   
  REPRESENTATIVE JEANNETTE JAMES:  "Thank you, Mr. Chairman.                   
  Mr. Wessells, let me explain to you how I understand the                     
  statute of limitations works and then I'd like to hear your                  
  response to what it is.  My understanding of the statute of                  
  limitations on assessments is to provide a period of audit                   
  time to be able to get a determination of whether, in fact,                  
  the taxpayer owes additional money or not, when an audit is                  
  in process.  And during that period of time, then the state                  
  may ask the taxpayer to extend time because they haven't                     
  been able to sufficiently complete the audit in that period                  
  of time.  Providing that the audit then is concluded and an                  
  assessment is given, that then the six-year statute clicks                   
  in and says that within that six year period of time, any                    
  appeals or decision making to determine whether that is a                    
  final assessment or not, agreed to or not, by the taxpayer                   
  during that six year period of time, if that hasn't happened                 
  then have to file an action in court.  And once the action                   
  in court is filed then, of course, the clock is tolled until                 
  the decision of the court.  We know those can go on for                      
  years.  If I understood what you were answering                              
  Representative Davidson's question was this scenario, that                   
  if you had extended the three year period and maybe you'd                    
  extended it for two years or three years, or any indefinite                  
  length of time, but shortly after the extension that they                    
  filed the assessments, and you appealed.  And you're still                   
  within either that three year period or an extension of that                 
  three year period, and if then they came up with another way                 
  of doing the calculation which included more money, that you                 
  would think they were still within the time frame to do                      
  MR. WESSELLS:  "Absolutely."                                                 
  REPRESENTATIVE JAMES:  "But, if in fact your extension of                    
  time or the three years had gone by and they decided then                    
  that there was a change in their interpretation or a change                  
  in something that they wanted to increase the assessment,                    
  that they're barred because the statute of limitation has                    
  gone by.  Problematic to me, and here comes my question,                     
  problematic to me is, is what I've been hearing in the                       
  testimony here is that, the state believes that as long as                   
  they have an assessment in (indiscernible) the three years,                  
  that they can continue to - and this assessment because of                   
  the relation  back doctrine, which actually says as long as                  
  they're still assessing, that the statute of limitation is                   
  not there at all.  In other words, it isn't even a statute                   
  of limitation, it just goes on and on, as long as they were                  
  able to get something in there in the beginning.  And then                   
  essentially on beside that,  the six years doesn't even                      
  start to toll until a final decision has been made or not,                   
  and you go to court.  I'm trying to figure out, and this is                  
  my question to you:  Do you think that what has been                         
  happening is, a total disregard for the statute of                           
  limitations, as I understand it?"                                            
  Number 425                                                                   
  MR. WESSELLS:  "Mr. Chairman, if the interpretation of the                   
  three-year statute, which I think the Department of Revenue                  
  -the interpretation that the Department of Revenue ascribes                  
  to the three-year statute, which I think you've described                    
  correctly, and that is, that once an appeal has been filed,                  
  that the statute of limitations on assessments is                            
  effectively suspended, which is essentially what is in this                  
  legislation, in Section 1 of 377, is a disregard, I don't                    
  know if I'd call it a disregard, I think I would call it an                  
  incorrect interpretation of the existing three-year statute                  
  of limitations.  And actually, and that is not a proper                      
  interpretation of it."                                                       
  REPRESENTATIVE JAMES:  "A follow up if I might, Mr.                          
  Chairman, and that is that, would you agree that the six-                    
  year statute of limitations from the date of the assessment                  
  to the closure or the blocking of collections is intended to                 
  bring closure to the appeal process?"                                        
  MR. WESSELLS:  "I think so, yes."                                            
  REPRESENTATIVE JAMES:  "So that would then mean that because                 
  the appeal was in process that the clock would not be - that                 
  that clock still should be ticking, because that's the                       
  purpose of (indiscernible) to close that assessment period,                  
  I mean, appeals period."                                                     
  MR. WESSELLS:  "If there is no other - right - if there is                   
  no other rule, if there's no other law, statute, regulation                  
  or otherwise, that requires the Department of Revenue to                     
  close the appeal process by issuing a final determination,                   
  then the only one that will close it potentially, will be                    
  the need for the Department of Revenue to get its case into                  
  court for collection, which is regulated by the six-year                     
  statute on collections."                                                     
  REPRESENTATIVE JAMES:  "Thank you."                                          
  CHAIRMAN VEZEY:  "Thank you.  Mr. Wessells,  it's 10:15.                     
  I'd like to take a break at this time.  Can  we come back to                 
  Representative Davies and Davidson - can you come back say                   
  at a quarter to eleven."                                                     
  REPRESENTATIVE DAVIDSON:  "Absolutely."                                      
  CHAIRMAN  VEZEY: "Thank you.  We'll come back to order at a                  
  quarter to eleven."                                                          
  REPRESENTATIVE DAVIDSON:  "Mr. Chairman, can I just remind                   
  you that  ......."                                                           
  CHAIRMAN VEZEY recessed the meeting.                                         
  Number 495                                                                   
  CHAIRMAN VEZEY called the  meeting back to order at 10:47                    
  a.m. on May 14, 1994.  "We're in the middle of taking                        
  testimony from Mr. Wessells.  Mr. Wessells, I believe we                     
  next have a question from Representative - you had a                         
  comment, I'm sorry."                                                         
  Number 497                                                                   
  MR. WESSELLS:   "May I, Mr. Chairman if I could beg your                     
  indulgence, I'd like to do what I can to clarify some                        
  things, I think, that were left unresolved when we recessed.                 
  Concerning the question of the so-called appeals process and                 
  when it begins, and the status of the three-year statute of                  
  limitations during that period of time.  If I left the                       
  impression that there's a bright line that exists between                    
  the audit and the appeal, that is not actually the case.                     
  The way the process works is we receive assessments during -                 
  invalid assessments - during the period that the three-year                  
  statute of limitations is open.  And when we receive those,                  
  we do have the 60-day period from the time of receipt, to                    
  either pay them or to file a protest and appeal them.  And                   
  indeed we do that.  It is also quite likely that in a                        
  circumstance such as that, the three-year statute of                         
  limitations will remain open, because we have extended it -                  
  we've granted extensions during that period of time and                      
  indeed we have received assessments during - a separate                      
  assessment during that period of time, which is actually                     
  after the first protest an appeal was taken, so it's a                       
  series - there's the possibility of a series of assessments                  
  and appeals co-existing at the same time, with respect to                    
  the same year.  They, in effect, become separate processes.                  
  There's not one single, necessarily one single bright line                   
  that separates the two.  And, indeed, any assessment that                    
  would be made during the initial three year period, or                       
  period after that, which is subject to an extension of the                   
  three year period, would be a valid assessment and is not in                 
  question.  The other matter that I wanted to clarify was                     
  with respect to the holdings in the Exxon case in Superior                   
  Court.  There was a point that a - there's a footnote in                     
  that case, that says that constitutional claims are not                      
  valid.  Indeed the court didn't even deal with any                           
  constitutional issues, because it held for Exxon on the                      
  basic interpretation of the statute and did not have a need                  
  to deal with the constitutional issues.  So there were no                    
  constitutional issues decided in that case."                                 
  CHAIRMAN VEZEY:  "Thank you, and I certainly - I did not                     
  interpret your testimony as applying that the appeals                        
  process was a neat line.  I think to the contrary, that the                  
  testimony has been that it is a complex area."                               
  MR. WESSELLS:  "It is also true that the law, there is a                     
  case dealing with the six-year statute of limitations in                     
  Alaska; which is the Tesoro case which holds that the six-                   
  year statute of limitations is tolled; that is it does not                   
  run or begin to run until after a final administrative                       
  determination is made."                                                      
  CHAIRMAN VEZEY:  "Thank you.  Representative John Davies,                    
  you had a question of Mr. Wessells."                                         
  REPRESENTATIVE DAVIES:  "Well, he just answered one of them.                 
  I was going to ask him about the Tesoro case, because I                      
  think that your original testimony about sort of a nine year                 
  total statutory - statute of limitations picture, would only                 
  be true in a very idealistic circumstance where there were                   
  no protests filed.  If there's a protest filed, at least                     
  according to the Tesoro case, as I understand it, if there's                 
  a protest filed or an appeal of the assessment issued at the                 
  end of the three-year statutory period, then while that is                   
  being adjudicated and decided in some way as to what the                     
  final amount is owed, once that's determined, then if I                      
  understand the Tesoro case correctly, then the six-year                      
  statute begins to run on collections.  Is that correct?"                     
  MR. WESSELLS:  "That's a correct interpretation."                            
  REPRESENTATIVE DAVIES:  "So that was one, Mr. Chair.  The                    
  other, if I might.  Going back to Representative Hudson's                    
  question, there are it seems to me, amounts of tax at issue,                 
  maybe you didn't like the word `risk,' but at dispute or                     
  something like that, that had to do with the three-year                      
  statute, which would be those amounts that were included in                  
  an assessment that were issued after the three-year                          
  statutory period had ended, and during this extended appeal                  
  process.  I mean after all, that's really what we're arguing                 
  about, here.  I think that's the major issue of dispute                      
  between the industry and the state, is whether you can up                    
  the assessment after the three-year statute has run.  Is                     
  that not correct?"                                                           
  MR. WESSELLS:  "That's correct."                                             
  REPRESENTATIVE DAVIES:  "And so, to the extent the state has                 
  issued assessments that upped the ante, those amounts are at                 
  dispute, isn't that correct?"                                                
  MR. WESSELLS:  "It is those amounts..."                                      
  REPRESENTATIVE DAVIES:  "No the underlying amount, the ones                  
  that were filed timely during the three year period."                        
  MR. WESSELLS:  "During the three year period, that is                        
  correct - it's the increment."                                               
  REPRESENTATIVE DAVIES:  "But there is a significant                          
  increment on the order - total of a billion dollars."                        
  MR. WESSELLS:  "I can't verify the amount in any way,                        
  because I don't have all the information at my disposal."                    
  REPRESENTATIVE DAVIES:  "At least, Mr. Chair, it's my                        
  understanding that that increment relates...."                               
  CHAIRMAN VEZEY:  "We're taking testimony from this witness,                  
  so we can debate the....."                                                   
  REPRESENTATIVE DAVIES:  "Well, I guess, with respect to what                 
  Mr. Wessells has said, is that he does agree with me that                    
  there is at issue or debate a significant amount."                           
  CHAIRMAN VEZEY:  "Please, Representative Davies, let's limit                 
  it to questions of the witness."                                             
  REPRESENTATIVE DAVIES:  "Well, I just want him to - I want                   
  to make sure that he and I - that we agree on what we agree                  
  on and disagree on what we disagree on.  I want to                           
  understand, does he agree with the statement that I made                     
  that there is a significant increment that's over and above                  
  the original assessment that was issued during the three-                    
  year statute.  Is that correct?"                                             
  MR. WESSELLS:  "There is an increment, certainly, in BP's                    
  case.  The significance of it in total is what I can't                       
  really testify to."                                                          
  REPRESENTATIVE DAVIES:  "Okay."                                              
  MR. WESSELLS:  "In terms of - and I think the question that                  
  is being asked is the total magnitude of the significance,                   
  and I don't know the answer."                                                
  REPRESENTATIVE DAVIES:  "Okay, that's fair."                                 
  CHAIRMAN  VEZEY:  "Thank you, Mr. Wessells.  No one else has                 
  been able to answer that question either, so.                                
  Representative Sitton, you were next."                                       
  Number 550                                                                   
  REPRESENTATIVE SITTON:  "Thank you, Mr. Chairman.  I'm not                   
  sure we're dealing with the real problem here in our                         
  discussions.  I continue to be intrigued by the process and                  
  how come our assessments aren't nearly always on the mark.                   
  How come there's always debate and argument over the                         
  assessments that come down.  Is there something in the                       
  process, in your view, Mr. Wessells, that we should be                       
  looking at, while we're on this subject, or am I just                        
  misunderstanding the whole thing because (indiscernible)."                   
  Number 565                                                                   
  MR. WESSELLS:  "I think that there will always be disputes                   
  about tax liability in many jurisdictions.  The laws are                     
  often complicated, underlying facts are often detailed and                   
  complicated, and I think that it is a natural outgrowth of                   
  the law itself that this will occur.  I will say that in our                 
  experience as a company, the problems in resolving those                     
  sorts issues in Alaska have been exceptional and I think                     
  that indeed, we are making efforts presently, with the                       
  Department of Revenue to try to get some clarity in the way                  
  that the tax is calculated and in a way that we can agree,                   
  so that we do get ourselves out of this box for the future                   
  of having to have these periods go on forever to try to                      
  resolve these issues.  So, I think the issue, the problem                    
  that you're talking about is being addressed and I think                     
  it's being addressed in a constructive sort of way."                         
  CHAIRMAN VEZEY:  "Representative Hudson."                                    
  Number 605                                                                   
  REPRESENTATIVE HUDSON:  "This is a question that I've been                   
  wondering about and that is, if the legislature were to pass                 
  this law and the court hears the ruling of the lower court                   
  and upholds it, where are we then?  I mean, because if we                    
  pass the law, then it would be in conflict with the lower                    
  court, and as affirmed by the Supreme Court's holdings, you                  
  know it would be directly in violation of the court's                        
  interpretation of the law.  So I wonder where we would be at                 
  that time?"                                                                  
  CHAIRMAN VEZEY:  "Representative Hudson, I think it's very                   
  important to point out that we can only ask the witness's                    
  opinion; that is a decision that only the Supreme Court                      
  REPRESENTATIVE HUDSON:  "(Indiscernible) don't answer it,                    
  maybe somebody else, maybe the attorney general, or somebody                 
  else can comment on (indiscernible)."                                        
  Number 630                                                                   
  MR. WESSELLS:  "Well, I'd like to know the answer to that,                   
  too, Mr. Chairman, but I think it's - I think one of the                     
  reasons why passing this particular law would be bad, is                     
  because there's a very strong possibility that, and I think                  
  it was articulated well yesterday by Mr. Sullivan, that the                  
  case will not be heard by the Supreme Court, and in effect,                  
  the decision  will have been made by the legislature."                       
  CHAIRMAN VEZEY:  "Thank you.  Representative Davidson."                      
  Number 645                                                                   
  REPRESENTATIVE DAVIDSON:  "Thank you, Mr. Chairman.  Mr.                     
  Wessells, would you clarify your last statement that the                     
  case would not be heard by the Supreme Court."                               
  MR. WESSELLS:  "The status of the case, as I understand it,                  
  is this.  It is on appeal to the Supreme Court by the                        
  Department of Revenue.  I would think it would be likely                     
  that, should this legislation pass, the department will                      
  withdraw its appeal, in which case the court would not have                  
  anything to decide.  Because they will have been told that                   
  law that existed or that they were to interpret, no longer                   
  existed, it had been retroactively repealed."                                
  Number 670                                                                   
  REPRESENTATIVE DAVIDSON:  "Is it your understanding that the                 
  constitutional issues that were raised by both Mr. Sullivan                  
  and yourself then would not continue as well, because you'd                  
  already agreed, I think, that there was a due process                        
  consideration by parties like yourself."                                     
  MR. WESSELLS:  "Well, those issues are not before the court                  
  presently.  Because they have not been - they are not issues                 
  in that particular action.  They would not be issues until                   
  this law were passed, if it is."                                             
  Number 690                                                                   
  REPRESENTATIVE DAVIDSON:  "Well, that's an interesting                       
  statement, because it's my understanding that the contention                 
  of Mr. Sullivan yesterday is that his constitutional rights                  
  were being denied and (indiscernible).  Mr. Chairman, the                    
  question I had was, in your statement, Mr. Wessells, you                     
  talked about - this is exactly what you said `The six-year                   
  statute currently sets a time limit how slowly the                           
  department can consider and decide a tax appeal,' but you                    
  said then, but under the administration's proposals the six                  
  clock won't be running while the department considers the                    
  appeal.  Isn't that statement a bit - well, I can't think of                 
  an adjective - but, I mean, the department does not consider                 
  the movement of legislation in the courts, right?  Isn't                     
  that the judicial branch that sets how long it takes for the                 
  process would occur.   And once we get to the courts and the                 
  clock is running, and that was the point I was trying to                     
  make earlier, what pushes your company or industry's pace in                 
  court proceedings?"                                                          
  MR. WESSELLS:  "Mr. Chairman, I think the best way to answer                 
  the question to make the point that, a tax appeal is a                       
  quasi-judicial process.  An appeal is heard and decided by                   
  the Department of Revenue, an administrative body which is                   
  not a court, and there are no specific rules of how the                      
  Department of Revenue and the commissioner is to function in                 
  the disposition of those appeals.  It's at, essentially, the                 
  discretion of the commissioner; although there are - while                   
  there not being any particular rules that do exist, there                    
  are some basic issues of fundamental fairness we should                      
  apply to the process, because at the end of the process,                     
  there is a decision or a final determination, which                          
  effectively has substantial weight in court, and that is                     
  that essentially all the fact-finding has been done during                   
  the course of an administrative appeal.  There is no new                     
  trial on the facts after the administrative appeal.  And                     
  consequently, the fact-finding is subject to some rules of                   
  fairness.  But to answer the question, it is not strictly a                  
  court proceeding."                                                           
  REPRESENTATIVE DAVIDSON:  "Mr. Chairman, I have one final                    
  question, if I may."                                                         
  CHAIRMAN VEZEY:  "Please."                                                   
  REPRESENTATIVE DAVIDSON:  "Mr. Wessells, well we know that                   
  the SOL, I understand, was enacted in 1976.  If we were to                   
  delete from statute what was enacted in 1976, what do you                    
  think would be the result?  We certainly would clear up                      
  these kinds of issues, right? Or would we?  What would be                    
  your response?"                                                              
  MR. WESSELLS:  "Well, certainly the issues would be cleared                  
  up in the sense that the taxpayers could not claim, as                       
  defense, that a statute of limitations barred any                            
  assessment, I think, or collection, for that matter.  I                      
  think that the result would be that it would be very                         
  difficult for taxpayers and the Department of Revenue to                     
  resolve differences about tax liability and (indiscernible)                  
  administrative process and that the degree of litigation                     
  that would exist, with respect to these sort issues, would                   
  be multiplied substantially."                                                
  REPRESENTATIVE DAVIDSON:  "Did the industry help, in fact,                   
  enact that legislation back in 1976."                                        
  MR. WESSELLS:  "I have no knowledge of that, Mr. Chairman."                  
  REPRESENTATIVE DAVIDSON:  "Thank you, Mr. Chairman."                         
  CHAIRMAN VEZEY:  "Representative Nordlund."                                  
  REPRESENTATIVE JIM NORDLUND:  "Thank you, Mr. Chairman.  Mr.                 
  Wessells, I'm looking at a letter here from John Morgan,                     
  it's an open letter to the public here in the Daily News,                    
  and one of the items in here, is paragraph #4, in which BP                   
  has been trying to find a way to compromise on 377.   And                    
  there's a statement in here that says that, `we offered to                   
  settle our disputed taxes on the same basis as ARCO.'  In                    
  talking to the attorney general, he said that they would                     
  love to make the same deal to BP that they made to ARCO.                     
  I'm just wondering if you could expand...."                                  
  CHAIRMAN VEZEY:  "Representative Nordlund, your line of                      
  questioning is out of order.  You encroaching on an area of                  
  settlement negotiations.  You missed all the testimony this                  
  morning.  Please limit your questions to the statute before                  
  us, the witness and his expertise.  We will stay out of the                  
  area of the courts of Alaska."                                               
  REPRESENTATIVE NORDLUND:  "Well, Mr. Chairman, the company                   
  brought it up in the letter to the public..."                                
  CHAIRMAN VEZEY:  "Representative Nordlund, that's fine, but                  
  we are not going to go into the area of settlement                           
  negotiations and attorney-client privileged matters in this                  
  REPRESENTATIVE NORDLUND:  "Mr. Chairman, I think that the                    
  witness may be able to answer this question without                          
  revealing any of the details of the negotiations."                           
  CHAIRMAN VEZEY:  "Do not - Please proceed very carefully.                    
  You can ask questions, but not in regards to settlement                      
  REPRESENTATIVE NORDLUND:  "Okay, Mr. Chairman.  Mr. Wessells                 
  if you can answer this question without revealing anything                   
  you feel is proprietary, I'd appreciate that."                               
  CHAIRMAN VEZEY:  "If it's a question about the progress or                   
  the nature of the settle negotiations......(end of tape)                     
  TAPE 94-65, SIDE A                                                           
  Number 001                                                                   
  REPRESENTATIVE DAVIDSON:  "Yes, thank you, Mr. Chairman.                     
  Mr. Wessells, I got a letter from Mr. John C. Morgan,                        
  President of your company, and in his letter he says,                        
  `Everywhere in the world we conduct business, we must agree                  
  on the rules with the host government settle on a system to                  
  resolve disputes that may arise from time to time."                          
  CHAIRMAN VEZEY:  "Representative Davidson, could you speak                   
  up a little bit, you're talking down to the table."                          
  REPRESENTATIVE DAVIDSON:  "I have a letter from your                         
  president of your company and he talks about how they work                   
  toward agreement on the rules in a host government, so as a                  
  host to your company.  If the legislature were to pass this                  
  law, does that mean that you would find it within the                        
  policies of your company that you would be able to live with                 
  this legislation that we're discussing today?"                               
  Number 027                                                                   
  MR. WESSELLS:  "Well, our company will comply with the laws                  
  of the areas that we operate in, no matter whether we agree                  
  with the propriety of those laws, that is our deal and our                   
  license to operate in a particular host environment, is to                   
  comply with the law."                                                        
  REPRESENTATIVE DAVIDSON:  "So you would find a way to live                   
  with this legislation where..."                                              
  MR. WESSELLS:  "We comply with all the laws."                                
  REPRESENTATIVE DAVIDSON:  "Thank you.  Thank you, Mr.                        
  Number 043                                                                   
  REPRESENTATIVE ULMER:  "Thank you.  Could you tell me the                    
  first time the industry raised this statute of limitations                   
  as a defense to paying tax claims in the state of Alaska."                   
  MR. WESSELLS:  "I can't answer that question with respect to                 
  any company other than BP.  The first time that I am aware                   
  of it with respect to BP, with regard to our 1978 tax return                 
  for the oil and gas income tax, there was a reference made                   
  yesterday to a case that was the Standard Alaska Production                  
  Company case that was a declaratory judgment action decided                  
  by the Supreme Court in 1989.  That was with reference to                    
  that particular year.  That was a case in which we asked for                 
  a declaratory judgment.  By the way, Standard Alaska                         
  Production Company is the same company as BP Exploration,                    
  it's just that the name was changed in 1988, 1989 and that                   
  is the one that I am familiar with which I would say was the                 
  first time that issue was raised, certainly by our company."                 
  REPRESENTATIVE ULMER:  "In 1989?"                                            
  MR. WESSELLS:  "No.  The issue was first raised, I believe,                  
  and I can't be precise about this, but it would have been                    
  raised in the period of say, around 1984."                                   
  REPRESENTATIVE ULMER:  "It was raised but was not                            
  MR. WESSELLS:  "As a defense."                                               
  REPRESENTATIVE ULMER:  "Okay, but it was not litigated at                    
  that time?"                                                                  
  MR. WESSELLS:  "The litigation began because we were seeking                 
  a declaratory judgment of the three-year statute of                          
  limitations bar certain assessments for that year.  So I'm                   
  sorry I can't be precise about the dates but it was                          
  certainly an issue that we were pursuing as of around..."                    
  Number 090                                                                   
  REPRESENTATIVE ULMER:  "So this is now ten years later.  Why                 
  was there no resolution of the issue between 1984 and 1994?                  
  For some reason did those cases get settled and so you                       
  avoided the necessity for a decision at that point or..."                    
  Number 096                                                                   
  CHAIRMAN VEZEY:  "Representative Ulmer I'm going to allow                    
  your question.  It is very repetitive of the questions and                   
  answers we had yesterday.  I will allow the witness to                       
  continue, but the questioning is getting extremely                           
  repetitive and I would ask members of the committee to be                    
  attentive and to not track back over ground we've already                    
  REPRESENTATIVE ULMER:  "Well, we didn't have BP before us                    
  yesterday, so..."                                                            
  MR. WESSELLS:  "The Supreme Court, in 1989, decided that                     
  they would not declare the statute, would not give an                        
  interpretation of the three-year statute because BP had not,                 
  as it say exhausted all of its administrative remedies so                    
  that it was necessary for BP to return to the Department of                  
  Revenue and resolve this and get a finding from the                          
  Department of Revenue and the hearing process on this                        
  particular issue before any court in the state would                         
  entertain the question.  And that is why there was no                        
  resolution at that time."                                                    
  Number 122                                                                   
  REPRESENTATIVE DAVIDSON:  "Thank you again, Mr. Chairman,                    
  you have been very generous.  Mr. Wessells, referring again                  
  to Mr. Morgan's letter of May 9, Item number 4 says, `We've                  
  been trying hard to find a compromise on Senate Bill 377.'                   
  And he goes on, he says, `Due to the constructive efforts of                 
  speaker Ramona Barnes to find this compromise, they included                 
  an offer to use the six-year limit and an offer to use the                   
  royalty valuation basis used for past settlements.'  But is                  
  it not true that the royalty valuation does not in fact                      
  include anything at all as regards to transportation cost?                   
  So wouldn't that be kind of a, a very misleading or at least                 
  unfair, as far as the state and your company is concerned                    
  for considering that kind of compromise?"                                    
  MR. WESSELLS:  "Well, I wouldn't regard that as unfair.  The                 
  issue in the royalty litigations was settled by an agreement                 
  was the value, at the same location that oil is valued for                   
  tax purposes, of the value of the oil, the same barrels of                   
  oil for royalty purposes.  So it is an indication of a                       
  valuation that the state has found reasonable in a context                   
  of its claims and its rights with respect to royalties."                     
  REPRESENTATIVE DAVIDSON:  "So you do not see, really then, a                 
  differentiation between the value of oil as it is decided in                 
  royalty cases and as it is decided in tax cases?"                            
  MR. WESSELLS:  "Same oil."                                                   
  REPRESENTATIVE DAVIDSON:  "Same oil, same value.  Thank you,                 
  Mr. Chairman."                                                               
  CHAIRMAN VEZEY:  "Thank you.  Seeing no further questions,                   
  Mr. Wessells, thank you very much for your time this                         
  morning.  I appreciate your being with us.  Next, I'd like                   
  to hear from the Commissioner of Revenue if he is prepared                   
  or wishes to testify.  I certainly wouldn't coerce him to if                 
  he didn't want to."                                                          
  Number 168                                                                   
  DARREL REXWINKEL, Commissioner, Alaska Department of                         
  Revenue:  "Mr. Chairman, I would be more than happy to do                    
  that.  I know Mr. Hosie, who testified in front of you                       
  yesterday, does have a plane to catch at 1:00 p.m. so that                   
  he can get prepared for this tax case that is going to be                    
  heard next week.  And if it would be with your permission,                   
  if he could have a few follow-up comments, I'd appreciate                    
  CHAIRMAN VEZEY:  "Certainly."                                                
  Number 182                                                                   
  MR. SPENCER HOSIE:  "Thank you, Mr. Chairman, I appreciate                   
  your indulgence.  As the commissioner mentioned, we have a                   
  Supreme Court argument to prepare for and that brings me to                  
  my first point in rebuttal.  Contrary to what Mr. Sullivan                   
  said explicitly, and to what Mr. Wessells said by                            
  implication, that Supreme Court case will go forward next                    
  week regardless of what this body does or what happens to                    
  this piece of legislation.  And for that matter, if this                     
  piece of legislation is passed, the Supreme Court will still                 
  necessarily decide the pending issue.  There is a rule in                    
  this state that issues of statutory construction are always                  
  decided before issues of constitutional magnitude.  That                     
  means that this Supreme Court will decide the issue of 260                   
  regardless of what happens with this litigation.  Let me say                 
  this plainly.  The Supreme Court argument will go forward                    
  next week, regardless of what happens here.  The attorney                    
  general will not fly to Anchorage waving a piece of                          
  legislation saying this case is now moot.  It would not be                   
  moot.  With that, let me turn to several other points."                      
  Number 200                                                                   
  CHAIRMAN VEZEY:  "If you would, Representative Porter would                  
  like to ask a question, Mr. Hosie."                                          
  REPRESENTATIVE PORTER:  "Would it not be moot because the                    
  law is not effective yet or is it your position that even                    
  after the law became effective that it would not impact the                  
  MR. HOSIE:  "Mr. Chairman, if that law were effective today,                 
  that case would not be moot.  The reason for that is that                    
  the Supreme Court will have to decide whether the statute of                 
  limitations, Section 260, permits amendments to timely                       
  issued assessments.  That question will always and                           
  necessarily be reached before any constitutional question,                   
  and the witnesses from BP and Exxon have both testified that                 
  there will be a lawsuit filed, challenging the                               
  constitutional basis of this legislation, should it pass. So                 
  before that constitutional question is reached, the Supreme                  
  Court would pass on the first question, the threshold                        
  question, of whether Section 260 permits amendments.  That                   
  issue would not be rendered moot by this legislation even                    
  were it effective as we speak."                                              
  Number 220                                                                   
  CHAIRMAN VEZEY:  "Mr. Hosie, there is only one attorney at                   
  this table, so please bear with us.  What you're saying is a                 
  policy decision of the state of Alaska, that they will not                   
  withdraw this case before it is heard, regardless of what                    
  happens with this legislation."                                              
  MR. HOSIE:  "Mr. Chairman, more than a policy, it's a rule                   
  of law, and the rule is that if the Supreme Court can                        
  dispose of a case on a statutory ground, that is by                          
  interpreting a statute, it will always do that before                        
  reaching further to address constitutional issues.  The                      
  Supreme Court is reluctant to reach constitutional issues                    
  and won't do it unless it has to.  For that reason, it will                  
  first address whether Section 260 permits amendments.  That                  
  will be true whether this legislation passes or not.  That                   
  will be true whether the legislation has an effective date                   
  of yesterday or six months hence."                                           
  CHAIRMAN VEZEY:  "...and I understand what you're saying is                  
  the Department of Revenue would not ask the court to                         
  withdraw the case."                                                          
  MR. HOSIE:  "That is absolutely right, Mr. Chairman."                        
  CHAIRMAN VEZEY:  "Representative Porter."                                    
  Number 240                                                                   
  REPRESENTATIVE PORTER:  "I am still trying to get in my mind                 
  the effect of this.  If the case is not withdrawn and this                   
  law in its present draft form is passed, it seems to me to                   
  be two positions working against each other.  One, if for                    
  example, the Supreme Court were to say, were to uphold the                   
  Superior Court's decision, they would say that a certain                     
  portion of these claims have dropped off.  The law we are                    
  here to pass, and hypothetically has passed, would say `no,                  
  they go on.'  How is that resolved?"                                         
  MR. HOSIE:  "That, Mr. Chairman, is resolved in a two-step                   
  process.  The Supreme Court first looks at and answers the                   
  threshold question, `does the statute permits amendments?'                   
  If it says `yes,' the case is over.  What the department has                 
  done is proper.  If it says `no,' only then will it reach                    
  the question of whether Senate Bill 377 somehow changes that                 
  result.  But the efficacy of this legislation, Senate Bill                   
  377 will not be reached until after the Supreme Court                        
  decides the underlying question of whether amendments to a                   
  timely assessment are themselves timely.  And I don't think                  
  anyone from the industry would disagree with that statement                  
  of law."                                                                     
  Number 265                                                                   
  REPRESENTATIVE PORTER:  "If I may, Mr. Chairman, just one                    
  more follow-up.  The effect, then, of assuming state's                       
  policy to pursue what this law would apparently provide if                   
  it were passed, they would pursue a subsequent court                         
  decision that would, if the Supreme Court in the case that                   
  you will be arguing shortly, decides against the state's                     
  position.  They would be arguing against that decision?"                     
  MR. HOSIE:  "Yes, the case... Mr. Chairman, the case will go                 
  forward and Exxon will make its points and the state will                    
  make its points."                                                            
  REPRESENTATIVE PORTER:  "So while passing of this                            
  legislation would not prevent the hearing, it could set up                   
  the scenario to attack its decision if the decision were in                  
  favor of supporting the Superior Court decision."                            
  Number 280                                                                   
  MR. HOSIE:  "Mr. Chairman, if the decision were in favor of                  
  the taxpayers, then the Supreme Court would reach the                        
  further question of whether this legislation should change                   
  that result as an expression or a clarification of pre-                      
  existing legislative intent.  But that question will always                  
  come second."                                                                
  CHAIRMAN VEZEY:  "Representative Green."                                     
  Number 287                                                                   
  REPRESENTATIVE JOE GREEN: "Thank you, and I hate to belabor                  
  this but this is a little different spin than we'd heard                     
  earlier.  So, for an old head like me then, that                             
  Representative Porter's questioning would say that after                     
  they have, perhaps, decided in favor of the payer, they                      
  reach down and look at 377 and that not only would affect                    
  future but it would retroactively affect what may have                       
  happened just prior to this even though this may not become                  
  law until during the court hearing."                                         
  MR. HOSIE:  "Mr. Chairman, that's right."                                    
  REPRESENTATIVE GREEN:  "Okay."                                               
  MR. HOSIE:  "If it gets to that point then the Supreme Court                 
  would have to answer the question of whether this                            
  legislation is effective in clarifying pre-existing                          
  legislative intent."                                                         
  REPRESENTATIVE GREEN:  "Well that's what I thought you said,                 
  I just want to be sure that -- thank you."                                   
  MR. HOSIE:  "But the larger point is that the case is going                  
  to go forward.  That case will be argued next Wednesday."                    
  Number 306                                                                   
  REPRESENTATIVE JAMES:  "Thank you Mr. Chairman.  If I'm                      
  understanding you right, is that that you're saying that the                 
  decision, or the oral argument that you're going to make in                  
  this case next week is going to be based on the existing                     
  statute and not on the legislation that is proposed to be                    
  passed at this time.  Your oral argument is going to based                   
  on the existing statute and the decision of the court is                     
  then going to be made on oral argument that does not include                 
  any oral argument that is included in SB 377.  No fuel for                   
  that.  Then you're saying that if the court makes a decision                 
  that finds with the taxpayer the next step would then be to                  
  say, `now you can bring in this evidence that the                            
  legislature passed this statute with a declaratory provision                 
  that this is what this always meant from 1976 to now.'  And                  
  then the next step would be, I believe, and this is my                       
  question to you, would that not be a deprivation of due                      
  process for the taxpayer if we, the legislature, stepped in                  
  and made a declaratory statement of what this meant                          
  superceding what the court's decision might be, and wouldn't                 
  we maybe be interfering with... from one part of, from the                   
  legislature to the judicial branch by doing that?"                           
  MR. HOSIE:  "Mr. Chairman, no.  If the 78 Exxon case now                     
  pending goes to decision before this legislation is passed                   
  and if the case is decided on the briefs as now filed,                       
  that's a done deal.  That case is over.  And so for 1978,                    
  for Exxon, that issue would have been disposed of before                     
  this, the question of the efficacy of this legislation was                   
  even reached.  The legislation would be relevant to similar                  
  issues with similar taxpayers for other years but this is                    
  not a situation where a taxpayer will be denied due                          
  REPRESENTATIVE JAMES:  "If I might follow-up then, Mr.                       
  Chairman.  The presentation that was made to us yesterday                    
  was that the Exxon case, which you were testifying about,                    
  which was based on the three-year statute of limitations                     
  dispute was one billion dollars on the table that would be                   
  lost if we don't pass this piece of legislation and now you                  
  are telling us that is not the case, that the court is going                 
  to make the decision based on their interpretation of the                    
  existing law.  And that the taxpayers will get their day in                  
  court and due process will not be objected to.  So then that                 
  throws off, that gets us back down, now we're talking about                  
  two billion not three billion, which we've been telling                      
  everybody that we have at risk."                                             
  MR. HOSIE:  "Mr. Chairman, that's a very good question and                   
  it raises an important point of clarification.  The case                     
  pending before Supreme Court involves one taxpayer - Exxon;                  
  one tax year -1978; and a relatively small sum of money -- a                 
  couple million dollars.  The effect of that decision will be                 
  to set a precedent, an immutable precedent that would be                     
  quite clear, that would dispose of the much larger dollars                   
  at risk in other similar cases.  It is, in essence, a test                   
  case.  And so, even though it's just one taxpayer and one                    
  year with small dollars, it's going to resolve this question                 
  once and for all."                                                           
  Number 362                                                                   
  REPRESENTATIVE JAMES:  "If I might, Mr. Chairman, follow-up                  
  on that.  Wouldn't you believe that at this stage of the                     
  game, that the smart decision is to let the court decide?"                   
  MR. HOSIE:  "Mr. Chairman, the court will decide, which is                   
  the point I started with a few moments ago.  The court will                  
  decide whether Section 260 permits amendments.  If this                      
  legislation is passed, at some point in the future, the                      
  court will have to decide a further question; whether the                    
  legislation changes that outcome."                                           
  CHAIRMAN VEZEY:  "Another question, Representative James?"                   
  REPRESENTATIVE JAMES:  "Yes, I have one more question and it                 
  has to do with the same issue because, based on what you've                  
  told us now, which is, as I agree with Representative Green,                 
  is not the presentation that I understood to have been made                  
  yesterday, that I believe that court precedence will and may                 
  take precedence over any statutory change that we might make                 
  that backed up.  But the other part of that, that has come                   
  out in the testimony is the $3 billion that is at stake,                     
  which seems to be the reason why it's so important for us to                 
  pass this piece of legislation.  As far as I would                           
  understand it, that based on that court decision                             
  (indiscernible--coughing) billion dollars is hanging on, not                 
  the decision that we are making this -- this, this, but not                  
  this.  So, that billion has nothing to do with whether or                    
  not we pass SB 377.  Now the other issue, as we also heard                   
  testimony, that the division of the $3 billion is $1 billion                 
  on a three-year statute and $2 billion on the six-year                       
  statute, and we've also heard testimony that the taxpayers                   
  have agreed to not call the six-year statute into play in                    
  their decision.  So, then, what does that do with the $2                     
  billion that is out there based on the six-year statute and                  
  you also have a lower court decision that says that your                     
  interpretation of the six-year statute is okay."                             
  Number 392                                                                   
  MR. HOSIE:  "Mr. Chairman, three points in response.  First,                 
  the Exxon case is a test case on the three-year statute,                     
  which is the $1 billion.  As a legal matter, it will dispose                 
  of that $1 billion.  If the Supreme Court rules in the                       
  state's favor, that ends it.  If the Supreme Court rules in                  
  the taxpayer's favor and this legislation is passed and the                  
  taxpayer's (indiscernible--coughing) adjusted and filed a                    
  constitutional challenge, that will be another issue that                    
  the Supreme Court would then have to reach.  And so the $1                   
  billion is presented via a test case now.  And that will be                  
  heard next week."                                                            
  Number 402                                                                   
  REPRESENTATIVE JAMES:  "Then just one follow-up question.                    
  Then can't I assume that the $3 billion that we have been                    
  told is the reason for passing SB 377 now, is not                            
  necessarily the case, and that the court will make a                         
  decision and that whatever the court decision is, in this                    
  case, will be defining for the rest and the collection of                    
  that $3 billion?"                                                            
  MR. HOSIE:  "Mr. Chairman, no, for two reasons.  The Exxon                   
  case involves a three-year statute but the issues in the                     
  three-year statute and the six-year collection statute are                   
  very similar.  The Exxon case will address directly the                      
  three-year statute, but by implication will have a dramatic                  
  outcome on the two billion.  So it's going to take care of                   
  the one billion, one way or the other, for sure, but will                    
  establish a precedent that will carry a lot of weight on the                 
  pending six-year collection issue which involves the larger                  
  two billion.  But it's just a test case.  It's not a class                   
  action with all taxpayers and all tax years and all tax                      
  types.  So that remains out there.  Second, this                             
  legislation, according to the industry, may or may not be                    
  effective.  They are not going to concede to you that this                   
  legislature can look at Section 260 and say, we are going to                 
  declare prior legislative intent and be bound by that.  If                   
  that happens, this bill is passed, the industry is going to                  
  say, `well it doesn't matter, it's a different legislature,                  
  it's not binding, it's retroactive, there are due process                    
  violations,' and that's a separate fight that hasn't been                    
  briefed yet and hasn't been presented yet."                                  
  Number 428                                                                   
  REPRESENTATIVE JAMES:  "Just one follow-up, Mr. Chairman,                    
  thank you for giving me this extra time, and I've almost                     
  forgotten my question."                                                      
  CHAIRMAN VEZEY:  "Snooze you lose, Representative James."                    
  MR. HOSIE:  "I think it's my answers, Mr. Chairman"                          
  CHAIRMAN VEZEY:  "Representative Hudson."                                    
  Number 431                                                                   
  REPRESENTATIVE HUDSON:  "Mr. Hosie, if the Supreme Court,                    
  the Superior Court, the Supreme Court upholds the lower                      
  court's decision, wouldn't we, by the passage of this                        
  legislation, then be left with the more expensive parts of                   
  the bill such as the amendments that deal with the NGLs and                  
  the present value and those kinds of things which clearly                    
  have a detrimental effect on the treasury of the state of                    
  MR. HOSIE:  "Mr. Chairman, good question.  As I understand                   
  the question, the point is that, if you're telling me that                   
  this legislation doesn't necessarily solve the problem, why                  
  then pay the price of admission with the other provisions                    
  that the industry seems to prefer?  The answer is that                       
  although this bill doesn't necessarily solve the problem, I                  
  think that the state is going to prevail in the anticipated                  
  constitutional challenge.  I think that this legislature has                 
  absolutely the power to look back and clarify the intent of                  
  a prior legislature and what a statute means or doesn't                      
  mean.  And that's what this case is about.  It's about what                  
  that 1976 statute means and doesn't mean.  And who better to                 
  pass on legislative intent than the legislature?"                            
  Number 450                                                                   
  REPRESENTATIVE HUDSON:  "Mr. Chairman, I am reminded of                      
  House Bill 58 (indiscernible--laughter) to pass, describing                  
  the intent of a legislature that I participated in, and we                   
  lost that thing miserably."                                                  
  MR. HOSIE:  "Mr. Chairman, all I can say is that I trust it                  
  would not happen on this issue, but it illustrates that the                  
  court process is an uncertain process."                                      
  CHAIRMAN VEZEY:  "Representative Bettye Davis."                              
  REPRESENTATIVE BETTYE DAVIS:  "Yea, pretty much my questions                 
  have already been asked by Representative James, but would                   
  you just, in very simply terms, tell me then what is the                     
  necessity and what is the urgency for Senate Bill 377 if it                  
  does not do what I thought you told me that it did do; what                  
  is the purpose of us being here today and not in January?"                   
  MR. HOSIE:  "Because, if this bill were passed before next                   
  Wednesday, the Supreme Court would take oral arguments on                    
  the statutory question and probably remand the case for                      
  additional briefing on the effect of this legislation.  And                  
  so it would take the first question of the meaning of the                    
  statute, first, but would ask for additional briefings and                   
  citations to legal authorities on the effect of this                         
  legislation.  And in that context, Exxon would make its                      
  constitutional challenges and the state would oppose them.                   
  And then that matter would eventually be heard by the                        
  Supreme Court, too.  Passage of this legislation now gets an                 
  answer now."                                                                 
  Number 470                                                                   
  REPRESENTATIVE B. DAVIS:  "May I continue please.  Passage                   
  of this legislation gets an answer now.  It was my                           
  understanding that you said that the threshold was that we                   
  deal with Section 260.  You get that question answered and                   
  then they will deal with the constitutionality later.  You                   
  didn't say when.  Is it all going to come in this same                       
  trial, all that will take place?  They go from one issue to                  
  the other at the same time?  It won't be like at a later                     
  court date?"                                                                 
  MR. HOSIE:  "Mr. Chairman, it almost certainly would be at a                 
  later court date but fairly close in time.  The court would                  
  ask for additional briefing, give the party 60 or 90 days to                 
  do that and then it would decide the second constitutional                   
  challenge.  If that doesn't happen, you go back to square                    
  one, and it takes years to get these cases through the                       
  process.  So if this legislation is passed now, the Supreme                  
  Court is going to give the parties an answer in the                          
  relatively near term, especially considering the alternative                 
  which is to go back to square one and have the taxpayers                     
  file a Superior Court action that will take literally years                  
  to work through the process.  And so, passage of this                        
  legislation now, brings the issue to a hearing, although in                  
  two parts and gives both parties certainty in the relatively                 
  near term.  That's the time-critical nature of this."                        
  Number 489                                                                   
  REPRESENTATIVE B. DAVIS:  "So what I hear you saying then is                 
  that you're not going to take the paper and wave it and say,                 
  `Here we have this and that takes care of the court case,'                   
  but you are going to take the paper and say, `Yes we have                    
  this and this is urgent because this will now cut down on                    
  litigation, time and cost by hearing both issues in a                        
  reasonable amount of time.'"                                                 
  MR. HOSIE:  "Yes, Mr. Chairman, that's right.  The court                     
  would know about it but we would inform the court of the                     
  passage of the legislation, ask the court to request                         
  additional briefing, but of course it's not in the papers                    
  now, but that would give both parties the opportunity to                     
  brief the issue and present it to the Supreme Court in the                   
  fairly near future be it 60 days or 90 days as opposed to                    
  three or four or five years out."                                            
  Number 501                                                                   
  REPRESENTATIVE JAMES:  "Yes, thank you Mr. Chairman.  I                      
  wrote it down this time so I won't forget what it was that I                 
  wanted to say.  And you're saying that, you know we hear all                 
  the time when we pass legislation, `the court will decide.'                  
  You know, in fact there's been some dissatisfaction out                      
  there in the public that says, `You know, who makes the                      
  laws?  The legislature or the court?' and sometimes I wonder                 
  about that.  But they always say `the court will decide.'                    
  Well, it looks to me like it would be prudent since what                     
  you've just now told us, that the court - the decision is                    
  going to go forward and that the court will make a decision                  
  based on whether or not that our statutes say what they say                  
  or it is implicit that it says, by not saying it, what the                   
  department and the attorney general has interpreted it to                    
  say.  So there is a decision there that's going to be made                   
  which is, the court will decide.  And we should know that by                 
  next year or sometime soon.  Wouldn't it seem smart to                       
  circumvent that second decision that we would have to fight                  
  in the court at that point?  Because we could come back and                  
  we could make a law that says exactly, from perspectively,                   
  exactly what it is that we interpreted it to mean.  And then                 
  there would be no decision once we have the court's decision                 
  that that one didn't say that or it did say that.  And if it                 
  did say that, we don't have to do anything."                                 
  Number 520                                                                   
  MR. HOSIE:  "Mr. Chairman, if the Supreme Court rules in the                 
  state's favor, it would moot the need for the legislation in                 
  terms of the legal outcome.  However, there are two                          
  practical problems that explain why this legislation has                     
  been perceived as urgent in time.  The first practical                       
  problem:  It is difficult to negotiate a resolution of these                 
  cases with this uncertainty hanging out there.  If the                       
  parties are waiting for a Supreme Court decision, four or                    
  five or six years down the road, you are going to see these                  
  cases hang around for four or five or six years down the                     
  road because the parties are too far apart, given the                        
  uncertainty to come to closure.  And so if the parties wish                  
  to resolve these cases, and I think both sides want to get                   
  these things behind them, we need to do something to                         
  accelerate the resolution of this important and uncertain                    
  issue.  And that's why getting this thing heard before the                   
  Supreme Court now is important.  So it's to accelerate any                   
  possible settlement of these major cases that are taking so                  
  much of the state's time and so much of the taxpayer's                       
  REPRESENTATIVE JAMES:  "But, Mr. Hosie, this is a 1978 tax                   
  return.  How come, in 1994, it's a real urgent hurry?"                       
  MR. HOSIE:  "Mr. Chairman, because it took that long for                     
  this case to reach the Supreme Court.  It took that long,                    
  and that's not at all unusual.  That's absolutely not                        
  unusual.  It just takes that long for a case to go through                   
  the process.  And that touches on a point I wish to speak to                 
  in a moment, about whether the department controls the                       
  process or whether the taxpayer controls the process, and                    
  that's an important point of clarification that needs to be                  
  Number 542                                                                   
  REPRESENTATIVE JAMES:  "Mr. Chairman, I just have a follow-                  
  up on that issue, then, is that it's my understanding that                   
  the six-year statute of limitations is precisely for that                    
  purpose; to close the appeals process and to either get it                   
  to court or not.  It seems to me like that, and tolling                      
  that, totally gives carte blanche, to take as long as they                   
  MR. HOSIE:  "Mr. Chairman, that is -- I heard Mr. Wessells                   
  say that, and we disagree.  We disagree.  That six-year                      
  statute, as the industry has interpreted, requires that you                  
  start to collect your judgment six years after the                           
  assessment was issued.  But, if you don't have a final                       
  judgment for six years, you don't know what the final tax                    
  is, you don't even know if you're right.  So you're supposed                 
  to go out and put a lien on BP's building in Anchorage                       
  before the administration process is concluded?  Before                      
  they've been adjudicated to owe the state the money?  It                     
  doesn't make any sense to go out and sue someone to collect                  
  a judgment before you have any judgment.  Yet that's what                    
  they suggest the department does.  The second point:  Mr.                    
  Wessells said, `We have an absolute right to an informal                     
  hearing.'  True.  They do.  He also said, `It's been our                     
  general, if not uniform practice, with a couple of                           
  exceptions, to exercise our right to an informal hearing,                    
  and that's their right, they can do that.  Once they do                      
  that, three years gets burned up very quickly.  The                          
  department does not control the timing of the process, not                   
  unilaterally.  It's a consensual process.  The parties have                  
  to agree to exchange documents, they've got to set up audit                  
  trips, they've got to set up deposition schedules, they've                   
  got to agree to briefing schedules, they have to get a                       
  hearing officer to set time aside for the hearing.  That all                 
  takes time.  And the department is not a king.  It can't                     
  say, `Okay, this is the schedule.'  The parties debate that.                 
  It is a consensual process to agree to the timing.  And once                 
  you're in the informal process, you can burn three years up                  
  just like that.  I wish it were faster, it should be faster.                 
  We've all heard complaints about how slow litigation                         
  progresses, but it is what it is."                                           
  Number 569                                                                   
  REPRESENTATIVE JAMES:  "Just let me follow-up, then.  If the                 
  six-year statute of limitations isn't to make closure to                     
  this appeals process and that it only starts in when the                     
  appeals process is over, why would it take six years to take                 
  it to court?"                                                                
  MR. HOSIE:  "Very good question, Mr. Chairman.  Why have a                   
  six year period that starts only after you know what you're                  
  owed?  Because the purpose of collection statutes is to give                 
  certainty that once you are adjudicated to owe someone                       
  money, they'll come and get it from you within a certain                     
  period of time.  The purpose of the collection statute is to                 
  make sure people don't sit on their judgments too long.  It                  
  is not to control the timing of the adjudicatory process.                    
  There are different rules for that.  There are different                     
  rules for that both in the civil system and the                              
  administrative proceeding.  A statute of limitations or a                    
  statute of collections, neither is designed to say okay, you                 
  have `x' number of years to get this case through trial,                     
  through appeals to the Supreme Court and decided.  There are                 
  court rules that say if you delay in that process, your case                 
  can be dismissed.  That's not a statute of limitations, it's                 
  a statute that requires that the parties litigate according                  
  to a certain schedule.  Nor is it a statute of collections."                 
  REPRESENTATIVE JAMES:  "But isn't it true that once the case                 
  is in the court that the statute is tolled.   That's not a                   
  six year elimination to collect after you get into court,                    
  it's six years to get there."                                                
  MR. HOSIE:  "Well, Mr. Chairman, would that were true.  That                 
  was the dispute in the Tesoro case.  The state said exactly                  
  what you've just said, that the process tolls the six-year                   
  statute.  Because how can you start to collect what you're                   
  owed until you know what you're owed.  The industry                          
  disagreed.  And that was litigated in the Tesoro case and                    
  was up in the Supreme Court, pending for 13 months before                    
  the Tesoro case was settled.  And one other point on that:                   
  Mr. Sullivan referred to that Tesoro case again and again.                   
  That doesn't decide fully and finally this issue.  It's just                 
  a Superior Court decision.  It's no more final on the six-                   
  year collection point than the formal hearing decision in                    
  the state's favor in this Exxon case was.  They're both                      
  intermediate or lower level courts and sooner or later the                   
  Supreme Court is going to look at that issue and until the                   
  Supreme Court speaks, nobody knows what the final rule is                    
  going to be.  So that six year risk is still out there.                      
  Unless they want to stipulate to live with this Tesoro                       
  Superior Court appeal..."                                                    
  Number 602                                                                   
  REPRESENTATIVE JAMES:  "Let me just clarify and see if I                     
  understand what you told me.  You're telling me that in the                  
  Tesoro case, that the six years that they were saying was                    
  not running, was after the lawsuit was filed.  Is that the                   
  period of time they were arguing about or were they arguing                  
  about before the lawsuit was filed?"                                         
  MR. HOSIE:  "Mr. Chairman, they we're saying that you have                   
  six years to start collection action after your assessment.                  
  So if you get an assessment in 1980, the Department of                       
  Revenue had better start collection proceedings in 1986,                     
  even if the case is still in the administrative process or                   
  on appeal.  In other words they said, `Doesn't matter.                       
  There's no tolling.  It's not suspended.  You got six years                  
  to start collecting your money even if that is before you                    
  know what you're owed or whether you're owed.'  And let me                   
  posit one hypothetical.  If the Department of Revenue went                   
  out and slapped a lien on BP's building before a final                       
  determination of liability, I think then you'd be hearing                    
  about due process problems from the taxpayer.  But that's                    
  what their position in the statute, the six-year collection                  
  statute would require."                                                      
  Number 615                                                                   
  CHAIRMAN VEZEY:  "Representative Green."                                     
  REPRESENTATIVE GREEN:  "Thank you, Mr. Chairman.  Mr. Hosie,                 
  you said earlier that it would be years if it had to be                      
  resolved by the Supreme Court.  The only time-specific that                  
  I've heard you mention, because we have been told by others                  
  that it would take a matter of five or six or seven months,                  
  you mentioned eleven months or thirteen months or some                       
  period like that in the Tesoro case.  Was that before the                    
  court actually took action, or was that the time that it                     
  took the court to resolve?  What was that eleven months in                   
  the Tesoro case?  What I'm getting at, really, is how long                   
  would we rightfully expect to take if we allowed the Supreme                 
  Court's opinion to dictate rather than to try and intervene                  
  with statute?"                                                               
  MR. HOSIE:  "Mr. Chairman that is, to some extent, anyone's                  
  guess.  It is highly unlikely it would be more than six or                   
  eight months in a case of this complexity.  Like the Tesoro                  
  case, it could be twelve to fourteen months.  To answer the                  
  more specific question, that eleven month period in the                      
  Tesoro case was the period, and I think it was thirteen                      
  months, it was the period after oral argument, when the case                 
  was submitted to the court, to the time the party settled.                   
  And that was the thirteen month window, and the Supreme                      
  Court still hadn't acted.  And who knows how much longer it                  
  might have taken?  Who knows?  And this illustrates a larger                 
  point.  The parties don't control the process.  You can't                    
  call up the Supreme Court and say, `Gentlemen, my clients                    
  are anxious.  Could you please give us a decision?'  Anymore                 
  than you can on a Superior Court level.  You do that, I mean                 
  you just can't do it.  You would be very ill-advised to do                   
  Number 634                                                                   
  REPRESENTATIVE GREEN:  "The reason for my question was that                  
  your statement was considerably, by orders of magnitude,                     
  bigger than what we had heard yesterday.  So, I'm trying to                  
  come to closure a little bit for the benefit of the                          
  MR. HOSIE:  "Yes, Mr. Chairman, good point of clarification.                 
  If this bill is passed and if the effectiveness of Senate                    
  Bill 377 is heard in the context of the pending case, albeit                 
  some months after this argument coming up next week, you                     
  will get a decision in the relatively near term.  If it's                    
  not appended to the pending case, if it's not part of the                    
  pending case, albeit delayed by a couple of months, then                     
  you're looking at years.  Literally, three, four, five, six                  
  years because what will happen is the department, the                        
  taxpayers are likely to file a declaratory judgment in                       
  Superior Court as you heard Mr. Wessells describe SOHIO did                  
  in the late 1980s and that's brand new action.  They go                      
  down, they file a complaint and that just starts that                        
  process and you have got to wait until you get a Superior                    
  Court trial, then you got to wait for the decision, then you                 
  got to appeal it, and so on and so forth.  And so, if the                    
  parties want to resolve these cases through negotiation, you                 
  have to do something about the uncertainty of this issue.                    
  This legislation serves to bring the issue to a head so that                 
  we know where we are in the relatively near term.  And                       
  that's why it's been perceived as urgent by the attorney                     
  general's office and by the administration.  I believe                       
  CHAIRMAN VEZEY:  "Representative Finkelstein."                               
  Number 652                                                                   
  REPRESENTATIVE FINKELSTEIN:  "Thank you Mr. Chairman.  The                   
  issue that's come up lately in this is the issue of whether                  
  the state can or whether the legislature can affirm the                      
  state's intention about an existing case before the courts.                  
  Not so much the issue whether we should, which is, you know                  
  a policy issue, but whether we can.  There was an analogy                    
  made earlier to House Bill 58 that somehow the court was                     
  saying there that we can't, and that wasn't my recollection                  
  of that decision.  That was a constitutional amendment where                 
  the people had voted.  It wasn't analogous at all.  And the                  
  issue of can, under the law, are we allowed to go in and, as                 
  a legislature, affirm the policies of the state of Alaska,                   
  things that we're operating under, essentially take a side                   
  in the dispute and say, `Our intention is that this existing                 
  policy continue.'  Is there any doubt that we have the power                 
  to do that?"                                                                 
  MR. HOSIE:  "Mr. Chairman, none whatsoever.  We have cases,                  
  crystal clear.  The Supreme Court of Alaska Case, Federal                    
  Ninth Circuit Case.  A legislature can look at a prior piece                 
  of legislation and say... and clarify the intent.  After                     
  all, if the issue is what the prior legislature meant, who                   
  better to pass on that than the current legislature?  Or do                  
  you want to defer entirely to the courts?  Who makes law?                    
  The legislature or the courts?  And so the answer is that is                 
  absolutely proper.  And we can provide citations and cases."                 
  REPRESENTATIVE DAVIDSON:  "Thank you, Mr. Chairman.  Mr.                     
  Hosie, first two simple questions.  Did Tesoro and Exxon, if                 
  they were not to prevail, did they then have the additional                  
  option, did Tesoro, does Exxon, if they do not prevail, have                 
  the additional option of going on the Supreme Court - U.S.                   
  Supreme Court?"                                                              
  MR. HOSIE:  "Mr. Chairman, on the question of what the                       
  statute means, Section 260, the answer is almost certainly                   
  no.  On the constitutional question of whether this                          
  legislation is effective at clarifying prior intent, the                     
  answer is probably yes.  They could file what is called a                    
  petition for certiorari which is simply a request to the                     
  U.S. Supreme Court to hear the case.  Those requests are                     
  almost never granted because the Supreme Court gets                          
  literally thousands of them and hears, you know, only tens                   
  of cases.  And so as a practical matter the Supreme Court of                 
  this state will have the last word on the meaning of 260 and                 
  likely the last word on the constitutional questions the                     
  taxpayers have raised."                                                      
  REPRESENTATIVE DAVIDSON:  "Would it not, because we're                       
  dealing here with an issue that began when the state had                     
  separate accounting, would separate accounting not just make                 
  a lot of these things go away?"                                              
  MR. HOSIE:  "Mr. Chairman, it's not a problem unique to                      
  separate accounting.  It's arisen in the Exxon case in the                   
  context of the separate accounting tax.  But it's a problem                  
  common to production tax, severance tax, and other taxes.                    
  It's an across-the-board problem.  It's just that the                        
  vehicle that's been used to bring it to the Supreme Court is                 
  an old 43.21 or separate accounting."                                        
  REPRESENTATIVE DAVIDSON:  "The issue before us involves a                    
  1979 tax filing and that was taken, as I understand, to a                    
  statutory construction court issue because you said that the                 
  Supreme Court will not go forward with a constitutional                      
  issue until they deal with a statutory construction."                        
  MR. HOSIE:  "First."                                                         
  REPRESENTATIVE DAVIDSON:  "So we've had a filing and the                     
  appeals process, the statutory construction, litigation and                  
  now the constitutional construction.  Same as this case                      
  here, right?  That's where we are.  Now, in 260 we're trying                 
  to decide whether it is amendable.  I want to know if, in                    
  fact, there's a relationship, or how, if any, Section                        
  43.20.200 relates to 260.  And the reason I'm asking is                      
  because of the sentence that says, `In the case of                           
  additional tax due by reason of modification, recomputation                  
  or determination of deficiency in a taxpayer's federal                       
  income tax return, the period of limitation on assessment                    
  commences from the date that the notice as required in                       
  43.20.030.'  Is there any kind of relationship there to 260                  
  that impacts the amendability of 260?"                                       
  Number 704                                                                   
  MR. HOSIE:  "Mr. Chairman, not for the purposes of the                       
  dispute now.  What that speaks to is the situation where a                   
  taxpayer who pays taxes in both the state and federal (tape                  
  TAPE 94-65, SIDE B                                                           
  Number 001                                                                   
  CHAIRMAN VEZEY:  "I couldn't quite hear the statute you were                 
  referencing.  Was that in regard to Alaska's corporate                       
  income tax?"                                                                 
  REPRESENTATIVE DAVIDSON:  "It's in 43.20.200.  Is that what                  
  you're talking about?"                                                       
  CHAIRMAN VEZEY:  "43.22.100?"                                                
  REPRESENTATIVE DAVIDSON:  "No, it's in 43.20.200."                           
  REPRESENTATIVE DAVIDSON:  "If I may continue."                               
  CHAIRMAN VEZEY:  "Please."                                                   
  REPRESENTATIVE DAVIDSON:  "Thank you very much.  So if the                   
  federal government comes in and there is a reassessment, a                   
  recomputation as a result of the IRS getting involved in                     
  this period of separate accounting --  whatever happens, if                  
  the IRS comes and makes determinations that they owe the                     
  federal government new taxes, where does that leave the                      
  state with regards to this question as well as others?"                      
  MR. HOSIE:  "Mr. Chairman, the provision..."                                 
  CHAIRMAN VEZEY:  "Before you answer that we need to clarify.                 
  I don't have the statute in front of me, 43.20 is the                        
  MR. HOSIE:  "No, Mr. Chairman, it's not.  The separate                       
  accounting statute is 43.21 and that was repealed and                        
  replaced by this statute which is the multi-state                            
  apportionment approach, and so there is really no connection                 
  between the two.  That doesn't bare on the problem we have                   
  CHAIRMAN VEZEY:  "But it is an income tax type -- it's not a                 
  production tax, which is the subject before us?"                             
  MR. HOSIE:  "(Indiscernible due to static) That is correct,                  
  it is a wholly different tax regime."                                        
  CHAIRMAN VEZEY:  "So I guess my question is, are you sure                    
  that's germane to this subject before us?"                                   
  UNIDENTIFIED SPEAKER:  "Well I'm sure it's not now, but I                    
  Number 049                                                                   
  MR. HOSIE:  "Mr. Chairman, with your liberty, may I take                     
  three or four minutes to make some very brief points in                      
  rebuttal to the testimony."                                                  
  REPRESENTATIVE DAVIDSON:  "Mr. Chairman, I'm sorry, but my                   
  last question was the IRS thing because it all comes back,                   
  CHAIRMAN VEZEY:  "I thought you said it wasn't germane so I                  
  went on."                                                                    
  REPRESENTATIVE DAVIDSON:  "Oh, I see, that's okay, that's                    
  fine; I'll ask another time.  Thank you."                                    
  CHAIRMAN VEZEY:  "Are you in a hurry to leave?  There were                   
  two other representatives that did have a question of you.                   
  If you're in a hurry to leave, I'll let you make your                        
  statements and..."                                                           
  MR. HOSIE:  "Well, with the chairman's indulgence, if I                      
  could just make these points and then perhaps we could take                  
  questions then.  We're sort of covering a lot of ground but                  
  not necessarily in a sequential sense.  Exxon testified that                 
  it was willing to grant extensions and, yes, Paul Sullivan                   
  has granted extensions in the past.  But he might not do                     
  that tomorrow.  And the question -- the policy question is,                  
  should the state's tax revenues turn on the whim, what oil                   
  company to say `yes' or `no' to an extension?  Second, Mr.                   
  Sullivan criticized the state's NGL position as being                        
  unique.  He said, `It's absolutely unique.'  Well it is                      
  unique, but why is it unique?  Because the state's -- the                    
  state's NGL gas situation is itself unique.  The central gas                 
  facility on the North Slope is (indiscernible--static)                       
  unique in this country and it's not surprising that a unique                 
  facility gives rise to unique questions.  It would be                        
  surprising if it were otherwise.  Third, on the prior                        
  administrative policy, Mr. Sullivan and Mr. Wessells both                    
  said, `Well, there really was no policy until 1989.  It was                  
  just chaos and discord and no real agreement.'  In making                    
  those points, they confused the Division of Oil and Gas                      
  Audit with the Department of Revenue as a department.  The                   
  division had a policy, a longstanding policy which was that                  
  amendments were proper.  That's why it issued the                            
  amendments.  It's conduct speaks for itself.  That's why                     
  there was a 1984 Attorney General's Opinion that said                        
  amendments are proper.  However, it took until 1989 for that                 
  issue to get to a formal hearing where a formal hearing                      
  officer speaking for the department as opposed to just the                   
  division, could say, `we've heard the evidence, we've                        
  considered the arguments and this is the formal departmental                 
  policy.'  It doesn't mean that there wasn't a division level                 
  policy prior.  There was.  It just took until 1989 for there                 
  to be a formal departmental decision.  And once signed onto                  
  by the commissioner, that formal decision became the                         
  articulation of the department as a whole's, policy.  And                    
  that didn't happen until the spring of 1989.  On records,                    
  Mr. Sullivan said, `Well you know, if we get an assessment                   
  that's narrowly drawn and speaks to charitable deductions,                   
  we may throw our records that deal with income earned that                   
  year.  I know something about Exxon's record retention                       
  policies.  I know because in other litigation with that                      
  company, and this is all a matter of public record, they've                  
  threatened to send me to a salt dome in Leavenworth, Kansas,                 
  that serves as their record retention facility.  And                         
  fortunately, I've been able to avoid that.  But they have a                  
  very detailed record retention policy and for key or vital                   
  documents, they're retained and that shouldn't surprise us.                  
  Second, Mr. Sullivan's premise that the initial assessments                  
  were very narrow was wrong.  The assessments talked about                    
  downstream value and transportation costs.  And the whole                    
  tax year was in dispute.  If you had a tax year in dispute                   
  with general issues, would you throw your reference away?                    
  Now the timing.  There's been a suggestion that the                          
  department controls the timing and I touched on this                         
  earlier.  It does not.  The taxpayer asks for an informal --                 
  the informal process has to work its course.  Then there's                   
  the formal.  And that has to work its course.  And the                       
  department doesn't have the authority to goose the process                   
  along.  It's a consensual process.  The policy of the                        
  statute of limitations was suggested that the policy is                      
  closure.  And it is -- closure in this sense.  If you're                     
  going to sue someone, you've got a limited amount of time to                 
  do it.  Statutes of limitations don't speak to a different                   
  question, which is, once you've sued someone, can you amend                  
  your complaint or can you amend an assessment.  That's not                   
  even a statute of limitations question.  It's an amendment                   
  relation back question.  You're already in dispute.  And so                  
  the closure contemplated by the statute of limitations is                    
  the closure before a case starts, not how long it takes once                 
  it starts -- a critical, critical distinction here.  There                   
  were questions and points about new information.  And the,                   
  perhaps, not so subtle message communicated by Mr. Sullivan                  
  and Mr. Wessells was that, `Well gee, the department's --                    
  the division's theories just keep on changing.  There's                      
  really no new information.  You know, they get new ideas or                  
  they read a lot differently all of a sudden.'  Well that's                   
  not entirely right and to cite one example, in giving no                     
  taxpayer-specific information, one of the big issues in all                  
  of these cases involves whether these taxpayers got revenue                  
  above the federal ceiling price in 1979-1980.  It took the                   
  division some time to learn that they had perceived revenue                  
  over ceiling price and only when they understood that, did                   
  they realize that there was an issue there.  When they                       
  understood that there was actually revenue over ceiling                      
  price, suddenly the question came, `Well, do we share in                     
  that or are we precluded under the laws?'  And so, often                     
  it's the combination of new factual information as it                        
  affects the laws and the interpretation of the laws.  It's                   
  not a situation where the department sits around and says,                   
  `Well, gee, this sounds like a good new theory.  Let's try                   
  this today.'  And to the extent that that impression was                     
  communicated, that's really not an accurate depiction of the                 
  process.  And a final point there, the department is always                  
  playing catch-up.  These oil companies are in the business.                  
  They know what their business is like, they know what the                    
  oil is worth, they know what they sell it for, they know                     
  what it costs them to get it to market.  The division                        
  doesn't know that.  It doesn't know where the stuff goes, or                 
  which boats were used or how much it costs to build the                      
  boats until it gets all the information and figures it out.                  
  The oil producers have an enormous head start.  And three                    
  years isn't enough time to figure it all out and come up                     
  with a final number.  Yet under the taxpayer's                               
  interpretation, that's the division's obligation -- at risk                  
  of not getting the correct tax.  Thank you for your                          
  indulgence, Mr. Chairman, I do appreciate it."                               
  CHAIRMAN VEZEY:  "Thank you.  Do you have time for more                      
  questions or do you need to leave?"                                          
  MR. HOSIE:  "Certainly, by all means."                                       
  CHAIRMAN VEZEY:  "Representative Bunde."                                     
  Number 199                                                                   
  REPRESENTATIVE BUNDE:  "Just a very quick one and it's                       
  probably going a bit astray here but I was struck by the                     
  stress on urgency and there was a considerable amount of                     
  stress on urgency, and I would just ask Mr. Hosie if, in his                 
  opinion, if there is this urgency, would you consider it                     
  advisable that then the state breaks off negotiations with                   
  the taxpayers involved?"                                                     
  CHAIRMAN VEZEY:  "Representative Bunde, I think you missed                   
  some of the testimony earlier, but I'm not sure which                        
  negotiations you're talking about but we do not want to go                   
  into the settlement negotiations that we all have knowledge                  
  were going on indirectly.  That is a matter for the courts                   
  to deal with and not the legislature.  If you're talking                     
  about negotiations for constructing legislation, that's                      
  perfectly legitimate discussion."                                            
  REPRESENTATIVE BUNDE:  "I withdraw the question."                            
  CHAIRMAN VEZEY:  "Thank you, sir.  Gary Davis -                              
  Representative Gary Davis."                                                  
  Number 219                                                                   
  REPRESENTATIVE G. DAVIS:  "Thank you, Mr. Chairman.  I                       
  believe Exxon gave testimony that the state issued them an                   
  amended assessment a day before a process was to take place.                 
  Were you familiar with that, and what's the rebuttal to                      
  MR. HOSIE:  "I am, Mr. Chairman.  Any change in the prior                    
  assessment, the taxpayers call an amendment.  But often, the                 
  change simply involves the clarification of the underlying                   
  data.  And a number of the changes have been, for instance,                  
  through the royalty case, the state developed a computer                     
  barrel-tracking system, for want of a better term, that                      
  allowed the state to know where each and every barrel went.                  
  And as that process was completed, that information was then                 
  used in the various amendments.  But there were amendments                   
  that were late in the process and Exxon complained and the                   
  hearing officer heard those complaints.  But it's not a                      
  statute of limitations problem.  If, for example a change                    
  comes in the middle of an administrative process, the                        
  taxpayer goes to the hearing officer and says, `Unfair.  We                  
  were sand-bagged, we want more time to respond.'  And that                   
  happens all the time on both sides, both in the                              
  administrative process and the court process.  But to                        
  clarify that a little more, it's not a statute of                            
  limitations problem.  It's a conduct of the process problem,                 
  and they're really different."                                               
  Number 227                                                                   
  REPRESENTATIVE G. DAVIS:  "Mr. Chairman, and that's true and                 
  I think that's what we're hearing here because we're hearing                 
  two sides and we're trying to decide who is being the bad                    
  ass and who isn't."                                                          
  MR. HOSIE:  "Mr. Chairman, that is exactly right.  It's                      
  really a characterization problem.  They say it's a statute                  
  of limitations and if you're going to do it, you've got to                   
  do it all in three years, and we say no, you just have to                    
  start within three years.  And then the process has its own                  
  protections and guidelines.  And I think the state's right."                 
  REPRESENTATIVE GREEN:  "Thank you, Mr. Chairman.  In your                    
  closing statement of the few statements you wanted to make                   
  before questions, you said that the oil companies know where                 
  their oil is going and how much it costs and what the value                  
  is, and that's a tremendous step up.  When is that                           
  information, in fact, given?  Don't they file monthly                        
  reports and information to the state?"                                       
  MR. HOSIE:  "Mr. Chairman, good question.  And I should have                 
  talked about that myself.  The monthly filings for both                      
  royalty and tax are extremely abbreviated.  They don't tell                  
  you, they tell you, generally, for most of the time, for                     
  most of the taxpayers, which downstream market regions the                   
  oil went to.  For example, 32 million barrels went to the                    
  Gulf Coast.  It doesn't tell you where in the Gulf Coast or                  
  how they got there or what they did with them once they got                  
  there.  That's all information that the defendants maintain                  
  in their accounting and controllers departments.  And so the                 
  state, through the tax filings and the royalty filings,                      
  doesn't get even the tip of the iceberg.  Not at all.  It                    
  has to get that information through formal process.  Through                 
  the auditing process or through requests for discovery in                    
  the royalty or through the formal hearing process where the                  
  hearing officer is empowered by statute to call witnesses                    
  and subpoena documents and figure out what actually                          
  happened.  So we're always reinventing the world, but we're                  
  always trying to figure it out after the fact and it's a                     
  process of where the state has to go to them and say,                        
  `Please give us your documents that will allow us to know                    
  where you took the oil and what you did with it and how much                 
  you got when you sold it.'  It's a little bit like an Easter                 
  egg hunt.  It's a slow process.  And I know because I was                    
  involved in the Annis (Ph) Royalty case and spent several                    
  years of my life doing that; trying to figure out, from the                  
  company's documents what happened, where the oil went, how                   
  they got it there, what they sold it for.  If they exchanged                 
  it away, what they actually received?  Those are the kinds                   
  of questions that are just spread throughout these audit                     
  CHAIRMAN VEZEY:  "Representative Gr -- Porter, I'm sorry."                   
  REPRESENTATIVE PORTER:  "Thank you, Mr. Chairman.  None of                   
  the scenarios, in terms of if this proposed statute passes,                  
  or doesn't, or if the Supreme Court case that is in                          
  existence now is settled in the side of the state or the                     
  taxpayer -- none of that precludes continuation regeneration                 
  in continuation of negotiations over these claims."                          
  MR. HOSIE:  "Mr. Chairman, I'm not comfortable speaking to                   
  the settlement negotiations, but you know it's the attorney                  
  general's office call and I'm not privy to those policy                      
  decisions, if I understood the question correctly.  And so,                  
  that would be a policy call of how to handle the settlement                  
  negotiations that I think is properly made by the Department                 
  of Law, given the separation of powers doctrine.  And I'm                    
  just a foot soldier in that battle."                                         
  MR. BOTELHO:  "Mr. Chairman, I am available to answer the                    
  REPRESENTATIVE PORTER:  "I don't wish to delay Mr. Hosie's                   
  plane so..."                                                                 
  CHAIRMAN VEZEY:  "We're not going to conclude the hearings                   
  here before lunch.  Representative Hudson, do you have a                     
  question of Mr. Hosie?"                                                      
  Number 311                                                                   
  REPRESENTATIVE HUDSON:  "Yes, Mr. Hosie, because I know                      
  you're leaving here, could and should the legislature                        
  consider modifying the laws relating to the data that is                     
  received.  This whole tracking case Easter egg hunt type of                  
  a thing, wouldn't that be a constructive thing that the                      
  legislature could do to require this amplified data?"                        
  MR. HOSIE:  "Mr. Chairman, yes.  I'm not sure it's a matter                  
  that the legislature needs to do, but certainly the                          
  Department of Natural Resources and the Department of                        
  Revenue might want to consider passing regulations that say,                 
  `Please share with us, on an ongoing basis, your information                 
  that relates to the disposition of this crude oil in which                   
  the state has such a pressing interest.'  I think it's a                     
  very good idea."                                                             
  REPRESENTATIVE HUDSON:  "Thank you."                                         
  CHAIRMAN VEZEY:  "Does that concluded the questions?  In                     
  that case, we'll stand at ease until --  it's ten minutes                    
  after twelve.  We'll come back at 1:45."                                     
  MR. HOSIE:  "Mr. Chairman and the members, let me thank you                  
  and apologize for leaving.  I'm leaving only because I have                  
  to get certain graphics ready for the Supreme Court                          
  argument, and that's important.  But I do apologize and I                    
  thank you for your indulgence."                                              
  CHAIRMAN VEZEY:  "I call the meeting to order at 1:48 p.m.,                  
  May 14, 1994, House State Affairs Committee continuing its                   
  hearing on 377 with the Oil & Gas Committee and the                          
  Judiciary Committee and Commissioner Rexwinkel is continuing                 
  his testimony.  Do you have some statements you want to make                 
  to us, Commissioner?"                                                        
  COMMISSIONER REXWINKEL:  "Yes, Mr. Chairman, for the record                  
  I am Darrel Rexwinkel, Commissioner, Department of Revenue,                  
  and if I may, Dick Brewer, Assistant Director for the Oil                    
  and Gas Audit Division, I'd like you to join me at the                       
  CHAIRMAN VEZEY:  "Please.  State your name."                                 
  RICHARD BREWER:  "Richard D. Brewer is my name and I am an                   
  Assistant Director with the Oil & Gas Audit Division in                      
  COMMISSIONER REXWINKEL:  "Mr. Brewer has been there since                    
  1985 and he has significant history with the division and                    
  prior to that, he was  -- he is a CPA, he was with a                         
  national accounting firm prior to joining the Oil and Gas                    
  Audit Division.  Mr. Chairman, quite a few things I would                    
  like to say.  We did go over these charts but I'm not sure                   
  everybody went over them.  If you'd like, we'll go back over                 
  them or if you think everyone has a good understanding we'll                 
  just ..."                                                                    
  CHAIRMAN VEZEY:  "You have to understand that there are                      
  seven new committee people at this meeting -- eight new                      
  committee people at this meeting; this is a joint committee                  
  meeting.  So it would be repetitious for those on the State                  
  Affairs Committee but for Oil and Gas and the Judiciary                      
  Committee, it would be new."                                                 
  Number 353                                                                   
  COMMISSIONER REXWINKEL:  "It seems like there has been a lot                 
  of questions with respect to, perhaps, some of the                           
  complexities in the past and maybe why the five-year statute                 
  that's been proposed in the legislation would be suitable                    
  for the future, and I think this (indiscernible--static)                     
  good vehicle to discuss that with and I think here Mr.                       
  Brewer can talk a lot about where the division has been and                  
  where it expects to be and with knowledge of the audit                       
  functions and the taxpayers.  And as new members come in,                    
  we'll provide them with copies also.                                         
  "This document, the first page is headed, `Department of                     
  Revenue's Appeals Process' and includes more than just...                    
  the first block up there says, `Taxpayer files the return'                   
  and that's the initial part.  Normally the taxpayers will                    
  file their return on the due date, so for discussion                         
  purposes, we'll assume that the return is filed on the date                  
  due.  Auditor reviews the return and it is either accepted                   
  as filed, and if so there is no further action, or the                       
   return is not accepted and the auditor issues an assessment.                
  I believe the three year provision that we are looking at is                 
  the period of time between when the taxpayer files the                       
  return and when the auditor issues the assessment.  And then                 
  we get into a new process.  Once the assessment is issued,                   
  the taxpayer can either pay that assessment, and if they do                  
  not file a claim for refund, that's the end of the case at                   
  that point.  The taxpayer may appeal the assessment.  They                   
  have a couple of avenues, as have been discussed.  The first                 
  avenue, well maybe not the first, but the usual avenue is to                 
  go to informal conference, to request an informal                            
  conference.  After that process is concluded and an informal                 
  conference decision is issued by the division, a taxpayer                    
  may appeal that to formal hearing.  Or, as indicated on                      
  there, the taxpayer can elect to bypass the informal                         
  conference process and go directly to formal hearing.  The                   
  taxpayer may further appeal the formal hearing through the                   
  Alaska Superior Court and it can go on to the Supreme Court                  
  and, in some cases, the U.S. Supreme Court.  And probably a                  
  block below that is collection.  At some point in time                       
  collection is going to take place and perhaps the six years                  
  might be looked at, depending on how one views the process,                  
  but from the time the assessment is issued until after all                   
  this other process is concluded, and as we've discussed, we                  
  believe that the statute on the six-year collection tolls                    
  once the taxpayer appeals the assessment because it's next                   
  to impossible to make it through all these other blocks                      
  prior to six years being completed.  There's a lot of steps                  
  that have to go through and a very long and a rigorous                       
  "The second page talks about the review, protest and                         
  assessment process.  This is where there is meetings with                    
  the taxpayer to obtain additional information, meet with the                 
  taxpayer to review information and have arguments, and this                  
  whole process can repeat itself and that's why there's a                     
  circle drawn around it.  And then at some point there's a                    
  final conference with the informal conference decision being                 
  issued.  And Dick, if you would, you could talk about the                    
  process in the past and how this has taken so long and why                   
  we believe that five years would be suitable for the                         
  MR. BREWER:  "Okay.  Why can we do in five years what we                     
  haven't been able to do in three years?  People ask me that                  
  quite a bit here, of late.  1994 is not 1978, it's not 1980.                 
  The Shah of Iran is not being deposed, he is not being                       
  deported from a country.  You don't have the Iran-Iraq war                   
  ongoing.  You don't have the windfall profits taxes, you                     
  don't have price controls, you don't have rates of de-                       
  control, you don't have entitlements, you don't have over                    
  charges issues -- 1994 is a whole new world.                                 
  "(Indiscernible) first started flowing in Prudhoe Bay, there                 
  was a heck of a learning curve, as far as we were concerned.                 
  We were up against the largest and the most sophisticated                    
  taxpayers in the world.  They knew the business, I mean this                 
  was their business.  The oil business was their business.                    
  We had a heck of a learning curve.  We didn't even know what                 
  to ask for.  And we have to ask the right questions in order                 
  to get the right documents.  We didn't know what to ask.  If                 
  we did ask the right questions, and you got the right                        
  document, you had to analyze the document and figure out                     
  what the document said; what was most telling about the                      
  document?  So it has taken us, and I know you've heard this                  
  time and time again, it has taken us a tremendous amount of                  
  time to get a handle on the oil business.  I go on the road                  
  quite a bit with auditors and just recently, about a couple                  
  of years ago we were at an auditor's -- at a taxpayer's, and                 
  one of the taxpayers actually asked the auditor a question                   
  about the taxpayer's business.  And it just shows you that                   
  over the years we've come to know, in some instances, more                   
  about the taxpayer's business than the taxpayer themselves.                  
  There's just a heck of a learning curve and it's taken us                    
  while to get a handle on what's actually going on.  So, can                  
  we do in five what we haven't been able to do in three?  Yes                 
  we can.  Things have changed.  The world is different today                  
  than it was fourteen years ago."                                             
  CHAIRMAN VEZEY:  "Representative Green."                                     
  REPRESENTATIVE GREEN:  "Thank you, Mr. Chairman.  You've                     
  given us several reason why, in the 80s it would have been                   
  difficult and I would say probably, from what you've said                    
  that five years would have been difficult then.  If you have                 
  this all behind you now, does that mean that perhaps three                   
  years would stay as it is and be adequate?"                                  
  MR. BREWER:  "Three years is pretty close, it's pretty close                 
  -- right now, 94, we are issuing audits through 90 and 91.                   
  We are that close to the three-year provision right now.                     
  Could we do it in three?  Possibly.  But five is certainly                   
  more adequate."                                                              
  Number 450                                                                   
  CHAIRMAN VEZEY:  "Representative Kott."                                      
  REPRESENTATIVE PETE KOTT:  "Thank you, Mr. Chairman.  If, in                 
  fact all those other variables come into play as far as how                  
  long it takes for an audit to take place for the first three                 
  years an assessment to be made.  Can you comment either,                     
  commissioner yourself as to perhaps why, originally back in                  
  1977 we only had one auditor, auditor and the next year we                   
  only had three?  And today we have, I think twenty-two?  It                  
  seems like we're way behind the power curve and I think                      
  there was a letter of transmittal or a letter sent by the                    
  attorney general that said we're playing catch-up and is                     
  that the reason why we're playing catch-up, is perhaps we                    
  were ill-prepared back in the late 1970s, early 1980s."                      
  Number 461                                                                   
  MR. BREWER:  "I don't deny that in that early time frame we                  
  had a -- kind of had a real good handle on what we were up                   
  against.  We had price controls ongoing.  Taxpayers will                     
  represent to you that, `Hey look, they couldn't sell that                    
  oil or that gas, that oil for any more than was the price                    
  ceiling at the time.'  And, I mean, it sounded good to us.                   
  I mean that makes sense.  In some instances though, as time                  
  went on, as more documents were submitted, and we examined                   
  more data we found out that was not always the case -- that                  
  price controls, in some instances, did not represent a bar                   
  to a taxpayer realizing more than was the ceiling price.                     
  There's a case like that very similar, ongoing right now in                  
  the appeals system.  It's back at the Alaska Supreme Court.                  
  It has to do with ARCO and it involves entitlements.  And it                 
  came from that period, that 79-80 period.  There was just a                  
  lot going on, there was more than meets the eye and I agree.                 
  I think that we were a little naive at the onset."                           
  Number 475                                                                   
  COMMISSIONER REXWINKEL:  "If I may, Mr. Chairman, you know                   
  some people have talked about the adequacy of the audit                      
  function and perhaps that the department or division, at                     
  least, has gotten all the money that the department has                      
  requested for it.  Well I have been here now a couple of                     
  years and we've had problems with revenue shortfalls and so                  
  the first order of business is to sell the department's                      
  budget to the governor's office.  The governor has been very                 
  supportive, but yet there has been a lot of competing                        
  demands.  So it is always a selling process.  But just to go                 
  back and review history a little bit.  And we went back as                   
  far as 1985.  In 1985, the governor's request was cut by the                 
  legislature.  In 1986, the governor's request was cut by the                 
  legislature.  In 1987, it was cut.  In 1988, it was cut.  In                 
  1989, it was cut.  In 1990, it was cut.  In 1991, it was                     
  increased a little bit.  1992, it was increased                              
  substantially and that was at the work that we did in order                  
  to try to get more money in our budget.  I remember those                    
  two budget periods.  In 1993, we were again cut.  In 1994,                   
  we were cut.  And 1995, initially we were looking at a $670                  
  thousand reduction in the concluding hours, I believe, that                  
  was reduced to a reduction in program receipt areas which                    
  will either hit the Charitable Gaming Division or a certain                  
  function in the Income and Excise Audit Division for                         
  Unclaimed Property.  Those are the two program key areas we                  
  have there.  So, the budget has taken reductions in almost                   
  every year, beginning with 1985.  I'm not sure what happened                 
  beyond that because I didn't start looking before that.  So                  
  it has been a period of time, very difficult to get                          
  necessary (indiscernible.)"                                                  
  CHAIRMAN VEZEY:  "Thank you.  Representative Ulmer.                          
  Representative Kott is next."                                                
  Number 498                                                                   
  REPRESENTATIVE ULMER:  "Just on that point, if I might, very                 
  briefly.  Could we receive a copy of that Mr. Commissioner                   
  because we have had a number of people testify that every                    
  auditor that was asked for by the department the legislature                 
  funded and I would just appreciate it ..."                                   
  COMMISSIONER REXWINKEL:  "Well, if I could just respond to                   
  that before you get this, if you look at this, you'll see                    
  the same number of positions, almost the same number of                      
  positions.  But is what happens, you know, the vacancy                       
  factor, you know we are looking at what a seven point                        
  something percent vacancy factor for this year if the budget                 
  (indiscernible) to help take care of the vacancy factor.  So                 
  even the position count on here may show the same, that                      
  doesn't mean that we have the funds to fill all those                        
  Number 502                                                                   
  CHAIRMAN VEZEY:  "Representative Kott."                                      
  REPRESENTATIVE KOTT:  "Thank you, Mr. Chairman.  I just                      
  wanted to bring it out because I think it's reasonable to                    
  conclude, at least for a period of time, that the state                      
  really lacks or lacked the sufficient resources to discharge                 
  this auditing and appeals duties.  Clearly, I think that's                   
  one of the big problems that we have today and that's part                   
  of the reason why we're here today.  (Indiscernible) old                     
  inherited problems is not something that we inherited in the                 
  18th Legislature, it goes well back before us.  Thank you,                   
  Mr. Chairman"                                                                
  CHAIRMAN VEZEY:  "Thank you.  Representative Gary Davis."                    
  Number 515                                                                   
  REPRESENTATIVE G. DAVIS:  "Thank you, Mr. Chairman.  I'm not                 
  so sure if I agree exactly with Representative Kott who says                 
  that we lack the resources.  If that means number of people,                 
  I'm not so sure that's correct.  He indicated that there was                 
  a learning curve, maybe he didn't even know how many people                  
  we needed to properly compute an assessment.  But the                        
  learning curve and the indication that we didn't know what                   
  questions to ask in that situation -- did that -- what                       
  effect did that have on the actual assessment as far as                      
  being accurate for those years?  I mean, being in a learning                 
  curve and not being completely informed, apparently, of                      
  exactly what to look for and what to indicate or what to                     
  include in an assessment would seem to have an impact on how                 
  accurate that assessment was.  So exactly, were you feeling                  
  comfortable with that assessment?  Or were there times when                  
  you submitted an assessment and said, `Yikes.  You know, we                  
  better be ready for, get blown out of the water on this                      
  MR. BREWER:  "I understand what you're saying.  There was                    
  just a lot going on in the early 80s and the late 70s.  I                    
  think that's why we're here today is because the initial                     
  assessments, although they were timely, were not exactly                     
  what they should have been or as accurate as they might be.                  
  Because of that, you have amendments.  And the amendments                    
  primarily are to the returns that were filed in the late 70s                 
  and early 80s.  Therein lies the problem.  87, 88, 89 --                     
  will there be amendments?  There might be amendments but                     
  they're going to be very few and they're going to be                         
  inconsequential, I believe.  The major amendments came about                 
  because of the early 1980s and late 1970s, again, not having                 
  a good handle on what actually was going on in the                           
  marketplace.  Doing the best you can with what you have,                     
  making sure that the assessments were timely, and then                       
  following up with a long-established division policy                         
  whereby, if necessary, would amend the initial assessments."                 
  Number 547                                                                   
  COMMISSIONER REXWINKEL:  "And Mr. Chairman, if I may, the                    
  House introduced House Bill, I think it was 547, and in that                 
  bill it called for retroactive application using your                        
  royalty values to determine the value to be used for                         
  severance tax purposes.  We issued a fiscal note on that                     
  bill and, if we include both the tax types we're talking                     
  about here, the 43.55 production tax and 43.21 separate                      
  accounting, the total effects of that going back into                        
  history would have been, retroactive to 1986, would have                     
  been about $3.5 billion reduction in the amount of                           
  outstanding claims including interest that we have.  That                    
  backs up Mr. Brewer's statement that most of these                           
  assessments and claims go back into that earlier time frame                  
  when we had some very difficult periods with respect to                      
  value.  So that's where the lions share of those claims rest                 
  is back in those earlier years."                                             
  Number 565                                                                   
  CHAIRMAN VEZEY:  "Representative Jerry Sanders."                             
  REPRESENTATIVE SANDERS:  "Thank you Mr. Chairman.                            
  Commissioner, this has got a big, long history and I still                   
  have problems understanding how this revelation came about                   
  in January of 1994.  If this problem goes back that far and                  
  all these years we've talked about... Why couldn't this have                 
  been fixed in 92 or 90 or 88 or sometime when someone else                   
  could have had all this fun."                                                
  COMMISSIONER REXWINKEL:  "Mr. Chairman, as I believe someone                 
  indicated yesterday, or stated yesterday, they were not here                 
  or they don't know why it wasn't fixed, but I can tell you                   
  there has been a process involved and that process resulted                  
  in a decision that was reached in 1989.  As the taxpayers                    
  indicated they thought that was the first time that the                      
  department had ever taken a position with respect to the                     
  statute of limitations.  You know one taxpayer characterized                 
  it as the department `flip-flopping' on that decision over                   
  that long-standing interpretation.  Well there has been no                   
  flip-flop.  As was indicated earlier by Mr. Hosie, the                       
  department itself, had to take this to a formal procedure                    
  prior to making the final determination.  The division has                   
  had a long-standing interpretation, and it was also                          
  referenced to the Mary Nordale letter that said the                          
  department has no position.  Well, that was in response to                   
  litigation (indiscernible) Standard Production Company                       
  saying that it hadn't gone through the administrative                        
  procedure process yet and BP, you need to take it through                    
  the administrative procedure process.  And the court agreed                  
  with that position.  So, yes, things need to arise through                   
  an administrative procedures process before the department                   
  itself can have a formal opinion.  That was in 1989.  Why                    
  somebody didn't look at this and say something different                     
  earlier --  well, someone did before 1984 -- SB 185,                         
  addressing the situation, was introduced in the Senate, I                    
  believe April 7, 1993.  So it was introduced last year and                   
  there was little action on that last year and there was no                   
  action starting this year.  So eventually we thought it was                  
  very important that this legislation get passed.                             
  "There has been a lot of, I guess, questions about this                      
  whole thing, but I mean if we go back to statute -- let's go                 
  back to statute --  it says here `Taxpayers Remedies in                      
  Section 43.05.240.  A person aggrieved by the action of the                  
  department in fixing the amount of tax or imposing a penalty                 
  may apply to the department in sixty days giving notice of                   
  the grievance and requesting an informal conference.  At the                 
  conference the person aggrieved may present arguments of                     
  evidence relevant to the amount of tax or penalty due the                    
  state.  If the department determines that a correction is                    
  warranted, the department shall make the correction.  A                      
  person aggrieved by the action of the department in fixing                   
  the amount of a tax or imposing a penalty may apply to the                   
  department and request a formal hearing.'  And that's in                     
  place of the informal conference or thirty days after                        
  decision resulting from the informal conference.  And then                   
  it goes on to say `At the formal hearing the department may                  
  subpoena witnesses and may administer oaths and make                         
  inquiries necessary to determine the amount of the tax or                    
  penalty due the state.'  The amount of tax due the state of                  
  Alaska... That's the charge of the hearing officer through                   
  the commissioner of Revenue to determine the amount of tax                   
  due the state.  If the person aggrieved does not care for                    
  that, they can always appeal that decision also.                             
  "And then we come into the three-year statute.  Someone says                 
  `well yes but now that's aside, we can only reduce the                       
  amount of tax.  We're going to bar the department from                       
  trying to determine the correct amount of tax because of the                 
  three-year statute,' and that's exactly what we're trying to                 
  clarify - how does a three-year statute reconcile itself                     
  with the statute in 43.05.240 that states that the                           
  department is to determine the correct amount of tax during                  
  the formal hearing process.  And that's what we're                           
  requesting clarification of, is for the department to make a                 
  determination to the proper amount of tax (indiscernible) to                 
  obtaining and subpoenaing witnesses, administering oaths and                 
  obtaining necessary information upon which to do that, and                   
  the only time we get to do that is at formal hearing.  And                   
  the informal conference process is to allow the taxpayer an                  
  opportunity to present additional information and the                        
  department to gain additional information in order to try                    
  to, perhaps, avoid a formal hearing process which is like a                  
  trial which consumes a lot of time and energy and perhaps it                 
  can be resolutioned during that process.  And the three-year                 
  statute was basically a statute that says, `Okay, let's get                  
  the audit done within three years so we can move on to this                  
  administrative process of informal conference and formal                     
  hearing.'  And this bill 377, I believe, is to clarify that                  
  we do have this provision to determine the correct amount of                 
  tax, and we also have a provision that says let's get the                    
  initial assessment out, get the initial audit done in three                  
  years so we can move on into this process of determining the                 
  correct amount of tax.  But that is certainly not how it's                   
  being interpreted by a few taxpayers and that's the reason                   
  for the clarification."                                                      
  CHAIRMAN VEZEY:  "Thank you.  Does that conclude your                        
  question Representative Sanders?"                                            
  REPRESENTATIVE SANDERS: "Yes, I hope so."                                    
  CHAIRMAN VEZEY:  "Representative James."                                     
  REPRESENTATIVE JAMES:  "Thank you, Mr. Chairman.  I've heard                 
  from you that it was difficult to get up to speed on all the                 
  things that's happening with the oil industry and I think                    
  that I would kind of agree that that is a new business for                   
  us and that maybe we wouldn't be prepared for that, but it                   
  would seem to me like that the statute that was on the books                 
  that said three years from the time that the tax return is                   
  filed until the assessment needed to be assessed, that it                    
  would be very quickly to determine that that wasn't enough                   
  time.  Was there any time in those early years that anyone                   
  asked for an extension of our existing statutes.  Because if                 
  three years wasn't enough and you had to consistently be                     
  asking and I am assuming that I am correct in reading that                   
  that you have asked for a lot of extensions over the three                   
  year period, that you might have concluded that three years                  
  wasn't enough and that maybe we ought to change the                          
  MR. BREWER:  "I understand what you're saying and, you know,                 
  it's interesting that the extension of the statute actually                  
  goes both ways.  People get the impression that it's the                     
  Department of Revenue who is always asking the taxpayer to                   
  extend because the department wants it.  You know in many                    
  instances it's the taxpayer who requests or implies that                     
  they would appreciate it if the department would give them a                 
  consent, and the reason is because taxpayers have to comply                  
  with requests from auditors.  Sometimes they are quite                       
  voluminous and they take a lot of time.  Some of the                         
  taxpayers, in some instances, will not be able to do their                   
  share of the work, i.e. produce documents, produce records,                  
  or whatever and do it in a timely manner.  So in many                        
  instances, I mean it was -- the extension of the statute the                 
  time to make an assessment -- it benefited both parties.  It                 
  benefited Revenue and it benefited the taxpayer.  It was                     
  almost an implied understanding that extensions benefited                    
  both parties."                                                               
  REPRESENTATIVE JAMES:  "Thank you, Mr. Chairman, but on that                 
  point is, if you consistently have to get an extension of                    
  time to do the job, wouldn't it have been some indication to                 
  you that you needed more time in the statute so that you                     
  don't have to do that.  I mean wouldn't it be the rule that                  
  the statute ought to fit the case as opposed to having to                    
  continually extend."                                                         
  MR. BREWER:  "Well, you know, Exxon got up here and told you                 
  that they've extended the statute like thirty-three times                    
  and BP said the same or a similar number.  The problem is,                   
  is that once in awhile the taxpayer says `no, I won't do it'                 
  and that has only come about, oh I don't know, probably in                   
  the past four or five years taxpayers have expressed                         
  frustration with the department not being able to get an                     
  assessment on a timely basis, and only recently have some                    
  said `no.'  And I think that's the reason why we're here is                  
  because there isn't that interplay or that colloquium                        
  anymore between the taxpayer and the department."                            
  REPRESENTATIVE JAMES:  "And then what would be your response                 
  if they said `no.'  What would you do next?"                                 
  MR. BREWER:  "I think we would do what you would do, and we                  
  do do it.  Number one, we have to determine the correct                      
  amount of tax.  Number two, they're now going to extend the                  
  statute so we do what we believe is our job which is to                      
  protect the interest of the people of the state of Alaska,                   
  which is to say that we issue an assessment based upon the                   
  best information that we have at the time."                                  
  REPRESENTATIVE JAMES:  "You don't do a jeopardy assessment                   
  because you're not finished.  Are you filing an assessment                   
  that's lower than you think it might be just because that's                  
  all the information you have at that time?"                                  
  MR. BREWER:  "In that instance we would try to have some                     
  basis for the assessment.  We might go to some third party                   
  or some other -- some press or some other indicator -- I                     
  mean we have to have a basis for what it is we do.  People -                 
  - you hear this terminology of `blue sky.'  That's really                    
  not the case, we try to have a basis for what it is we do.                   
  If we don't have enough time, then our role, our goal is to                  
  protect the interest of the people of the state of Alaska.                   
  We do that."                                                                 
  Number 677                                                                   
  COMMISSIONER REXWINKEL:  "If I may, Mr. Chairman, you know                   
  on these jeopardy assessments though Mr. Sullivan said,                      
  `well, the department could issue a jeopardy assessment or                   
  the division could and just deny all the deductions.'  In                    
  many cases here, we're not talking about deductions, we're                   
  talking about the value, the sales price, the sales price of                 
  the product.  In a case of a jeopardy assessment, if we just                 
  deny the deductions and the taxpayer has misreported income,                 
  that's fraud.  So I mean that tolls the statute because                      
  you're dealing with under payment or under report of income,                 
  which I believe that fraud could probably be assessed in                     
  that case.  So it's probably easily proven.  Deductions,                     
  though, are somewhat subject to some perspective and review,                 
  and basically here we're not talking about a lot of                          
  reduction, oh, we have the net back provisions and some of                   
  that is pretty well set like the TAPS tariff, but basically                  
  it's valuation,m it's the sales price - the revenue - that's                 
  the key to the whole thing - the revenue.  And the only way                  
  we could jeopardy assess that, is to somehow just tack on                    
  some amount of money in order to try to protect the state                    
  against all the issues out there but that wasn't the goal.                   
  The goal was, in the final analysis, by statute to determine                 
  the correct amount of tax after we've gone through the                       
  appeals process - to get the audit done and that gives us                    
  the starting place to begin the informal conference and/or                   
  the formal hearing process to determine the correct tax."                    
  Number 694                                                                   
  REPRESENTATIVE JAMES:  "But, isn't it true that most of the                  
  problems that we have, have been in determining the value of                 
  the oil, and it's been testified here before that fraud has                  
  not ever been an issue.  We just now brought that up, but                    
  fraud has never been an issue, so that it's never been                       
  claimed that fraud -- and fraud would toll the statute                       
  anyway -- and that's not been the issue.  Is that correct?"                  
  COMMISSIONER REXWINKEL:  "Fraud is always very difficult to                  
  prove.  Fraud you have to have intent."                                      
  Number 700                                                                   
  REPRESENTATIVE JAMES:  "Just to go on with -- I've got a few                 
  questions written down here this time so I won't forget one.                 
  Is that if, in fact, that the problem that we are in today                   
  is a result of our not knowing what we were doing, and that                  
  we were ill-prepared to deal with an industry that we                        
  weren't familiar with and so there was a lot of learning                     
  that we had to do and maybe we didn't have enough people.                    
  That's not necessarily questioned at this time.  But is that                 
  true then, that the industry has to suffer those                             
  consequences because we're not prepared..."                                  
  TAPE 94-66, SIDE A                                                           
  Number 000                                                                   
  COMMISSIONER REXWINKEL:  "...they were amending their own                    
  tax returns.  And, you know, we can't talk about some things                 
  because, of course, they're confidential with respect to                     
  taxpayers, but, I mean, as a result of the information we                    
  gained from the Amerada Hess royalty settlement, we've even                  
  gained some new information with respect to certain aspects                  
  of a taxpayer's return, that resulted in the taxpayer's                      
  REPRESENTATIVE JAMES:  "But isn't it true that one of the                    
  reasons that they can't file, they -- in the past, anyway --                 
  haven't been able to file their tax return with accurate                     
  information, that sometimes the sale price and so forth is                   
  out and extended past the prime of the tax returns due date?                 
  Isn't that one of the reasons why -- and currently they have                 
  to do a lot of amendments, because they don't have the                       
  information?  And that part of this bill is to solve part of                 
  that problem, that's on the severance taxes, but we're still                 
  talking about income taxes mostly?"                                          
  MR. BREWER:  "As far as amendments are concerned, you're                     
  quite right.  Many taxpayers as a matter of course, every                    
  month file amendments to returns that are filed the previous                 
  month.  As far as transportation costs are concerned, many                   
  times the taxpayers themselves don't know, until about a                     
  year later, as to what the accurate amount should be as far                  
  as deductions are concerned when it comes to transportation.                 
  I mean, as a matter of course, they file amendments to tax                   
  returns.  In one instance there is a taxpayer who has filed                  
  amendments six years after the returns have been filed.                      
  Again, the audit process has been ongoing, or the appeals                    
  process has been ongoing, but, that amount of time has                       
  lapsed between the time when they last filed a return and                    
  their latest amendment."                                                     
  Number 044                                                                   
  REPRESENTATIVE JAMES:  "Okay, I guess one more question.                     
  I've heard all the testimony yesterday and today, and seems                  
  like even from both sides of the issue here, that the                        
  testimony that we're getting, and the questions that we're                   
  asking, has to do with a awful lot of whether or not we have                 
  a problem today, and what caused that problem, as opposed to                 
  what the issue I believe we should be dealing with today,                    
  is, does the statute say what it looks like it says on the                   
  face, or does it say, what the department's position has                     
  been?  And shouldn't that be what we're basing our decision                  
  on?  As opposed to whether you took a long time to have the                  
  audit?  Whether the oil company asked for extensions, didn't                 
  ask for extensions?  Of how much money is at stake?  Isn't                   
  it really a philosophy problem that we have, as to whether                   
  or not we the legislature want to say yes, what you've been                  
  interpreting is, what we believe it to be, or not?"                          
  Number 063                                                                   
  COMMISSIONER REXWINKEL:  "If I may answer that, Mr.                          
  Chairman. Representative James, that's what I referred to                    
  when I referred to statute here and we talked about at the                   
  formal hearing.  The department may subpoena witnesses, may                  
  administer oaths, and make inquiries necessary to determine                  
  the amount of tax or penalty due the state.  The person                      
  aggrieved may present arguments and evidence relevant to the                 
  amount of the tax or penalty due the state.  And if the                      
  department determines that a correction is warranted, the                    
  department shall make the correction.  So, the formal                        
  hearing process is where we get to the correct amount of                     
  tax.  Now, was a three-year statute meant to preclude what                   
  is indicated here in the formal hearing process about                        
  determining the correct amount of tax after going through                    
  all the oaths and subpoenas and what have you?  And how does                 
  a three-year statute interplay with that?  I think what                      
  we're trying to do is clarify that the three-year statute                    
  talked about getting the initial assessment, getting the                     
  audit done, so we can move through this administrative                       
  process, so we can finally determine the amount of tax."                     
  Number 085                                                                   
  REPRESENTATIVE JAMES:  "Okay.  And I understand that the                     
  difference between the three-year statute and the six-year                   
  statute, because it looks to me like you're totalling both                   
  of them together in one package, and my question to you,                     
  then, and I stated it earlier today, what I believe, that                    
  the three-year statute is giving a period of time when an                    
  audit ought to be finished.  And then the audit being                        
  finished, then the six-year statute clicks in, and says you                  
  have six years to resolve this or file a suit to collect.                    
  And so my question is, and your interpretation is, that, you                 
  just have to have the first assessment in within the three-                  
  year period and after that, because of the relationship                      
  back, you can continue to amend the assessment, until you're                 
  to the final resolution through the formal process or                        
  whatever, and you finally get a final assessment and then is                 
  when the six years starts clicking in.  And I wanted to                      
  know, why do you need six years from the time the final                      
  assessment is made, and all administrative appeal is over,                   
  to get it into court?  Because that's what the six years is                  
  for, is a period of being able to go to collection.  And if                  
  you're not going to count any of that time you're making                     
  appeals decisions, and you started after that process, then                  
  why do you need six years there?"                                            
  Number 111                                                                   
  COMMISSIONER REXWINKEL:  "Mr. Chairman and Representative                    
  James.  Number one, it just seems like if we take a look at                  
  the chart, six years from the time the assessment is issued                  
  to go through all these processes, is a very quick period of                 
  time, and one that would be very difficult to maintain if we                 
  had to go through all the processes.  It just takes a very                   
  long period of time.  And why six years at the end of this?                  
  Because the six years is a time period - and Mr. Hosie                       
  discussed the six-year collection statute, and if you like I                 
  could defer that to the Attorney General."                                   
  REPRESENTATIVE JAMES:  "You put your picture up here, and                    
  you have - we both have the same three-year period, from the                 
  tax filing to the assessment, but I stop my six-year period                  
  at Alaska Superior Court.  You have yours all the way to the                 
  bottom.  Are you saying that you think the six years is                      
  still tallying along as we're in court?"                                     
  COMMISSIONER REXWINKEL:  "I'll defer to the Attorney General                 
  on that, Representative James."                                              
  REPRESENTATIVE JAMES: "Because I don't think so, I think                     
  once it's in court, the statute is tolled.  That's all I'm                   
  CHAIRMAN VEZEY:  "Thank you, Representative James.                           
  Representative Kott."                                                        
  REPRESENTATIVE KOTT:  "Thank you, Mr. Chairman.  I guess                     
  I'll ask one of the questions I have here, to Mr. Brewer.  I                 
  think it was either yesterday, or this morning, one of the                   
  members of the industry made a comment, that concerned me a                  
  little bit.  I think the comment was along the lines that                    
  maybe alluded to the fact that assessments, as they are                      
  currently being conducted, are unusually or unreasonably                     
  high.  Can you comment on that particular aspect?  That may                  
  be one of the reasons why we're finding some delays built                    
  into the three-year provision of the statute."                               
  Number 141                                                                   
  MR. BREWER:  "I don't, I was here this morning, and I didn't                 
  pick up on that.  Certainly not now, not in the current                      
  processes that we're involved in.  Prices are much more                      
  transparent.  We have a very, very good handle on                            
  transportation costs, we know how exchanges work.  We know a                 
  lot about taxpayers, the taxpayers' businesses.  We know                     
  what documents to ask for.  We know how to analyze                           
  transactions.  We look at documents and we are able to see                   
  what the documents tell us.  That our current assessments                    
  are high?  I don't believe so.  I think they are right on."                  
  Number 149                                                                   
  REPRESENTATIVE KOTT:  "So you don't believe they are                         
  inflated at all?"                                                            
  MR. BREWER:  "Not in the time frame, not in this current                     
  time frame, I do not believe."                                               
  Number 159                                                                   
  REPRESENTATIVE KOTT:  "I think we've heard from both of the                  
  members that represented the industry that there seems to be                 
  a little bit of controversy here, that whenever you came to                  
  them, or vice versa, and asked for an extension, written                     
  consent to extend the statute, they were more than willing.                  
  And you kind of alluded to the fact that perhaps in recent                   
  times they were not so willing.  Can you further amplify                     
  that comment?"                                                               
  MR. BREWER:  "In some instances they said no, we've had to                   
  issue an assessment based upon the information that we had                   
  at the time.  In some instances they put caveats on                          
  extending the statutes, which is to say that we couldn't                     
  bring up specific new issues.  Or we had to limit any new                    
  issues to specific parameters.  It's just been a more, of                    
  more recent times, there's just been more inclination on                     
  their part to not be so willing to extend the statute of                     
  limitations.  I don't know what their motivations are.  I                    
  can speculate, but I'm not going to."                                        
  REPRESENTATIVE KOTT:  "In other words, you're saying then,                   
  it's not just a matter of, all you have to do is ask."                       
  MR. BREWER:  "Not recently."                                                 
  REPRESENTATIVE KOTT:  "And finally, Mr. Chairman.  If I                      
  might ask the Commissioner, we've heard a lot of speculation                 
  and read the newspapers, that there's a lot of money at                      
  stake.  And I think I've seen figures, $6 billion, $3                        
  billion; personally I think it's extremely inflated.  Can                    
  you comment, cutting to the chase, actually how much is at                   
  stake here?"                                                                 
  Number 191                                                                   
  COMMISSIONER REXWINKEL:  "Mr. Chairman and Representative                    
  Kott, there's been discussion about total claims, penalties,                 
  and interest outstanding that would be taxes, and penalties                  
  and interest of about $5.5 billion.  It's hard to keep up                    
  with that number on a daily basis, because interest is                       
  accruing, and sometimes new audit assessments are issued.                    
  But out of the $5.5 billion, I believe around $4.6 billion                   
  represents production and separate accounting tax claims,                    
  taxes, penalties and interest.  Out of that $4.6 billion,                    
  about $1.6 is tax; $.3 is penalty; and $2.7 is interest.                     
  We've discussed about $1 billion represents and is related                   
  to the three-year audit statute issue, and about $2 billion                  
  relates to the six-year statute.  There's a lot of different                 
  numbers, but it depends on how they're sliced and cut up and                 
  Number 209                                                                   
  REPRESENTATIVE KOTT:  "So basically what I'm hearing is, on                  
  the three-year statute of limitations, we're talking about                   
  $1 billion that is essentially at risk.  And that, I am                      
  certain, is based upon the state receiving 100 percent,                      
  which, I'm not sure if that's ever happened nor do I care to                 
  get into it, but, is that correct?"                                          
  COMMISSIONER REXWINKEL:  "That would be 100 percent of the                   
  amount of the claimed - the amount of the assessment.                        
  (Indiscernible) penalty and interest."                                       
  CHAIRMAN VEZEY:  "Thank you.  Representative Davidson."                      
  Number 218                                                                   
  REPRESENTATIVE DAVIDSON:  "Thank you, Mr. Chairman.  Mr.                     
  Brewer, what was the year you started with the department,                   
  and how many commissioners have you seen come and go since                   
  that time?"                                                                  
  MR. BREWER:  "I began in 1985, specifically with Oil & Gas,                  
  and I've seen a lot of commissioners come and go..."                         
  Number 227                                                                   
  REPRESENTATIVE DAVIDSON:  "Are you aware of how many - well,                 
  the question is, how many commissioners that you are aware                   
  of that have been with the department, as well as division                   
  heads, who have now - and I ask this because we are in fact,                 
  we established earlier, that the appeals process is a quasi-                 
  judicial process - and my question is, are you aware of how                  
  many commissioners - former commissioners past, or                           
  currently, how many of those individuals, including division                 
  heads, who now work for the industry?"                                       
  MR. BREWER:  "Could you repeat the last part of your                         
  question please?"                                                            
  REPRESENTATIVE DAVIDSON:  "Or division heads - "                             
  MR. BREWER:  "Had been part of the industry?"                                
  REPRESENTATIVE DAVIDSON:  "Yes.  Who have in the past or                     
  currently work for the industry?"                                            
  MR. BREWER did not respond immediately.                                      
  REPRESENTATIVE DAVIDSON:  "We could get that information                     
  later, maybe.  I don't want to delay - "                                     
  CHAIRMAN VEZEY:  "No, I don't really want to wait on, that's                 
  kind of extraneous to what we're here for."                                  
  MR. BREWER:  "I'm sorry, I..."                                               
  REPRESENTATIVE DAVIDSON:  "Okay.  So, then you - another                     
  question I wanted to ask you was, you've been there long                     
  enough to understand the auditing process, certainly, and I                  
  was wondering if, in what advantages would accrue to the                     
  legislature if in fact we had someone attached, say, to                      
  Budget and Audit, to keep up regularly on these kinds of                     
  things.  It seems one of the things that happened is that                    
  the legislature kind of got away from it.  Couldn't we avoid                 
  that kind of thing if we had a full-time auditor, say,                       
  attached to Budget and Audit to keep us informed about these                 
  kind of things?"                                                             
  Number 261                                                                   
  MR. BREWER:  "I think that in our settlement process, and                    
  our audit process, I think we should be responsive to the                    
  legislature.  If we settle with a taxpayer I think we should                 
  be accountable for how we settle with the taxpayer.  I think                 
  we should do it on an issue by issue basis.  I think we                      
  should have a reasonable standard, and I think we should                     
  have a basis for how it is we come down on settlements.  So.                 
  In the past that's happened.  We have made reports - I'm not                 
  sure whether it's too late to get (indiscernible) a monitor                  
  (indiscernible), but certainly we've tried to anticipate                     
  that we are accountable for what it is we do.  And we have a                 
  pretty good road map for how it is we got to where we did                    
  with the taxpayer (indiscernible.)"                                          
  Number 280                                                                   
  REPRESENTATIVE DAVIDSON:  "I have a final question, Mr.                      
  Chairman, if I may.  You talked about the state now being                    
  able to - you're comfortable with dealing with the five-year                 
  issue.  And I'd like to ask what you predicated that on, why                 
  you think we have enough to be able to deal with the issues                  
  now in a different way; and, the second part of that                         
  question is, what, if in fact we have done that, what have                   
  you anticipated as changes to the process?  For example,                     
  what happens if we see price controls again?  Would that                     
  affect how well we could complete these tasks in five                        
  MR. BREWER:  "What do we know today that we didn't know back                 
  then?  We know a lot.  The first thing you do when you're an                 
  auditor, and you want to go in to a taxpayer, I mean, you                    
  come up with an audit program, and you get an idea of what                   
  you're going to look for, and why it is you want what it is                  
  you're asking for, and what you're going to do with it once                  
  you get it; we just have a wealth of experience.  We've had                  
  just a lot of sharing between us and the taxpayers.  And we                  
  have a very good relationship with taxpayers.  We really do.                 
  We're on a first-name basis.  They know what we're up                        
  against, as do they.  We're on different sides of the table,                 
  but we both appreciate where each other's coming from.  We                   
  have, for the most part, an excellent rapport with                           
  taxpayers.  We really do.  Is five years adequate?  With                     
  price controls coming back - we know a lot about price                       
  controls.  But, again, I don't know what form price controls                 
  might take if they come back.  I don't know what would                       
  happen if the West Coast surplus went away.  I don't know.                   
  But it's my feeling now that five years is adequate.  We can                 
  do the job, and we can get the assessment out, and we can be                 
  capped, within five years.  Maybe seven would be better,                     
  obviously.  But I think we can do it in five."                               
  REPRESENTATIVE DAVIDSON:  "Mr. Chairman, I would ask you,                    
  then, is it your understanding then that if down the trail                   
  we find that five years is not adequate, we could come back                  
  and change that, is that correct?  If some new developments                  
  occur that - "                                                               
  Number 315                                                                   
  CHAIRMAN VEZEY:  "Getting a little extraneous,                               
  Representative Davidson.  We can't commit future                             
  REPRESENTATIVE DAVIDSON:  "I understand that, but I was                      
  wondering about your own judgment (indiscernible.)"                          
  CHAIRMAN VEZEY:  "Representative Davidson, it would be my                    
  personal opinion that if we had a good bench mark for                        
  measuring value of a commodity, that it would not be                         
  necessary.  Representative Green."                                           
  Number 320                                                                   
  REPRESENTATIVE GREEN:  "Thank you, Mr. Chairman.  We have                    
  heard about a day and half's worth of testimony now about                    
  the problems that are associated with various statutes of                    
  limitations, the various degrees of difficulty it has been                   
  in the past to try and establish value and what's better now                 
  -you've indicated that you know what to ask, the taxpayer                    
  knows what you're going to ask, and so you're on a first-                    
  name basis, and -- I won't continue to debate the amount of                  
  time that that in itself should have shortened -- My                         
  question seems to be that, it's not the net back, as I                       
  understand Mr. Rexwinkel said, it's not the transportation                   
  cost, it's establishing the value.  And if that's the case,                  
  would it be possible that either one of you might give us a                  
  word picture as to just what happens with a barrel of, I                     
  don't know, say the biggest producer - BP - has a barrel of                  
  oil, what it goes through and what you do to that barrel to                  
  establish value.  And let's go to the Gulf Coast, that's the                 
  furthest away.  Just so that we understand the problems that                 
  you keep telling us about."                                                  
  MR. BREWER:  "Maybe Mr. Wessells would like to come up here                  
  and join me.   For different taxpayers or different - ?"                     
  REPRESENTATIVE GREEN:  "No, I'm saying we take a BP barrel."                 
  MR. BREWER:  "Okay, a BP barrel.  Well, BP can't really                      
  refine ANS, because it's a very sour crude.  And BP's                        
  refineries are configured so that they run light sweet                       
  crude.  And so, when BP has a barrel of ANS, which they                      
  can't utilize in their refinery, what are they going to do?                  
  Well, they're going to try to trade it away and get a                        
  lighter quality crude that they can use in their refinery.                   
  They might deliver that barrel of crude to a refiner on the                  
  West Coast, a barrel of ANS, and in return, that refiner of                  
  ANS on the West Coast might give to BP a barrel of West                      
  Texas Intermediate at some place on the Gulf Coast.  Well,                   
  what are you going to do as far as valuation is concerned?                   
  Money may or may not change hands.  Certainly a differential                 
  usually changes hands.  But what are you going to do as far                  
  as valuing that barrel of ANS?"                                              
  REPRESENTATIVE GREEN:  "I'm not establishing a value.  I'm                   
  asking you, what do you do in that scenario?"                                
  Number 359                                                                   
  MR. BREWER:  "Well, we figure that the value of what you                     
  gave up is best indicated by what it is you received.  So we                 
  would look at that barrel of WTI that they might have                        
  received and say, okay, what is the current market value of                  
  that barrel of WTI that they received in the Gulf Coast?  We                 
  would attach to it a differential.  Money may or may not                     
  change hands; usually it does in that type of a situation.                   
  And we would usually subtract the differentials from the                     
  value of the WTI that was received, and that would be the                    
  value of the ANS that was landed on the West Coast."                         
  Number 367                                                                   
  REPRESENTATIVE GREEN:  "And so light barrels then would be                   
  treated in that same manner if there was another tanker full                 
  that went to the West Coast and was treated after West Texas                 
  Number 370                                                                   
  MR. BREWER:  "Or, BP could have, rather than deliver the ANS                 
  on the West Coast, they could have delivered the ANS on the                  
  Gulf Coast.  How do they get to the Gulf Coast?  Well,                       
  through the Panama Canal, possibly.  Through pipelines                       
  across the United States, possibly.  I mean, there's any                     
  number of ways that they could get that ANS to a purchaser                   
  and then receipt the WPI.  There's just a myriad of                          
  different ways that that can happen."                                        
  Number 376                                                                   
  REPRESENTATIVE GREEN:  "Okay, and let me rephrase the                        
  question if I may, Mr. Chairman.  They may put it on the                     
  West Coast and trade it; they may take it to the Gulf Coast.                 
  There are a myriad, you say, at least there are several,                     
  different ways that they might trade that oil out to get                     
  their refinery or refineries taken care of.  That number                     
  would be a finite number.  I mean, in other words, if there                  
  were replications of the West Coast, or replications of the                  
  Panama pipeline to lighter ships on the Gulf Coast, and so                   
  on, those would be handled in similar manners, I would                       
  presume?  For the given year that you are talking about?                     
  And you know, and they know, what you're going to ask for                    
  about those barrels.  And now, if that establishes a value                   
  for those various scenarios for tax purpose, or for royalty                  
  purpose, would you assign because of the market basket                       
  concept that we've heard about over the last day and a half,                 
  would you see that it would simplify things in your                          
  accounting if you could say that the barrel that reaches,                    
  for example, the one you just talked about, hitting the West                 
  Coast, being traded out for West Texas Intermediate, that                    
  barrel could have the same value for tax and for royalty?                    
  Okay, now you've got taxes applied to that, but as far as a                  
  number to start with?"                                                       
  Number 397                                                                   
  MR. BREWER:  "Two concepts we're working with here.  The                     
  first concept is full consideration, what did the taxpayer                   
  actually get for the barrel of ANS that is delivered to the                  
  West Coast?  That's the first concept:  What did he get?                     
  The second concept is, what is the value that is prevailing?                 
  What is the value of the ANS that is being given up on the                   
  West Coast?  I mean, there's two very different concepts.                    
  The market basket would establish what is the prevailing                     
  value of ANS.  (Indiscernible) to the West Coast, or to the                  
  Gulf Coast.  We'd say, `hey, look this is the minimum                        
  standard to which you people must adhere.'  You must come up                 
  at least to this standard which is called prevailing value,                  
  which is the market basket.  A mix of different crudes, and                  
  they're all weighted differently.  That's prevailing value,                  
  that's the market basket.  That's concept number one.                        
  Concept number two is, what did you actually get for the                     
  crude, you see?  Because in this instance, let's say that                    
  BP, we determine that BP actually got $20 for the crude.                     
  But let's also say that the prevailing value of crude was                    
  $19.  We would say that we wished to share in that extra                     
  dollar that BP received.  If you received it, then we wish                   
  to share in those proceeds.   So there's two concepts.                       
  There's full consideration with BP, and there's also a                       
  prevailing value standard to which they must adhere."                        
  Number 417                                                                   
  REPRESENTATIVE GREEN:  "In order to reduce your problem,                     
  though, would it not be better to establish that value, say,                 
  if it's $20 they actually got, that establishes even better                  
  than the market basket approach, the true value of the oil?                  
  That's what they got for it?"                                                
  Number 421                                                                   
  MR. BREWER:  "Well, the full consideration is going to be,                   
  for example, the exception.  One of the big problems that                    
  we've had in the past, is establishing prevailing value.                     
  And how we've established prevailing value is by reference                   
  to all these ANS deals in a specific market.  You know, we'd                 
  say that every month there were 50 ANS transactions on the                   
  West Coast.  And we would look at a representative sample of                 
  those transactions and say, we think these three                             
  transactions best represent prevailing value of ANS.  It's                   
  taken us a long time to build those databases.  In fact,                     
  what we did is, in the ANS royalty litigation, we used a lot                 
  of the information that they recovered and assembled and put                 
  into databases.  They listed all the contracts.  They listed                 
  all the deals and specific markets and specific months.  And                 
  we'd say, okay, based upon all these deals that were going                   
  on, we can either simple average them or the royalty people                  
  would weight average them, they'd say, this is the                           
  prevailing value in this market.  It took a long time to                     
  establish prevailing value.  In a lot of instances we'd                      
  begin an audit, and we wouldn't even know what prevailing                    
  value is, but we had to get out there fast, because the                      
  statute was about to expire.  What the market basket concept                 
  does is, it gives us prevailing value quickly on a timely                    
  basis, so that when we walk up to a taxpayer to begin an                     
  audit, we know what prevailing value is.  Taxpayers know,                    
  right off the bat, what the minimum standard is to which                     
  they must adhere.  There is none of this coming back four or                 
  five or six or ten years later and saying, ah, we think                      
  prevailing value back in 1984 should have been X, based upon                 
  new information that has come to date.  That's not                           
  anticipated in this bill.  We would know prevailing value up                 
  front, and we would get to the gist of what prevailing value                 
  is by virtue of regulation.  We would establish a basket,                    
  establish crudes, establish weightings, and that type of                     
  Number 446                                                                   
  REPRESENTATIVE GREEN:  "Okay, and again, this is in the                      
  question mode, if I may, Mr. Chairman.  So I hear you, if I                  
  think I hear you correctly, that you get a ballpark figure                   
  with the prevailing value, but then you actually can                         
  determine the precise amount that they got for tax purposes,                 
  you actually can determine that later perhaps, but, at some                  
  time then, you're going to have a prevailing value of say,                   
  $19, but they actually sold it for $20, and you have that                    
  expertise, that you can determine that, within what, a                       
  month, or six months, or something?"                                         
  MR. BREWER:  "What we intend to do as far as prevailing                      
  value is concerned is, it is going to be on a quarterly type                 
  of a basis."                                                                 
  COMMISSIONER REXWINKEL: "(Indiscernible) just resell it for                  
  MR. BREWER:  "You're talking about full consideration?"                      
  REPRESENTATIVE GREEN:  "You mentioned the word prevailing                    
  value that was the market basket approach to get an                          
  approximation but then you can come back and say, if they                    
  sold it for $20, the precise amount, then you want, the                      
  state wants, the tax on that extra dollar?"                                  
  MR. BREWER:  "That's right."                                                 
  REPRESENTATIVE GREEN:  "Okay.  My question then, still, is,                  
  that if that's the case, why can't that value once and for                   
  all - rather than establish a completely different market                    
  basket, and repeat this whole complex process for a royalty                  
  value - why not use the same value and apply whatever                        
  taxation you have to, but, in other words, cut your job way,                 
  way down by establishing a method to determine a value, and                  
  if it needs to be adjusted, adjust a value.  But not two                     
  different values."                                                           
  MR. BREWER:  "So, is it that you're saying that in reference                 
  to prevailing value, we should use the royalty methodology?"                 
  REPRESENTATIVE GREEN:  "I'm just asking.  I'm just wondering                 
  if that wouldn't be a way to simplify.  We keep hearing that                 
  the reason you need five years, is, even though you've got a                 
  much more streamlined process, now, you need to extend the                   
  statute of limitations because, Oh, my stars, look at all                    
  the things that we have to do.  And I'm saying, knock out a                  
  few of those stars."                                                         
  MR. BREWER:  "It's a good question, and we hear it a lot.                    
  Should I go first, Darrel?  The royalty people did a heck of                 
  a job.  I mean, they had all the taxpayers together.  There                  
  were eight or nine or ten taxpayers.  In fact, the                           
  litigation is still ongoing.  Valuation of gas, as far as                    
  royalty purposes is concerned, is still being litigated.                     
  Oil is pretty much over, although there were a number of                     
  taxpayers who were not parties to the royalty litigation.                    
  Why is royalty different than tax?  I guess that's your                      
  question.  As far as royalties are concerned, it's a                         
  contract type of an arrangement.  You and I walk into the                    
  room, we sit on opposite sides of the table, I have no                       
  presumption, you have no presumption, we're equal parties.                   
  And we sit down.  My impression of the royalty folks was                     
  that they wanted to be the fairest, the most reasonable,                     
  that they could.  I mean, because they had equal standing.                   
  They had no deference afforded them.  When they went in to a                 
  judge, or before a jury, it's a case of who has the best                     
  case, and who appears to be the most fair.  That's the rules                 
  of - my impression of what contract negotiation is all                       
  about.  As far as the tax law is concerned, that's not the                   
  case.  You have a sovereign out there.  You have a sovereign                 
  who is given deference.  A sovereign who is given deference                  
  when they administer their statutes and regulations.  The                    
  sovereign, when he administers those statutes and                            
  regulations, doesn't have to -- I mean, there may be two or                  
  three different avenues down which to go.  The sovereign                     
  only has to be reasonable.  I mean that's the only standard                  
  which he has.  He is afforded deference.  And if his basis                   
  for his decision is reasonable, then he wins.  I mean that's                 
  the long and the short of it.  To impose the royalty                         
  provisions on the tax side would essentially take away the                   
  deference that's afforded an agency who administers its                      
  regulations and statutes.                                                    
  "There's other reasons why royalty does not equal tax.  If                   
  you look at the royalty provisions, the DL1 form, the lease                  
  form, there's a couple of paragraphs in there, paragraph 15                  
  and paragraph 16, that talk about value.  There's four or                    
  five sentences, total.  And that's all it says about value                   
  in the lease form.  As far as the tax side is concerned, we                  
  have statutes that are that thick, we have regulations that                  
  are that thick, we have a body of law, we have case law.  I                  
  believe we have more of a road map as to where it is we want                 
  to go and what we want to do.  In many respects, royalty                     
  settlements are based on something other than market value.                  
  Our goal, as far as tax is concerned, is, what's the value                   
  of the crude in the market place at the time?  What's the                    
  market value of ANS when it's delivered to the West Coast or                 
  the Gulf Coast?  I believe that's royalty's goal, too.                       
  However, a lot of times, there's other considerations in the                 
  royalty settlement.  There might be political                                
  considerations.  Again, there might be social                                
  considerations.  There might be economic considerations.                     
  You read some of the royalty settlements in Cook Inlet, and                  
  it will say right in those settlements that paramount to                     
  reaching agreement between the lessee and the lessor, is the                 
  maintenance of 300 jobs in the Inlet.  I mean, something                     
  along that line.  So, there are different standards when you                 
  talk about a royalty settlement than there may be in a tax                   
  "Why doesn't our royalty equal tax?  For example, in the                     
  early years, in 1979 and 1980, the state on the royalty side                 
  signed a producer intention agreement.  And I've seen                        
  letters from the Speaker regarding this.  The state, on the                  
  royalty side, decided to forego any, quote "value over                       
  ceiling" if in fact it was out there.  And in return for                     
  that, taxpayers assumed that their crude, the ANS reached                    
  the ceiling price at a time earlier than they think it                       
  actually happened, but they actually paid ceiling price.                     
  And in return they got to keep the crude because crude was a                 
  very valuable commodity in the early 80s, and the late 70s.                  
  On the tax side, we don't believe we are so bound.  Our role                 
  is to say, hey look, if you got it, if the price ceiling                     
  rules in effect at that time, did not act as a bar to you                    
  receiving greater than, and we can prove it, we can show you                 
  that you actually got that crude, the value in excess of                     
  ceiling, then we think that the people of the state of                       
  Alaska deserve a portion of your good fortune.  I don't                      
  know.   There's probably other reasons out there that                        
  royalty does not equal tax, but those are the ones that come                 
  to my mind right now."                                                       
  REPRESENTATIVE GREEN:  "This is just a one-shot answer.                      
  Does the contract price fluctuate with relationship whether                  
  it's above or below the tax value?  Or is tax value always                   
  MR. BREWER:  "Are you asking me, have we compared ANS spot                   
  on the West Coast for 1992 versus the royalty settlement                     
  REPRESENTATIVE GREEN:  "No.  The tax value that you apply to                 
  crude versus the agreed, the contract price you mentioned,                   
  as far as royalty is concerned on that crude."                               
  Number 547                                                                   
  MR. BREWER:  "Could you please repeat that?"                                 
  REPRESENTATIVE GREEN:  "Okay.  You say a contract price,                     
  you've got a contract agreement, that this is going to be                    
  the way that we figure the price, and you're willing to                      
  forego that that might not be exactly what they got for it.                  
  But in a tax value, you want the specific value that they                    
  got.  And your example was 19, maybe, in one case, and 20 as                 
  far as what it was sold for.  Does that flip-flop?"                          
  MR. BREWER:  "I understand, I believe, what it is you're                     
  saying; which is to say, that if they receive less than                      
  prevailing value - is that what you're saying? - for                         
  example, if prevailing value is $19, and they don't receive                  
  $20, they actually receive $18, what would we do in that                     
  situation?  The statute is quite clear.  It says that, or,                   
  my reading of the statute is quite clear, I think the                        
  taxpayers might disagree.  But the reading of the statute                    
  says, that in no event may the value of the crude be below                   
  prevailing value.  Which is to say that under O20(f),                        
  prevailing value sets the floor.  If the taxpayer receives                   
  less than prevailing value, they still have to report and                    
  pay based upon prevailing value.  They are brought up to the                 
  minimum.  If in fact they receive more than that, then it's                  
  our belief that we should approach that increment and get                    
  our fair share."                                                             
  Number 564                                                                   
  COMMISSIONER REXWINKEL:  (Sound quality for Mr. Rexwinkel's                  
  is quite poor.)  "But, if I may, I think there may be some                   
  confusion between the consideration, full consideration, or                  
  sales price and value.  In the royalty side, I think is what                 
  some of you were saying, is that, on the royalty side there                  
  was a value method, a method of determining value that was                   
  reached, that could be used for tax purposes also, and that                  
  would be what we're talking about as prevailing value. (Loud                 
  mechanical noise from outside interrupts, some text                          
  indiscernible.)   The royalty contract was a method, the                     
  agreement there, that was reached, was a method for                          
  determining value, for applying the royalty provisions.  In                  
  the tax side we have this prevailing value feature and those                 
  are somewhat equal in today's consideration.  But then                       
  there's also what we call full consideration.  I think when                  
  we've heard a contract we have to be careful we're not                       
  referring to the royalty contract, because contractually we                  
  are referring to the sales price where BP could have a                       
  contract to exchange oil or just sell oil, or whatever the                   
  case may be.  And then we have to look at the contractual                    
  sales price, so to speak, what the taxpayer got versus what                  
  the prevailing value was.  And if the contractual amount was                 
  less than prevailing value, then we would, as Mr. Brewer                     
  said, want to share in the prevailing value, what they                       
  should have received, or what they could have received for                   
  the oil.  Is that a fair way of saying it?  On the other                     
  hand, if they received more than the prevailing value, then                  
  we'd like to take a part of that also.  There's been a                       
  little degree of contention in that, because it's really                     
  what's called the higher of provision.  But the prevailing                   
  value, and what we have in the proposed SB 377, is a method                  
  somewhat similar, on the same principles, as royalty, a                      
  method to arrive at prevailing value, without having to                      
  start looking at a lot of foreign oils and other                             
  considerations to arriving at a prevailing value amount, and                 
  one that we could, and the taxpayer could compute almost                     
  immediately.  Now, some of the taxpayers do not have, really                 
  not burdened, shall we say, by the higher up provisions,                     
  because a lot of the oil is internally refined, if not all                   
  of their oil, is internally refined.  And in that case,                      
  there is no sale, there is no consideration as prevailing                    
  CHAIRMAN VEZEY:  "Thank you.  Representative Brice."                         
  Number 596                                                                   
  REPRESENTATIVE BRICE:  "Thank you, Mr. Chair.  Question back                 
  to process.  You'd made the statement, I believe the                         
  statement was made or implied, that extensions aren't                        
  automatic.  That the state comes in, and asks for an                         
  extension.  That doesn't necessarily happen.  Or industry                    
  comes in and asks the state for an extension.  That doesn't                  
  necessarily happen.  Is that correct?  How much notice needs                 
  to be given, say, at hearings scheduled for Wednesday                        
  afternoon at 3:00?  How much notice must be given, say, by                   
  the industry to have that hearing put off?  Is there any                     
  notice, necessary notice requirements?"                                      
  Number 608                                                                   
  COMMISSIONER REXWINKEL:  "Mr. Chairman, if I could -                         
  Representative Brice, I believe (indiscernible) the audit                    
  process, in which the auditor makes a request to go visit                    
  the taxpayer's place of business.  That's one situation.                     
  But the taxpayer may say, no, we've got the IRS in, we've                    
  got other (indiscernible), we're going to be out, and                        
  there's a lot of different reasons why that may not be                       
  convenient for the taxpayer.  So in that case we try to work                 
  out a mutually convenient time.  And sometimes that results                  
  in an extension, a need for extension, because there is no                   
  mutually convenient time, for one reason or another.  And                    
  once the audit is complete, and an informal conference or                    
  the assessment is issued, the taxpayer can appeal.  At that                  
  point, they can request an informal conference or a formal                   
  hearing.  During the informal conference process, there are                  
  meetings that are set up.  We agree to meet with the                         
  taxpayer.  The taxpayer agrees to meet with us.  And that                    
  may be in Cleveland, Ohio; Seattle; Juneau, Alaska;                          
  Anchorage, Alaska; someplace, by mutual agreement, of                        
  course, or if one party just doesn't show up, there's no                     
  meeting that takes place.  Whereas in the formal hearing                     
  setting, yes, I mean then there's a definite schedule, the                   
  schedule is set up, and then there is a request if a change                  
  is made, or ask for an extension.  But it depends on what                    
  stage it's in."                                                              
  Number 624                                                                   
  REPRESENTATIVE BRICE:  "Okay, I would probably - the                         
  scenario that was brought to my attention was, say, under a                  
  formal hearing.  The state had requested extension,                          
  possibly, - at which point in time I would have thought that                 
  it would have been automatic, considering the state runs the                 
  formal hearing process.  But, say, a situation arises - what                 
  happens, or, what's the latest the state can introduce an                    
  amendment, say, on an assessment.  Assessment gets to formal                 
  hearing, it's all on appeal, everything else.  The night                     
  before, or, for that matter, the week before the scheduled                   
  formal hearing, the state plops down a new amended                           
  assessment, 200 pages of documents, that kind of stuff.  Is                  
  there any protocol to insure that doesn't happen?  Or how                    
  that is handled?"                                                            
  Number 636                                                                   
  COMMISSIONER REXWINKEL:  (Extremely poor sound quality.)  "I                 
  believe that was brought up earlier this morning, and a                      
  taxpayer indicated that the day or the evening before the                    
  hearing was to take place, the division came in with an                      
  amended assessment, and the taxpayer requested an extension,                 
  and the apparently the department at that time said no,                      
  that's (indiscernible) the hearing process.  And it's up to                  
  the commissioner, and the commissioner (indiscernible)                       
  determine whether extensions are going to be granted.  In                    
  many cases they are, because the whole formal hearing                        
  process is to allow sufficient information and evidence to                   
  be entered into the record to make a final determination on                  
  the tax.  But that's a long involved process, and it's hard                  
  to say where in that whole process this last amendment came                  
  about.  (Indiscernible) in the beginning of the process,                     
  probably didn't make a great deal of difference, because                     
  there is a long time to go before the formal hearing would                   
  be concluded in this case (indiscernible) courtroom                          
  CHAIRMAN VEZEY:  "Thank you.  Representative Porter."                        
  REPRESENTATIVE PORTER:  "Thank you, Mr. Chairman.  Setting                   
  aside for a moment the question of whether there is or isn't                 
  a three-year statute of limitations, the process that you've                 
  described, is one that is supposed to get at the best value.                 
  Not the best for the state, or the best for the taxpayer,                    
  but the most accurate, the most fair value of the oil.  Is                   
  COMMISSIONER REXWINKEL:  "Well, the prevailing value, yes.                   
  (Indisc. - another voice talks over.)                                        
  Number 655                                                                   
  REPRESENTATIVE PORTER:  "Well, okay, that's what I'm kind of                 
  questioning.  If I understand your testimony, set on                         
  whatever standard, the new standard, or your current                         
  standard, of prevailing value of oil, if somehow the                         
  taxpayer finds a way to sell that barrel above, you want to                  
  share in that profit.  But if he somehow doesn't get that                    
  break, and sells below, he doesn't share the loss with the                   
  Number 660                                                                   
  COMMISSIONER REXWINKEL:  "Mr. Chairman, and Representative                   
  Porter, we're not talking about the corporate net income                     
  tax.  The corporate net income tax is based on your net                      
  income, or net loss, as the case may be.  Of course there's                  
  no tax under net loss.  But, in an income tax setting, it's                  
  what you actually earned in your business, or lost in your                   
  business.  Here, we're talking about the severance tax                       
  provisions of the statute.  And I guess if a taxpayer                        
  desires to sell its oil for less than value, that's a                        
  taxpayer's business, but the state would like to get its                     
  severance tax based on the value of the oil at hand."                        
  Number 667                                                                   
  REPRESENTATIVE PORTER:  "You don't think that selling it                     
  below value, assuming an arms-length transaction, is a                       
  better reflection of value than...?"                                         
  Number 670                                                                   
  COMMISSIONER REXWINKEL:  "Mr. Chairman, Representative                       
  Porter, sometimes it's kind of difficult to determine what                   
  the full consideration, or what the consideration is.  I                     
  mean, there's a lot of different contractual relationships                   
  that are taking place within the industry, and we don't know                 
  if a straight transaction between A and B is the total                       
  transaction.  I mean, B could have an agreement with C and C                 
  in turn could have an agreement with A, and unless you look                  
  at A, B, C and A and look at the whole circle, one may not                   
  know exactly what all the full consideration, or what all                    
  considerations may have taken place."                                        
  Number 676                                                                   
  REPRESENTATIVE PORTER:  "That was my other question.  I                      
  think you just answered it.  That is the reason why there is                 
  a prevailing value and an actual sales value, because you                    
  just don't feel that you can be confident that a pure arms-                  
  length transaction has occurred in every sale.  Is that what                 
  I hear you saying?"                                                          
  Number 680                                                                   
  COMMISSIONER REXWINKEL:  "And the other reason, really, Mr.                  
  Chairman, Representative Porter, is that the severance tax                   
  is not a net income tax.  It's a tax on the value of the                     
  oil.  (Indiscernible) one consideration that the statute                     
  says, or a consideration, whichever is higher.  But the                      
  minimum, the bottom line, is the value of the oil.  What was                 
  the prevailing value?"                                                       
  Number 685                                                                   
  REPRESENTATIVE PORTER:  "And you'd have a concern that there                 
  are sales that wouldn't reflect the highest value that it                    
  Number 686                                                                   
  COMMISSIONER REXWINKEL:  "We would be concerned, for the                     
  state, if the state did not receive at least at minimum the                  
  prevailing value for the oil under the severance tax                         
  statutes. I guess that's..."                                                 
  Number 689                                                                   
  MR. BREWER:  "May I?  Our approach to determining what                       
  prevailing value is, getting to your question, my read on                    
  the situation?  Very, very conservative.  Because of the                     
  situation that you just brought up.  The regulations are,                    
  some people say specific, and some say not, as far as we're                  
  concerned right now.  But it says, look at three contracts                   
  in a market, during a month, whatever, three high volume                     
  contracts, not just a one time deal, look at something                       
  that's high volume of long term in duration, and pick three                  
  contracts, (indiscernible) three contracts, simple average                   
  those contracts, I mean, these are actual ANS deals on the                   
  market place, take a simple average of up to three, and that                 
  is prevailing value.  In the back of our mind we've always                   
  been concerned that we want to make sure that while                          
  prevailing value gives to the people of the state of Alaska                  
  their fair due, we're also concerned that it be a                            
  conservative and a realistic number.  And when you pick                      
  high-volume contracts -this is my experience - they're the                   
  nominal value.  You're not picking the highs, you're not                     
  picking the lows.  When you pick the high volume, the                        
  contracts that are substantial in duration, you're picking                   
  the contracts that are right about here in the middle.  And                  
  so, we're very concerned when we do approach prevailing                      
  value because of the question that you raised."                              
  Number 705                                                                   
  REPRESENTATIVE PORTER:  "Is this, basically, the philosophy                  
  that you would see in applying the provisions evaluation                     
  TAPE 94-66,  SIDE B                                                          
  Number 008                                                                   
  MR. BREWER:  " - well, taxpayers, what we want to do, is, we                 
  want to address taxpayers' concerns in one instance.   And                   
  one of their concerns has been that, as far as prevailing                    
  value is concerned, it's taken the department sometimes two,                 
  three, ten years, whatever, to come up with a final                          
  prevailing value.  Because it is based upon, you know,                       
  analyzing contracts (indiscernible) full value as far as                     
  contracts are concerned.  What we would do in this bill is,                  
  we would come up with a prevailing value on a very current                   
  basis.  The goal is, as far as prevailing value is                           
  concerned, is to come as close to the market value of ANS as                 
  possible; i.e., if you have spot values of ANS on the West                   
  Coast, or spot values of ANS on the Gulf Coast, that's where                 
  we think we should be at.  And that's our goal.  That's                      
  where we want to be.  And so, in the basket that we're                       
  proposing, there's going to be a preponderance of reliance                   
  on ANS.  In both instances - again, we're going to do this                   
  by regulation, and we've been - our discussions have been                    
  ongoing with the taxpayers since April of 93.  Well, we have                 
  been deliberating within the department, okay, as far as                     
  regulations are concerned since April of 93.  We have been                   
  talking with the industry probably within the past four or                   
  five months.  But in the basket we have a heavy reliance on                  
  ANS.  For example, 50 percent.  And then we have six other                   
  crudes that are all solid crudes that look a lot like ANS,                   
  which may or may not be domestic crudes, which may be                        
  foreign crudes, and they are all weighted currently about 10                 
  percent.  And we've been having discussions with the                         
  taxpayers about, what do they feel about the basket; the                     
  different weightings; the inclusions of the different                        
  crudes, and, again, the goal is, we want to get as close to                  
  the market value of ANS as possible.  That's fair.  And                      
  that's where we want to go."                                                 
  Number 041                                                                   
  REPRESENTATIVE PORTER:  "This is the system that would be                    
  put into place under 377?"                                                   
  Number 042                                                                   
  MR. BREWER:  "That's correct."                                               
  REPRESENTATIVE PORTER:  "Thank you, Mr. Chairman."                           
  CHAIRMAN VEZEY:  "Representative Gary Davis."                                
  Number 043                                                                   
  REPRESENTATIVE DAVIS:  "Thank you, Mr. Chairman.  Mr.                        
  Brewer, what - when an extension is requested by either                      
  party, it must be, I understand it's just an informal                        
  letter, and in that letter it details what's needed by the                   
  department, say, if it's at the request of the department,                   
  like, haven't had time to properly analyze the paperwork and                 
  the documents, so in there you, well, maybe you can go over                  
  that.  It's my understanding that it's quite, pretty much                    
  detailed as to what you still need to pursue to adequately                   
  assess.  And if it is requested by the taxpayer, is it as                    
  detailed again.  So where it seems to me that that could be,                 
  that's really a vital link here, as to problems.  Of course,                 
  you have to have a working relationship, you have to                         
  understand that nobody's trying to hide anything, or                         
  nobody's trying to look for something that may not be there,                 
  or which - maybe if you would go over that process, and what                 
  might be included as far as the details in the extension                     
  requesting letter."                                                          
  Number 073                                                                   
  MR. BREWER:  "I don't want to give you the impression that                   
  the taxpayer overtly or openly requests that we file an                      
  extension.  It's kind of like an implied thing.  They call                   
  up and say, hey, look, we're not really sure that we can                     
  comply with your requests in a timely fashion.  And we know                  
  that not being able to do so, we might need to extend the                    
  period of time.  And so, I mean, it's kind of a coming                       
  together.  What does an extension look like?  It's, you                      
  know, it's a piece of legal paper, and it just says that the                 
  taxpayer agrees to extend the period of time during which                    
  the Department of Revenue may file an assessment.  And then                  
  it lists the tax periods that are covered.  And these tax                    
  returns are filed on a monthly basis.  So if you want to                     
  extend three years, let's say you're doing a three-year                      
  audit, and you want to extend it for one more year, you'd                    
  list every month that's of issue, and then you'll say that                   
  the period of time within which to file an assessment is                     
  extended for X amount of time.  We would sign it, the                        
  taxpayer would sign it, and it's binding.  As far as                         
  document requests are concerned, they're not a part of the                   
  extension per se.  I mean, they're kind of, they're not part                 
  and parcel, I mean, you would get a request over here for                    
  documents, and then an extension would be wholly separate.                   
  The two would not be together."                                              
  Number 105                                                                   
  REPRESENTATIVE DAVIS:  "Mr. Chairman, if I might.  The                       
  reason for asking is it seems like one of the key issues is,                 
  an amended assessment that increases the tax, you've found                   
  some additional information that says, oops, we missed this,                 
  and here is another $10 million that we can amend.  It seems                 
  to me like in the letter you could detail or even let them                   
  know, say, that we don't have enough documentation here, in                  
  this area, whatever it might be.  So, apparently I'm on the                  
  wrong track, because it isn't as detailed as I'm led to                      
  believe.  In other words, when you get a letter indicating,                  
  hey, we need these documents because we want to check this                   
  out a little closer, that could click and say, that may, you                 
  know, indicate that an amended assessment later on might be                  
  increased, if they can prove this, and ratchet down, a                       
  little bit, exactly, where this barrel went or whatever.  So                 
  apparently it's not as detailed as I'm..."                                   
  MR. BREWER:  "Mr. Chairman, Representative Davis, the                        
  extension of time within which to file an assessment has to                  
  do with the initial assessment.  The three-year period is                    
  about to end.  We can't make the assessment, we want you to                  
  extend the time within which we can file an assessment.                      
  That's for the initial filing.  Amendments occur most often                  
  after the expiration of this time frame.  You've made the                    
  initial assessment, you've been timely, later on, a year or                  
  two years, three years, down the road, you might be auditing                 
  another taxpayer.  You might get a document that involves                    
  another taxpayer that you might have issued an assessment on                 
  a couple of years ago.  It's that type of a process.  So,                    
  amendments usually occur after the expiration of the three-                  
  year plus the time (indiscernible.)"                                         
  CHAIRMAN VEZEY:  "Did that conclude your questions?"                         
  Number 147                                                                   
  REPRESENTATIVE DAVIS:  "I do have one - I think,                             
  Commissioner Rexwinkel might be able to answer this:  Of                     
  the, we've gone back to the $1 billion, $2 billion again -                   
  the $1 billion based on the three years - if that, of the                    
  suspected $1 billion based on the three years, is a bulk of                  
  that protected by an agreed extension?"                                      
  COMMISSIONER REXWINKEL:  "No, those Mr. Chairman, those                      
  would be unprotected (indiscernible.)"                                       
  CHAIRMAN VEZEY:  "Representative Sanders."                                   
  Number 158                                                                   
  REPRESENTATIVE SANDERS:  "Thank you, Mr. Chairman.                           
  Commissioner, going back to the conversation between                         
  Representative Kott and yourself quite a while ago, there's                  
  a question that's always plagued me, and I've never been                     
  able to get a satisfactory answer.  In order to better                       
  understand what's at stake here for the state, without                       
  getting into any of these secrets or any negotiations, or                    
  any individual taxpayers' problems, when you were talking                    
  about the figures of $5.5 million, $4.6 million, $3 million,                 
  $1.6 million, or billion, $1 billion, when I hear that                       
  someone settles for 50 cents on the dollar, or 10 cents on                   
  the dollar, or 15 cents, what dollar are we talking about at                 
  that point?  Are we talking about the $5.5 billion figure?                   
  The $1 billion figure?"                                                      
  Number 177                                                                   
  COMMISSIONER REXWINKEL:  "Mr. Chairman and Representative                    
  Sanders, well, conceivably it's kind of all related, shall                   
  we say.  It's the $5.5 billion, are the total outstanding                    
  plain taxes, penalties and interest.  And then we break it                   
  down into these other components.  And, let's say if you                     
  referenced the settlement at 50 cents on the dollar, it                      
  would basically be 50 percent of those dollars that we                       
  talked about, and it would be kind of hard to say if the $1                  
  billion is worth 60 cents, or 40 cents, or 100 cents on the                  
  dollar.  I mean, it's in relation to the total amount.  So                   
  in other words, if we had $5.5 billion, and somebody would                   
  say that we've settled for 50 cents on the dollar, I guess                   
  then you might try to say, okay, the state will eventually                   
  get then, 50 percent of the $5.5 billion.  If you wanted to                  
  carry it along in that line of thinking."                                    
  Number 197                                                                   
  CHAIRMAN VEZEY:  "Thank you.  It's 3:15.  Why don't we take                  
  a break and come back at 3:30."                                              
  CHAIRMAN VEZEY:  "We'll call the meeting to order at 3:33.                   
  Continuing in our questions here, the next person on our                     
  list, Representative Sitton passed, Representative Davies."                  
  Number 204                                                                   
  REPRESENTATIVE DAVIES:  "Thank you, Mr. Chair.  I just had a                 
  couple of questions on the information sheet that you handed                 
  MR. BREWER:  "Yes."                                                          
  REPRESENTATIVE DAVIES:  "I guess I'll just - they're in no                   
  particular order, so I'll just go down, in row 2, which is                   
  the tax dollars collected, there was a substantial change                    
  between 82 and 83.  Could you tell me what the reason for                    
  that was?"                                                                   
  MR. BREWER:  "Substantial change between 82 and 83.  It went                 
  from, looks like $2,404,000,000. to $1,223,000,000.  (AS)                    
  43.21 was called separate accounting.  It was in effect from                 
  1978 through 1981.  The legislature amended, or repealed                     
  43.21 - there are a number of circumstances why that                         
  happened, but in order to replace that tax type, it was                      
  replaced by what is called modified apportionment, which was                 
  a different means of apportioning income to Alaska, if you                   
  were an oil and gas producer or a pipeline transporter.  So,                 
  the difference, and I'm not sure how much, but certainly the                 
  drop there is because of the cessation of (AS) 43.21."                       
  REPRESENTATIVE DAVIES:  "Thank you.  And row 3, comparing                    
  the number of audits issued compared to the number of                        
  taxpayers in the time periods between 82 and 86, there seems                 
  to be uniformly more audits issued than taxpayers, but for                   
  78 and 80 and 81, there are fewer.  Does that mean that                      
  there are still audits for those years that remain to be                     
  MR. BREWER:  "Mr. Chairman, Representative Davies, are you                   
  talking about line #3?"                                                      
  REPRESENTATIVE DAVIES:  "Line #3, right.  Comparing that to                  
  line number #1.   I  presume that there should be at least                   
  one audit per taxpayer.  Is that a wrong assumption?"                        
  MR. BREWER:  "In some respects, a tax type might not be                      
  audited.  Are you saying that number 1, you have more                        
  taxpayers than the number of audits that were issued?"                       
  REPRESENTATIVE DAVIES:  "For those early - yeah.  Just                       
  looking at the middle years, where I presume that, you know                  
  from 82 to about 86, there are uniformly more audits than                    
  taxpayers.  And then I notice just for those - for 81, 80                    
  and 78, there are fewer audits than taxpayers.  I'm just                     
  wondering what the reason for that is."                                      
  UNIDENTIFIED SPEAKER:  "If they just paid, there wouldn't be                 
  an audit."                                                                   
  REPRESENTATIVE DAVIES:  "No, there'd always be an audit, I                   
  think (indiscernible).  Maybe they paid, and they liked it."                 
  UNIDENTIFIED SPEAKER:  "You could have more than one audit."                 
  MR. BREWER:  "I understand the discrepancy, and I'm not able                 
  to address that right now, but I'll certainly take a look at                 
  it, and I can get back to you."                                              
  REPRESENTATIVE DAVIES:  "Okay, thank you.  And then, Mr.                     
  Chair, if I might, one further question on this.  On row 4,                  
  the number of amended assessments.  Would you just tell me                   
  what the definition of that means.  Does that mean that - is                 
  this the number of assessments that have been amended, or                    
  the number of amendments to assessments that have been                       
  MR. BREWER:  "Mr. Chairman, Representative Davies, they are                  
  - you would issue an assessment within a specific time frame                 
  so they would not be time barred, and then these are                         
  amendments to those assessments."                                            
  REPRESENTATIVE DAVIES:  "So one assessment might be amended                  
  more than once?"                                                             
  MR. BREWER:  "That's correct."                                               
  REPRESENTATIVE DAVIES:  "And that would be included in this                  
  MR. BREWER:  "That's correct."                                               
  REPRESENTATIVE DAVIES:  "Thank you."                                         
  CHAIRMAN VEZEY:  "Thank you.  Representative Finkelstein."                   
  Number  275                                                                  
  REPRESENTATIVE FINKELSTEIN:  "Thank you, Mr. Chairman.  The                  
  one thing that came out earlier from the two companies that                  
  are taxpayers, in their testimony, is that somehow it's not                  
  fair, or improper, for the state to correct these taxes                      
  through amendments after three years.  But there's a                         
  comment, you made earlier, in your testimony, which was that                 
  these companies themselves have come in and amended their                    
  tax returns at some point, but it  wasn't clear in your                      
  testimony whether that was, in some of those cases, after                    
  the three year period.  Are there situations where these                     
  companies, themselves, have come in to amend their tax                       
  returns after the three year periods with information, I                     
  assume, that's intended to lower their taxes."                               
  MR. BREWER:  "Mr. Chairman, Representative Finkelstein,                      
  you're correct."                                                             
  REPRESENTATIVE FINKELSTEIN:  "That has occurred.  Okay.                      
  Thank you."                                                                  
  CHAIRMAN VEZEY:  "Thank you.  Representative James."                         
  Number 288                                                                   
  REPRESENTATIVE JAMES:  "On that point, Mr. Chairman, thank                   
  you.  If they have come in, following up on Representative                   
  Davies' question, if they come in and want to make a change,                 
  what would be your position if they filed for a refund                       
  after, while I assume that your position was, that the                       
  statute hadn't run yet.  If you're still doing assessments,                  
  you wouldn't mind if they filed an application for a refund                  
  of either something they have filed in this case or for some                 
  of the assessments."                                                         
  MR. BREWER:  "Mr. Chairman, Representative James, if in fact                 
  they did file a claim for refund and if they were under                      
  audit, we would combine that claim for refund with our                       
  determination of what we believe the correct tax liability                   
  to be.  And so, there would be a final assessment issued                     
  which would incorporate, or consider, take into account                      
  their claim for refund."                                                     
  REPRESENTATIVE JAMES:  "The reason I'm asking that question,                 
  I guess, and maybe I didn't really ask it clearly enough in                  
  the first place is that, the way the - and you've made lots                  
  and lots of correlation between the way that you determine                   
  that this statute of limitation works is similar to Internal                 
  Service's statute of limitations.  But I know that if you                    
  file an amended return after the due date of filing the                      
  return, if there was tax due, you must pay it, if you have a                 
  refund, you can't get it.  And the same would be true if you                 
  amended - you filed a return and the time for the three-year                 
  statute on the filing a return passed on by, and you amended                 
  your return to owe some tax, you have to pay it.   If you                    
  amend it for refund, you can't get it, because the statute                   
  of limitations has passed.  And so I would assume that it                    
  would be the same in this case."                                             
  MR. BREWER:  "Mr. Chairman, Representative James, I think it                 
  depends upon what forum you're in, as far as the federal                     
  government is concerned.  You're aware that if you pay the                   
  tax and file a claim for refund, then you'll find yourself                   
  in district court and you have the possibility of a jury                     
  trial.  You're also probably aware that if you contest your                  
  liability, do not wish to pay the tax, appeal, you'll find                   
  yourself in Seattle in tax court.  One of the consequences                   
  of appealing an assessment, not paying, and going to tax                     
  court, is that the tax court can determine your liability                    
  either up or down, and so, I would believe, I don't have a                   
  lot of (indiscernible) with what goes on in tax court, but I                 
  believe that you would be able - if you are due a - pay a                    
  lesser amount of tax and you're in a tax court forum, then I                 
  don't know why your refund claim or your lessening of the                    
  liability - I don't why that wouldn't be entertained.                        
  Because in tax court, the amounts can go down and they can                   
  also go up."                                                                 
  REPRESENTATIVE JAMES:  "Thank you.  It doesn't work that                     
  CHAIRMAN VEZEY:  "Thank you, but Representative James it                     
  really - we're getting out of the property tax area and into                 
  another area, so I don't want to spend a lot of                              
  time...Representative Davidson."                                             
  Number 342                                                                   
  REPRESENTATIVE DAVIDSON:  "Thank you, Mr. Chairman.  Mr.                     
  Brewer on the calendar year basis document that you passed                   
  out, I look at number 3 and then I go down to number 7, and                  
  in each of these years I subtract the closed audits, for                     
  example, in 78, 32 from 35, that means there were three                      
  audits that were not closed, right?  Then as we go along,                    
  starting in 1980 there are seven audits that were not closed                 
  and then you have for the next five years - or four years                    
  rather - you have five.  Are these the same five audits, is                  
  it - do you understand my question?  Are these ongoing                       
  audits and we finally got to 1991 and we still had five, and                 
  then 92 we only had one, and now we have none.  So, what I'm                 
  asking is, these are audits on appeal (inaudible due to                      
  noise on tape) tend to be the same audits, is that why we                    
  see the number five, at least five carry all the way                         
  throughout to 91?"                                                           
  MR. BREWER:  "Mr. Chairman, Representative Davidson, for                     
  sure in the early part of the period, there are very few                     
  taxpayers that we have not yet settled with and so, why the                  
  number would  be static, I think that's a correct assumption                 
  that you're making - we're talking about the same two or                     
  three or four taxpayers.  I don't  know that I can say that                  
  about the later period."                                                     
  REPRESENTATIVE DAVIDSON:  "Oh, I see.  Thank you, Mr.                        
  CHAIRMAN VEZEY:  "Thank you and seeing no further questions                  
  -Representative Ulmer."                                                      
  Number 368                                                                   
  REPRESENTATIVE ULMER:  "One quick question.  Commissioner,                   
  the last time you testified before State Affairs, you                        
  indicated that the taxpayers have filed many amended                         
  returns, and I think the number you gave us was 69 percent                   
  of 3,393 returns, they've amended 2,739.  That's the number                  
  that I wrote down.  But I don't know what period of time                     
  that is and I don't know whether those were beyond the three                 
  COMMISSIONER REXWINKEL:  "Mr. Chairman, Representative                       
  Ulmer, that was Mr. Pilkerton that made that statement and I                 
  have no knowledge, I have no specific knowledge - maybe Mr.                  
  Brewer does."                                                                
  REPRESENTATIVE ULMER:  "I'll follow-up with him.  Thank                      
  CHAIRMAN  VEZEY:  "Thank you.  Representative Gary Davis."                   
  REPRESENTATIVE DAVIS:  "Thank you, Mr. Chairman.  Mr.                        
  Brewer, I think this was Exxon's testimony that indicated                    
  they were, in relation to the shoe on the other foot, I                      
  think they indicated that they were denied a refund because                  
  the statute of limitations had run out.  Was that, I can't                   
  remember if that the insinuation - maybe not - maybe I heard                 
  it wrong.  You don't recall that - okay.  I may have                         
  interpreted it wrong."                                                       
  CHAIRMAN VEZEY:  "Thank you.  Seeing no further questions,                   
  Commissioner, I want to thank you and I'm sorry, I've                        
  already forgot the gentleman.."                                              
  COMMISSIONER REXWINKEL:  "Mr. Brewer."                                       
  CHAIRMAN VEZEY:  "Brewer - I should maybe write it down.  I                  
  want to thank you both very much for your testimony and we                   
  do have two other people that have indicated they'd like to                  
  testify.  I hope you'll stick around, feel free and if you'd                 
  like to make some comments, let us know."                                    
  COMMISSIONER REXWINKEL:  "Thank you, Mr. Chairman."                          
  CHAIRMAN VEZEY:  "Mr. Walt Furnace with the Alliance.  Mr.                   
  Furnace has left?  Okay.  Let me skip then - Mr. Jim Palmer,                 
  do you have some testimony you'd like to give."                              
  JIM PALMER, ALASKA OIL AND GAS ASSOCIATION:  "Mr. Chairman,                  
  in the interest of time, I was going to testify on behalf of                 
  AOGA, but I think the State Affairs Committee has already                    
  heard that testimony, and there was nothing new, so I'll                     
  pass out that written testimony..."                                          
  CHAIRMAN VEZEY:  "Okay, you submitted your written testimony                 
  for the record?  Mr. Sullivan, did you have some comments                    
  that you'd like to make? "                                                   
  MR. SULLIVAN:  "I'd like the opportunity just to - again,                    
  I'm Paul Sullivan, General Tax Counsel, Exxon Company, USA.                  
  I thank you for this opportunity to speak to the three                       
  committees joint session.  Mr. Chairman, I'd like to speak                   
  to some of the comments that have been made here this                        
  morning and just clarify, I think, a little bit to the                       
  extent that I can help this group.  Mr. Hosie indicated that                 
  it was the position of the attorney general that the case                    
  would go forward under any circumstances this coming                         
  Wednesday.  Now when I spoke with you folks, I was                           
  speculating and I'll admit that I was speculating, on                        
  exactly what was going to happen next Wednesday, and I                       
  speculated that they would take 377 up and I've not sat in                   
  on their strategy sessions.  The point I'd like to make is                   
  that Mr. Hosie also indicated that the 78 case was a test                    
  case.  And that's exactly what it was.  There's been over                    
  the last two days, a lot of discussion about delay and the                   
  need to move the process forward.  And it happened that we                   
  received our 78 income tax assessment, and there was a                       
  series of about eight of them, first.  And it was the first                  
  year in which the opportunity arose to raise the question as                 
  to the interpretation of the three-year statute.  And we did                 
  so.  And, we then moved that through informal conference and                 
  I think I mentioned yesterday, that the case was bifurcated                  
  so that we could accelerate the resolution of the issue with                 
  respect to the interpretation of the statute of limitations.                 
  And it was a test case and the intent was to get it into the                 
  court system and get an answer on the interpretation of that                 
  statute of limitations on assessments question for the                       
  period from 1978 to as long as that law stayed on the books.                 
  Mr. Hosie says that it will go forward, but I would submit                   
  to you that it's no longer a test case.  First, there will                   
  be arguments before the Supreme Court and then there will,                   
  if 377 is passed, likely be litigation with respect to the                   
  constitutionality of this bill.  If this law were found to                   
  be constitutional, it would become the law of the land and                   
  I'm not sure exactly what the status of our 78 case would                    
  be, but I do know that it would not be a test case.  That                    
  bill 377 -SB 377 - would be the law of the land from, at                     
  least 1979 forward.  Therefore, it's a case that I would                     
  consider winning a small skirmish, but losing the war                        
  because what I might get, at best, would be a resolution of                  
  78 and the statute of limitations, because I am in the court                 
  house.  But it would not form a precedent for any year after                 
  1978.  So, the least you would be doing is enacting                          
  retroactive legislation to 1979 and possibly to 1978.  There                 
  was a question, I think, that Paul Wessells responded to -                   
  excuse me, I'm (indiscernible) through my notes from the                     
  order of the testimony this morning - about a line between                   
  when does audit stop and assessment begin, and I want to                     
  clarify that you file your return, and there's a three-year                  
  statute and there's an ongoing audit during that period and                  
  you might get an assessment.  And under the rules, I must                    
  appeal or protest that assessment within 60 days.  And                       
  during that 60 days - or after that 60 days - I may get                      
  another assessment and I must within 60 days appeal that                     
  assessment.   So there is no fine line.  It's an ongoing                     
  process of an audit continuing, assessments being issued,                    
  protests being filed.  As we approach the third year, I get                  
  a request for an extension and I extend.  And let's just                     
  assume that I extend for another three years.  I continue                    
  the audit and I continue to receive assessments and I                        
  protest those assessments.  All of that interaction with the                 
  Department of Revenue is perfectly legal and acceptable and                  
  not one of those assessments is at risk under 377.  It's                     
  only in my example, an assessment received after the three-                  
  year statutory period and in my example the three year                       
  extension that I gave - a total of six years of audit - any                  
  assessment received after that six year period that we are                   
  claiming is time barred under the current statute.  There                    
  was a question to Mr. Wessells about whether BP would comply                 
  with the law if this law was passed.  And I just want to                     
  reiterate the same answer that he gave you.  The answer for                  
  Exxon Corporation is we comply with the laws of all the                      
  jurisdictions in which we act - we do business.  I would                     
  also like to point out, as I did yesterday, that while we                    
  comply with the law, what you do here today or with this                     
  bill, is going to impact how Exxon Corporation assesses                      
  future investments in this or any other jurisdiction, based                  
  upon what they do with their laws.  And one of the things                    
  you're talking about doing here is making a retroactive                      
  change for a period of 17 to 18 years and that gives us                      
  great pause.                                                                 
  "Mr. Hosie said, who better to say what the legislature                      
  meant than the legislature and I'm sure you all appreciate                   
  that in 1976 the composition of this legislature was                         
  significantly different.  And I believe that the job of this                 
  legislature is to pass laws.  The role of the judiciary is                   
  to interpret the laws that you and others have passed.  And                  
  I continue to believe that the proper forum for the question                 
  of the three-year assessment statute is the Supreme Court of                 
  the State of Alaska.  The irony of that is that if I lose in                 
  the Supreme  Court next Wednesday, or when the decision is                   
  issued, you will get SB 377 with respect to the assessment                   
  statute without ever having legislated a thing.  If I win,                   
  then the Court will interpret the law that was passed in                     
  1976 and if there's something you want to do in 377 to amend                 
  the statute prospectively, well, that's fine.                                
  "I would point out that Mr. Brewer about five years and the                  
  question of whether it's sufficient and his answer was yes.                  
  Neither the three-year statute that exists on the books                      
  today, nor the five-year statute is a end of the line,                       
  because extensions are still provided for.  Mr. Brewer said                  
  he thought that companies in the future might not grant                      
  them, I'll go back to my jeopardy assessment example and                     
  I'll admit that in the example, and purely for purposes of                   
  the example, I said that the department could disallow all                   
  of our deductions.   They could likewise determine a high                    
  side of reasonable or maybe a little bit higher, just to be                  
  sure, value of ANS and put it into the assessment to                         
  protect, as his job is to do, the revenues of the state of                   
  Alaska.  So, this risk - I just don't see it.  It's                          
  interesting in our Supreme Court case, the question was why                  
  does it take so long to get there.  While the Standard case,                 
  now BP, was before the court on a declaratory judgment,                      
  Exxon was requested by the Department of Revenue to not move                 
  our formal conference on the issue of the statute of                         
  limitations interpretation forward at the formal conference.                 
  And I agreed with the then Commissioner of Revenue, Mr.                      
  Malone, to suspend action at his request, while the Standard                 
  case was heard in court.  And that caused some delay so,                     
  it's not one-sided on these delays.                                          
  "Mr. Hosie explained about the details in formal conference                  
  of depositions and discovery and witnesses and all that, and                 
  I testified about that yesterday, too, as a reason why                       
  taxpayers go to informal conference.  It's attempting to                     
  solve and resolve issues or as many of the issues as you can                 
  in that forum which is a more, as the name says, informal                    
  atmosphere.  It still makes sense to me to go that route.                    
  "Mr. Hosie said that, meaning the state, we've got to do                     
  something about the uncertainty of this situation.  And I                    
  think he meant so that we could get on with settlements, and                 
  I'm speculating.  He then went on to say that a                              
  constitutional challenge to SB 377 would add years to get                    
  the answer on the constitutionality of this bill.  And, I                    
  can't reconcile those two.  We are months away from a                        
  resolution of what the existing statute means, and SB 377                    
  can only add to the time period that it's going to take to                   
  get a final resolution of where we are.  You people have had                 
  some recent experience in that, in the Governor's                            
  proclamation and whether we had a constitutional special                     
  session, and you moved real fast.  You got two days and you                  
  got it resolved.  That's not going to happen if we have to                   
  have the courts involved in the constitutionality of this                    
  bill.  Talked about extensions in the future, I could tell                   
  you that I cannot understand why Exxon would not give one in                 
  the future when the equivalent to a jeopardy assessment is                   
  the alternative.                                                             
  "Mr. Hosie went back into the relation back theory and                       
  again, as I said yesterday, he's making his argument before                  
  the Supreme Court to you.  And all I'm asking for is allow                   
  him to make that argument to the Supreme Court and allow                     
  that argument to rise or fall for what the statute means                     
  from 1978 until today.  Don't limit it to a little skirmish                  
  that a taxpayer wins 78, and this bill takes away the                        
  precedential value of that decision to any other year.                       
  "Number of auditors:  Back in 78 and 79 when there was                       
  discussion by Mr. Brewer about limitations within the                        
  Department of Revenue.  In looking at our 78 case, starting                  
  in August of 1979, the division started a detailed audit.                    
  Six auditors spent two weeks and then three auditors spent                   
  an additional month auditing Exxon's records in Houston and                  
  all for the full period and some for an additional period                    
  returned on several occasions to complete the audit.  I                      
  don't recall or know how many auditors they said they had,                   
  but we had six of them at one time and three at another time                 
  in our offices in Houston reviewing the records.  Mr. Brewer                 
  said that now amended assessments outside of the three year                  
  or the proposed five year, wouldn't happen.  Well, year end                  
  1993, dated December 31, 1993, and received on January 4,                    
  1994, I got a revised assessment for the 1986 oil production                 
  tax.  It was after the extensions given on that return.                      
  There are outstanding, at least in Exxon's case, in all                      
  instances, timely assessments on the crude value issue that                  
  exceed, and in many instances, significantly exceed, the                     
  royalty settlement values.  I only mention that because                      
  there's been questions around how much money is at stake on                  
  the untimely assessments - that 2.9 or 3 or whatever it is                   
  number - that I don't have enough information to be able to                  
  tell you what that number is, but the timely assessments in                  
  the Exxon case significantly exceed royalty settlement                       
  values.  The commissioner mentioned that in the formal                       
  conference setting, the job of the hearing officer is to                     
  determine the correct amount of tax.  And I agree with that,                 
  but I'd add some words - It's the correct amount of tax,                     
  based on the outstanding timely assessments.  Maybe I owe                    
  all of them, maybe I owe less and it's his job to determine                  
  what I owe, but only with respect to the amounts for which I                 
  have been assessed in a timely fashion.                                      
  "There's been a lot of discussion about amended returns and                  
  I'd like to just do a little scene set for you on that.  The                 
  production tax, as you know, is a monthly return.  I need                    
  Dick's help on this, but I believe that the return is due                    
  either on 20th or the 25th day of the month following the                    
  month in which the transaction occurred.  And I would hope                   
  this committee could appreciate that these are large                         
  corporations with significant volumes of crude oil moving -                  
  ANS crude moving - under a multitude of contacts, and we do                  
  file a return and use our best efforts to get - well, we                     
  file that return on time first - but the information flow,                   
  if you take the transactions that occurred on the maybe                      
  29th, 30th, or 31st of the month, you have a period of 20 or                 
  25  - and I just cannot remember which it is, but you get                    
  that information in and incorporate it in the return, and                    
  yes, a normal procedure is that in the following month, we                   
  don't just put that return down and leave it, we continue to                 
  do everything that we can to get it as totally accurate as                   
  possible.  So yes, there is probably an amended return many,                 
  many times in the second month, following the month in which                 
  the transactions took place.                                                 
  "Representative Kott asked if the assessments were high.                     
  Mr. Brewer said not in the current time frame.  I drew an                    
  implication from that that in the earlier periods, they                      
  might have been.  I believe that to be true.  Both the                       
  commissioner and Mr. Brewer talked about prevailing value,                   
  and prevailing value is not the issue before us today.  The                  
  issue before us is retroactive tax legislation, but let me                   
  talk a little bit about prevailing value.  I heard that                      
  prevailing value is a concept where the (indiscernible)                      
  calculated prevailing value exceeds the taxpayer's actual                    
  selling price, the department will bring the selling price                   
  up to the prevailing value, but if the taxpayer's actual                     
  selling price was higher, the state wants to share in that.                  
  Prevailing value is also used with respect to internally                     
  transferred oil.  That's the oil that Exxon takes to its own                 
  refineries.  There is no sale in that instance.  Yet we try                  
  to calculate what is the market value for that oil because                   
  the production tax is based on that market value.  And we do                 
  the best we can.  Now after the fact, in many months, the                    
  fact of the matter is, that the state's calculated                           
  prevailing value is a number that is less than the number                    
  that we put on the return for that internal oil.  The                        
  commissioner said that the higher of does not apply with                     
  respect internal transferred oil.  He also said that the                     
  higher of did not apply to the income tax.  I'm very pleased                 
  to hear that because my assessments say otherwise.  Mr.                      
  Brewer said that market value is the goal.  I agree with                     
  him.  I also agree with the Chairman's comments earlier                      
  about this is a commodity and I do not see how oil moving to                 
  the same destination, on the same vessel, on the same day                    
  can have values for royalty, income tax and production tax                   
  that differ significantly.  There may be some difference                     
  under the statutes of royalty, the arms-length bargaining                    
  versus the sovereign, with respect to statutory tax laws.                    
  But I submit it is still a  commodity, and that commodity                    
  should have about the same value.  That is not the case with                 
  our assessments.  I cannot remember which representative -                   
  Representative Brice, I just remembered - asked about 200                    
  pages of - a new assessment with 200 pages of supporting                     
  documents.  Mr. Brewer said, well if that happened early on                  
  in the process, he could understand that, but, well that's                   
  all he said.  That assessment received at 4:00 p.m. on the                   
  afternoon before a formal conference scheduled for 9:00 a.m.                 
  in the morning came on June 14, 1988.  It was with respect                   
  to our 1978 income tax, so we're talking about a period of                   
  nine to ten years.                                                           
  "Representative Davies asked about extensions, that they're                  
  a very short document.  All it says is the taxpayer and the                  
  state agree to extend a specified statute for a specified                    
  period.  They are all-encompassing.  It is for the complete                  
  audit of the return and any issue that might come up.  I                     
  have not limited them, other than I indicated to you                         
  yesterday, that in December of last year, I was told                         
  specifically that the Department of Revenue needed some more                 
  time on a single issue and I said, then I will extend the                    
  statute for the reason that you need it, and that was                        
  rejected by the Department of Revenue.                                       
  "Taxpayer amendment after the statute of limitation has run:                 
  Mr. Brewer said that the DOR (Department of Revenue) would                   
  put it in with the other assessments.  I'm not sure exactly                  
  what that meant.  I do know that we had a case where we had                  
  an issue -  we had a right to claim a credit on our return,                  
  and we calculated the credit.  And I don't know whether                      
  we're being conservative or what, but we under-calculated                    
  it.  We left a bunch of dollars on the table.  The statute                   
  had run, and we indicated to the Department of Revenue that                  
  we had made an error - and it was an error in the state's                    
  favor, and we were told that the statute had run and                         
  therefore, amending was barred.                                              
  "We talked a little bit about the federal rules, about the                   
  only thing I can say (indiscernible) and it's something you                  
  may remember.  Very recently the President paid up some                      
  taxes on something called Whitewater, and it wasn't a lot of                 
  money, but it was a reasonable amount of money, and he                       
  indicated that he was making that payment as a voluntary                     
  payment, because the statute of limitations had ran; meaning                 
  that the Internal Revenue Service could not collect that                     
  money from him.  Yet, because of his position, he was going                  
  to pay the tax and it was a voluntary payment to the federal                 
  government.  I notice on the table back (tape ends                           
  TAPE 94-67, SIDE A                                                           
  Number 001                                                                   
  MR. SULLIVAN:  "...in that footnote, it begins by saying                     
  `alternatively, Exxon argues that.'  The court never had to                  
  address the issue because our main argument was the statute                  
  is clear on its face.  There is no ambiguity.  The court                     
  agreed with us and we had argued in the alternative on                       
  constitutional issues.                                                       
  "Let me go back to my lawn mower yesterday.  Ella claims his                 
  neighbor borrowed the lawn mower and returned it broken.                     
  The neighbor in his reply in the suit says `One, I didn't                    
  borrow it; two, if I did, it was broken when I got it; and                   
  three, alternatively when I gave it back it wasn't broken.                   
  If the court finds he never borrowed it, the court need not                  
  address the other two alternative arguments.  Basically,                     
  that's what happened in our 78 case.  The court found the                    
  statute clear on its face.  A court doesn't like to issue                    
  decisions that it doesn't have to issue, and once it found                   
  that, it need not find anything else.                                        
  "I think I've just about covered everything other than the                   
  fact that the commissioner or Mr. Brewer, I think it was the                 
  commissioner, handed out the appropriation history.  The                     
  history goes from 1985 to 1995, without the authorization                    
  for 95.  I'd be interested in seeing 78 to 84.  I would also                 
  submit to you that if you compare the Department of                          
  Revenue's request versus authorization, the authorization is                 
  a percentage of the request.  I think you'll find, it is in                  
  almost every instance, the highest percentage of any                         
  department.  I just don't have the earlier numbers with me.                  
  I'll take any questions that anyone has."                                    
  CHAIRMAN VEZEY:  "Representative Bunde."                                     
  REPRESENTATIVE BUNDE:  "Thank you, Mr. Chairman.  I'm                        
  tempted to ask what all these lawyers are doing in church                    
  with us farmers but I'll save that question.  We've heard a                  
  lot of relatively complex testimony and I have a - maybe a                   
  failing of wanting to simplify or perhaps over simply, but                   
  I'd like to ask Mr. Sullivan if my simplification is                         
  relatively accurate, that if SB 377 passes and the state                     
  wins the court suit, the state wins.  Is that correct?"                      
  MR. SULLIVAN:  "I need to know which court suit you're                       
  talking about."                                                              
  REPRESENTATIVE BUNDE:  "Supreme Court suit that we're --                     
  you're going to address."                                                    
  MR. SULLIVAN:  "Mr. Chairman, if SB 377 in its current form                  
  passes, and Exxon prevails in the Supreme Court next                         
  REPRESENTATIVE BUNDE:  "No, I'm sorry.  Perhaps I wasn't                     
  clear.  If SB 377 passes and then the state prevails in the                  
  Supreme Court, the state has essentially won."                               
  MR. SULLIVAN:  "Yes, but the state would not have needed SB
  REPRESENTATIVE BUNDE:  "If SB 377 passes and the state                       
  loses, the state still wins."                                                
  MR. SULLIVAN:  "Mr. Chairman, that is correct."                              
  REPRESENTATIVE BUNDE:  "And so what we're looking at is                      
  trial insurance here."                                                       
  MR. SULLIVAN:  "Mr. Chairman, that is correct,                               
  Representative Bunde, assuming, and I'm making one                           
  assumption and that is that SB 377 is found to be                            
  REPRESENTATIVE BUNDE:  "Thank you."                                          
  MR. SULLIVAN:  "Yes, you're correct."                                        
  CHAIRMAN VEZEY:  "Representative Davidson."                                  
  REPRESENTATIVE DAVIDSON:  "Thank you, Mr. Chairman.  Mr.                     
  Sullivan, it is my understanding that your company is the                    
  one that suggested deferral until after the ARCO litigation.                 
  That is to say that this case which the ARCO litigation                      
  which was resolved not until 1986 is the constitutional                      
  delay that we've had to deal with to deal with these tax                     
  questions from that period of 1978 to 1981, the period of                    
  separate accounting.  Now if, in fact, that was your                         
  suggestion, it seemed that you set up another fork in the                    
  constitutional road to finality and I think you addressed                    
  that briefly when you talked about the word `alternatively.'                 
  Is that, in fact, correct?"                                                  
  MR. SULLIVAN:  "Mr. Chairman and Representative Davidson, we                 
  did request a stay in those assessments and our reason was,                  
  as I said yesterday, that to address them and begin the                      
  process while the underlying legislation was being                           
  challenged didn't make sense to me as a good use of my                       
  people's time or the state's people's time.  Therefore, we                   
  suggested let's see whether the law is found to be                           
  constitutional or unconstitutional.  While I did make that                   
  request, not I but Exxon, the state's position was to                        
  continue the process of assessments, excuse me, audits and                   
  assessments, so that my request in no way slowed the                         
  Department of Revenue.  The request was, in essence,                         
  rejected.  Would it had sped up the process if the                           
  underlying law was found constitutional?  I think so, we all                 
  would have saved some time.  The underlying law was not                      
  found to be unconstitutional so the process continued.  Were                 
  extensions granted?  Yes.  Was money at risk?  Was I trying                  
  to play a game in order to get the statutes to run to avoid                  
  a liability.  Absolutely not.  That was not done.                            
  Extensions were granted."                                                    
  REPRESENTATIVE DAVIDSON:  "But my point is that the                          
  suggestion for deferral of your extensions for -- somebody's                 
  extensions for assessment, it was suggested by your company                  
  that we defer this until after the ARCO litigation was                       
  resolved and that was not resolved until 1986."                              
  MR. SULLIVAN:  "Our request, Mr. Chairman, Representative                    
  Davidson, was for not an extension, it was we had received                   
  an assessment and we were required under the regulations to                  
  answer within 60 days, that is protest the assessment.  We                   
  complied with that requirement.  We protested the                            
  assessment.  What you were talking about is a cover letter                   
  that went with that protest that said, `here is the protest,                 
  you now know where we, Exxon the taxpayer, stand on your                     
  assessment.  But we, Exxon, suggest that rather than                         
  beginning resolution, we wait and see what happens to the                    
  statute.'  It is no different than the point that Mr. Hosie                  
  made this morning that as long as this conflict over the                     
  meaning of the statute exists, it will be very difficult for                 
  the companies and the Department of Revenue and the                          
  Department of Law to get together and resolve these.  We                     
  were saying the same thing back then.  There is a case on                    
  the constitutionality of the underlying law.  How can we and                 
  the state resolve the issues when we don't even know whether                 
  the assessment relates to a tax that is constitutional.                      
  That's all that we were doing."                                              
  Number 181                                                                   
  REPRESENTATIVE DAVIDSON:  "So we did not know -- we did not                  
  know -- we did not come to resolution on the statute though                  
  until 1986.  Is that correct?"                                               
  MR. SULLIVAN:  "And I would submit that with respect to SB
  377 we may not come to resolution on its constitutionality,                  
  this is according to Mr. Hosie this morning, for another                     
  three to five years.  And I further submit that if this                      
  legislation is not enacted, we will come to resolution on                    
  the meaning of the three-year statute in the next six                        
  REPRESENTATIVE DAVIDSON:  "That leads to my other question,                  
  Mr. Sullivan.  You talked about the constitutional issues                    
  and would you please identify them and then would you also                   
  comment as to whether or not the point of continuing in the                  
  lawsuit,  does that -- does that continuation begin at that                  
  point.  In this same lawsuit where Judge Cranston said these                 
  constitutional arguments have no merit."                                     
  MR. SULLIVAN:  "Constitutional arguments are as enumerated,                  
  Mr. Chairman, Representative Davidson, in the footnote                       
  three.  They were that the DOR's interpretation of the                       
  statute of limitations violated the federal and state                        
  constitutional protections of equal protection, due process,                 
  and the right to petition for redress.  He said there was no                 
  merit in these constitutional arguments because, in part,                    
  they found that our interpretation of the statute that it                    
  was plain and unambiguous on its face and that three years                   
  meant what it said.  Three years, unless the parties                         
  extended, so there was no constitutional issue."                             
  Number 215                                                                   
  REPRESENTATIVE DAVIDSON:  "So you have confused me, it                       
  regards the constitutional issues.  You said that you will                   
  go back, in fact, and pursue those constitutional issues.                    
  My question then is what point do you start at?  Back in                     
  which court and...."                                                         
  MR. SULLIVAN:  "Excuse me.  Constitutional issues of which I                 
  am talking about are not yet even filed.  They are                           
  constitutional issues that are likely to be raised by                        
  taxpayers with respect to this legislation, SB 377, if it                    
  passes.  There will be a question as to the                                  
  constitutionality (indiscernible) SB 377, including the                      
  retroactive Section 1.  Now, that's going to take a long                     
  time to resolve.  It is obviously not filed in any court yet                 
  because we don't know what is going to happen to SB 377."                    
  Number 230                                                                   
  REPRESENTATIVE DAVIDSON:  "Mr. Sullivan, I would remind you                  
  I think my understanding is correct.  What the argument will                 
  be before the Supreme Court is whether or not 260 is                         
  amendable.  It will not have, in fact, ruled on that?"                       
  MR. SULLIVAN:  "The question, Mr. Chairman and                               
  Representative Davidson, before the Supreme Court next                       
  Wednesday will be whether Judge Cranston, in his decision in                 
  the Superior Court, correctly interpreted the statute.                       
  There will not be a constitutional issue.  There will be a                   
  question as to whether Judge Cranston is correct.  We will                   
  then have a decision from the highest court in the state of                  
  Alaska on whether three years means three years or, as Mr.                   
  Hosie talked to you about yesterday, whether there is a                      
  relation back theory that allows an assessment which comes                   
  after the three years including any taxpayer in the state                    
  agreed extension thereof is a valid assessment.  Judge                       
  Cranston said `no.'  The Supreme Court may say otherwise."                   
  REPRESENTATIVE DAVIDSON:  "Mr. Chairman, I have one other                    
  question, if I may."                                                         
  CHAIRMAN VEZEY:  "Please."                                                   
  REPRESENTATIVE DAVIDSON:  "Mr. Sullivan, you talked about                    
  the cooperation or the cooperative appeals extension process                 
  that both the state and your company has, in fact, engaged                   
  in the past practice.  And you talked about, I believe, the                  
  point that well maybe they just won't be as forthcoming in                   
  the future to extend these appeals."                                         
  MR. SULLIVAN:  "I did not say that, Mr. Chairman."                           
  REPRESENTATIVE DAVIDSON:  "Well how did I get...."                           
  MR. SULLIVAN:  "I indicated, Mr. Chairman, Representative                    
  Davidson, that I did not see a circumstance in the future                    
  where Exxon would not grant an extension because the option                  
  is, and continues to be, the right of the Department of                      
  Revenue to collect the revenues of the state of Alaska by                    
  issuing an assessment based on the best information                          
  available if I am not cooperating (indiscernible) consider                   
  to be.  And they would then, as I said yesterday, maybe                      
  disallow my deductions on the basis that I had not                           
  (indiscernible) and they would value ANS crude at the high                   
  end of reasonable (indiscernible) and that is something                      
  which the Department of Revenue would have the right to do                   
  under the laws that exist today.  So, now tell my why                        
  wouldn't I grant an extension.  My option isn't that great                   
  and (indiscernible)."                                                        
  Number 283                                                                   
  REPRESENTATIVE DAVIDSON:  "So, the high balling comment you                  
  had in your written statement yesterday was then that refers                 
  to the fact that, well it is really in your interest to                      
  grant appeals."                                                              
  MR. SULLIVAN:  "Mr. Chairman, Representative Davidson, I'm                   
  scratching my head.  I'm not sure whether it is or not.  The                 
  reason being that having granted extensions in every                         
  instance, it's resulted in an increase in assessment.  Mr.                   
  Brewer indicated that there were instances where there were                  
  amended assessments that went down.  I have seen the                         
  department issue an assessment and then after we filed a                     
  protest, they have retracted the assessment recognizing                      
  (indiscernible) case to have issued the assessment in the                    
  first place.  But in terms of new or amended assessments                     
  other than the revocation of one, it's always gone up.  It                   
  is almost like as you get into the process and make your                     
  case it's pay us or get another assessment."                                 
  CHAIRMAN VEZEY:  "Thank you.  Representative Davidson, you                   
  have a comment?"                                                             
  REPRESENTATIVE DAVIDSON: "Yes Mr. Chairman, I'm still                        
  confused and perplexed and I was wondering how you                           
  understood the idea of amending 260 before the Supreme                       
  Court.  I did not quite -- could not understand Mr.                          
  Sullivan's response.  If we're not, in fact, arguing that in                 
  the Supreme Court or the way he presented it, the way he                     
  talked about it, was he saying the same thing that I said or                 
  am I just lacking legal training?"                                           
  CHAIRMAN VEZEY:  "I believe Mr. Sullivan's testimony has                     
  been very consistent.  I'm having difficulty understanding                   
  your question."                                                              
  REPRESENTATIVE DAVIDSON:  "Well, my question was it's my                     
  understanding the constitutional question, the statutory                     
  construction of 260 has already been decided.  It was                        
  decided that it was in favor of the industry or, in this                     
  instance, Exxon.  And, yet, before the Supreme Court we have                 
  a constitutional issue.  Isn't that correct?"                                
  MR. SULLIVAN:  "No, Mr. Chairman, I think I understand                       
  Representative Davidson's question.  The issue that was                      
  before the Superior Court was the interpretation, not a                      
  constitutional issue, but the interpretation of the statute.                 
  And in our complaint, we had an alternative argument and the                 
  alternative argument was more or less, if the state is right                 
  we're concerned about due process.  And so constitutional                    
  issues were raised.  Judge Cranston found not that the state                 
  was right, but that Exxon was right.  Therefore, he need not                 
  address the constitutional arguments that existed in our                     
  alternative arguments.  So now when we go to the Supreme                     
  Court next Wednesday, there is no constitutional issue per                   
  se that's being addressed by the Supreme Court.  What is                     
  being addressed is whether a Superior Court Judge, Judge                     
  Cranston, correctly interpreted a statute.  So this is just                  
  a higher court reviewing the interpretation by a lower court                 
  judge of the meaning of words in a statute."                                 
  REPRESENTATIVE DAVIDSON:  "That is helpful and that means                    
  that they will rule then whether or not the statute can be                   
  amended which is a statutory construction issue.  Is that                    
  MR. SULLIVAN:  "Mr. Chairman and Representative Davidson,                    
  the question of the amendment, you see, the statute can be                   
  amended, what we're talking about here today.  Is that                       
  REPRESENTATIVE DAVIDSON:  "No."                                              
  MR. SULLIVAN:  "Whether the assessment can be amended after                  
  the statute has run.  That is correct.  That is exactly what                 
  they're going to be asked to do is review an opinion that                    
  says that it can't, and the Supreme Court will decide either                 
  that opinion is right or that opinion is wrong.  If they                     
  decide that that opinion is wrong, Judge Cranston's opinion,                 
  then in that event, you get SB 377 without passing a single                  
  bit of legislation.  In the event they say that Exxon and                    
  the Superior Court Judge Cranston's opinion is correct, then                 
  we know what the law was.  Is the situation of the Supreme                   
  Court upholding Judge Cranston's decision and the                            
  legislature passing SB 377, and in that event, the decision                  
  of the Supreme Court upholding Judge Cranston's decision is                  
  essentially mooted, if, subsequently SB 377 is found to be                   
  REPRESENTATIVE DAVIDSON:  "Thank you, Mr. Chairman, I                        
  appreciate the time you've allowed me."                                      
  CHAIRMAN VEZEY:  "Thank you, Representative Davidson.                        
  Representative Davies."                                                      
  Number 370                                                                   
  REPRESENTATIVE DAVIES:  "Thank you, Mr. Chair.  Mr.                          
  Sullivan,  Commissioner Rexwinkel talked about the statute                   
  that relates to the formal hearing process and you commented                 
  on that.  And when the commissioner read that statute with                   
  respect to determining, loosely put, the correct tax - I                     
  don't remember the exact language - I didn't hear any                        
  limitation on that to timely assessment which you asserted.                  
  Can you tell me how you come to that conclusion or give me                   
  the citation where the linkage is there?"                                    
  MR. SULLIVAN:  "Let's skip the informal conference, please,                  
  if we can, Mr. Chairman, and just assume we are now in                       
  formal conference..."                                                        
  REPRESENTATIVE DAVIES:  "It's just the formal -- the                         
  language as I recall was just for the formal conference,                     
  MR. SULLIVAN:  "Question number one is what is before the                    
  hearing officer?"                                                            
  REPRESENTATIVE DAVIES:  "Right."                                             
  MR. SULLIVAN:  "What is before the hearing officer is a                      
  notice and demand for payment, otherwise known as an                         
  assessment.  Also before the hearing officer is a protest                    
  filed by the particular taxpayer in question.  That is the                   
  issue that has been joined.  A notice and demand for payment                 
  and a protest that says, `I don't owe it or I only owe part                  
  of it.'  He then calls for depositions and witnesses,                        
  discovery.  Both sides hire lawyers, both sides hire experts                 
  and we all spend a lot of money.  That's why I don't like to                 
  forget about the informal conference being submitted because                 
  sometimes that saves both of us a lot of money.  But his                     
  charge is to look at what the Department of Revenue, Oil and                 
  Gas Audit Division - in the case of the production tax - has                 
  assessed, and what the taxpayer says in his protest, and                     
  decide what the correct tax on that documentation is.                        
  That's what's before him."                                                   
  CHAIRMAN VEZEY:  "Thank you.  Representative Finkelstein."                   
  MR. SULLIVAN:  "Excuse me, could I follow-up on that."                       
  CHAIRMAN VEZEY:  "One more."                                                 
  REPRESENTATIVE DAVIES:  "Just on that....  But the                           
  assessment that he has in his hand may well be an amended                    
  assessment that was amended post the three-year statute."                    
  MR. SULLIVAN:  "Mr. Chairman, it could be in an assessment                   
  that was issued eight years after the return was filed,                      
  assuming that there have been extensions as the next                         
  (indiscernible) case there have been.  He may have before                    
  him six assessments.  There might have been an assessment,                   
  protest, assessment, protest, extension, assessment,                         
  protest.  Sometimes an assessment later in time negates an                   
  earlier one or incorporates it.  Sometimes an assessment                     
  later in time is on an entirely new issue so the earlier one                 
  (indiscernible).  So he can have a portfolio in front of him                 
  - two, three, four, five different assessments all of which                  
  now have worked their way up to formal conference.  And                      
  basically at that point, forget about the assessments, you                   
  now have the issues and the various assessments.  That's the                 
  portfolio that's before him and nobody references back to a                  
  particular assessment.  It's just these are what are before                  
  you, which are to be decided by the hearing officer.  That                   
  whole package."                                                              
  CHAIRMAN VEZEY:  "Thank you.  Representative Finkelstein."                   
  Number 423                                                                   
  REPRESENTATIVE FINKELSTEIN:  "Thank you, Mr. Chairman.  The                  
  question I had is on the analogy made earlier to the                         
  President and his taxes which, you know, of course, on the                   
  face of it, is appealing but as you look at it the                           
  difference is, is the President doesn't have any outstanding                 
  assessments against him.  And it seems to me that, and I                     
  guess I'm trying to see -- doesn't your analogy only work if                 
  you'd actually settle - paid your taxes just as most of                      
  these other Alaskan oil companies have done."                                
  MR. SULLIVAN:  "Mr. Chairman, Representative Finkelstein,                    
  it's an interesting question.  The fact of the matter is I                   
  don't know whether the President's return was audited for                    
  that year."                                                                  
  REPRESENTATIVE FINKELSTEIN:  "But he has no outstanding                      
  assessments is the issue.  We know that to be the case."                     
  MR. SULLIVAN:   "As far as I know he had no outstanding                      
  assessments because of the statute of limitation have run.                   
  All I'm saying is there is an analogy there.  It may not be                  
  perfect but what I perceive any payment that I might make on                 
  an assessment which is contrary to Judge Cranston's opinion                  
  is essentially equivalent to a voluntary payment, because                    
  Judge Cranston says it's not legally due."                                   
  Number 441                                                                   
  REPRESENTATIVE FINKELSTEIN:  "Right and just to make clear,                  
  none of this would be before us if, you know, if this case                   
  is settled.  I mean it's only here because there is an                       
  outstanding assessment.  They aren't trying to go back on                    
  something that was settled.  It is one of the two cases that                 
  are left on this subject."                                                   
  MR. SULLIVAN:  "Mr. Chairman, the Department of Revenue and                  
  the Department of Law are trying to increase the scope and                   
  dollar value of the issues from those that exist in the                      
  timely assessed assessments -- time received assessments.                    
  That's correct.  I am not in any way indicating that the                     
  multitude of assessments received within the three-year                      
  statute, as extended, are at risk.  They are not.  They are                  
  valid and will be resolved."                                                 
  REPRESENTATIVE FINKELSTEIN:  "Thank you, Mr. Chairman."                      
  CHAIRMAN VEZEY:  "Thank you.  Seeing no further questions  -                 
  - I'm sorry, Representative Ulmer, you had a question."                      
  REPRESENTATIVE ULMER:  "I'll pass, thank you."                               
  Number 454                                                                   
  CHAIRMAN VEZEY:  "Okay, seeing no further questions, thank                   
  you very much Mr. Sullivan."                                                 
  MR. SULLIVAN:  "Thank you."                                                  
  CHAIRMAN VEZEY:  "Thanks for your time.  What is the                         
  pleasure of the committee.  Mr. Furnace, you'd indicated                     
  that you would sign in to speak.  Would you -- do you care                   
  to pass or...."                                                              
  MR. FURNACE:  "Mr. Chairman, I will submit my presentation                   
  to the committee later."                                                     
  CHAIRMAN VEZEY:  "Thank you.  What's the pleasure of the                     
  committee?  Representative Davidson."                                        
  Number 459                                                                   
  REPRESENTATIVE DAVIDSON:  "Mr. Chairman, I have some                         
  pleasure and that would be to ask a couple of questions of                   
  Mr. Palmer and to the opportunity to hurriedly go through                    
  here, just a couple of short questions I'd like to ask if I                  
  CHAIRMAN VEZEY:  "Mr. Palmer, are you agreeable to that?"                    
  JIM PALMER:  (Indiscernible.)                                                
  CHAIRMAN VEZEY:  "Please, Representative Davidson."                          
  Number 469                                                                   
  REPRESENTATIVE DAVIDSON:  "Thank you, Mr. Chairman.  Good                    
  afternoon, Mr. Palmer.  Say, Mr. Palmer, on page two, you                    
  talk about not one of those states have ever retroactively                   
  amended their statute of limitations.  Has any one of those                  
  states ever had a separate accounting litigation issue such                  
  as we're talking about here for the last forty-eight hours                   
  or eighteen years?"                                                          
  MR. PALMER:  "Mr. Chairman, Representative Davidson, I can't                 
  answer that with any authority.  I know that there has been                  
  litigation about methods of income taxes throughout the                      
  United States, but I can't answer that with any authority."                  
  REPRESENTATIVE DAVIDSON:  "Thank you."                                       
  REPRESENTATIVE DAVIDSON:  "Just one other question then, Mr.                 
  Chairman, if I might."                                                       
  CHAIRMAN VEZEY:  "Please."                                                   
  REPRESENTATIVE DAVIDSON:  "On page one you talked -- it said                 
  `it would set a terrible precedence which provoking more                     
  litigation.'  Could you please expand on what kind of                        
  litigation you're talking about and whether or not we're                     
  talking about the constitutional, I don't want to put any                    
  words there, what kind of more litigation would it provoke                   
  in your judgment?"                                                           
  MR. PALMER:  "Mr. Chairman, Representative Davidson, I think                 
  much more eloquently than I, Mr. Sullivan has answered that                  
  question.  I think if 377 gets passed, when you have                         
  legislation that reaches back 18 years there is a question                   
  of `is that a constitutional thing to do.'  And I would                      
  think that the companies will look at that and decide to                     
  take action in --  exercise their legal rights."                             
  REPRESENTATIVE DAVIDSON:  "Thank you, Mr. Chairman."                         
  MR. PALMER:  "Thank you, Mr...."                                             
  CHAIRMAN VEZEY:  "Representative Nordlund."                                  
  Number 490                                                                   
  REPRESENTATIVE NORDLUND:  "Mr. Palmer you a -- you're an                     
  employee of BP, is that correct?"                                            
  MR. PALMER:  "That's correct."                                               
  REPRESENTATIVE NORDLUND:  "And you're a member of the Board                  
  of AOGA or what's your position with AOGA?"                                  
  MR. PALMER:  "My company is a member of AOGA."                               
  REPRESENTATIVE NORDLUND:  "And your the representative from                  
  BP on AOGA's Board...."                                                      
  MR. PALMER:  "No, Mr. Chairman, Mr. John Morgan, President                   
  of the company is our member on the board."                                  
  REPRESENTATIVE NORDLUND:  "Okay.  And how many organizations                 
  are there in AOGA, how many different companies?"                            
  MR. PALMER:  "It was in my testimony, which I don't have                     
  before me, but it's a number of oil and gas producers and                    
  marketers in Alaska."                                                        
  REPRESENTATIVE NORDLUND:  "Okay.  And your position --                       
  AOGA's position is against this bill as I understand it."                    
  MR. PALMER:  "Mr. Chairman, AOGA's position is opposed to                    
  Sections one and two of Senate Bill 377.  They have had a                    
  formal position opposing retroactivity."                                     
  REPRESENTATIVE NORDLUND:  "Okay, and there are other                         
  companies in AOGA that have paid taxes under the existing                    
  scheme and under the way the state's interpreting the                        
  statute right know.  Is that correct?"  Unocal and Marathon,                 
  MR. PALMER:  "All the companies have paid taxes under the                    
  current scheme."                                                             
  REPRESENTATIVE NORDLUND:  "And it would seem to me that                      
  those companies, and we haven't heard that here yesterday or                 
  today, but is seemed to me those companies who have paid                     
  under the existing scheme -- assumedly paying more taxes                     
  than BP would have to pay or Exxon would have to pay if this                 
  bill, if this bill passes.  It would seem to me that they                    
  would be at least neutral if not opposed to this bill, and                   
  I'm just wondering if you say -- you say you represented the                 
  position of AOGA,  how did AOGA come to that position given                  
  the varying interests in the company, members of AOGA."                      
  MR. PALMER:  "Mr. Chairman, Mr. Chairman, the way that AOGA                  
  works is the committee makes a proposal on a position, then                  
  it goes to, usually the board if necessary, and the board                    
  approves that position.  The AOGA board did approve this                     
  position of opposing the retroactive aspects of Senate Bill                  
  377.  The AOGA board has not taken a position on the other                   
  elements included within Senate Bill 377.  So there is no                    
  position -- formal position of AOGA."                                        
  REPRESENTATIVE NORDLUND:  "Okay, and when you arrive at                      
  those positions, they are not necessarily unanimous.  Are                    
  they voted on?  Because some members may have voted `no' and                 
  some might have voted `yes,' a majority voting `yes' and                     
  that's you're position?"                                                     
  MR. PALMER:  "I'm not, Mr. Chairman, I'm not familiar with                   
  the facts surrounding that position of whether what                          
  companies voted how."                                                        
  REPRESENTATIVE NORDLUND:  "Thank you."                                       
  Number 514                                                                   
  CHAIRMAN VEZEY:  "Thank you.  If there aren't any further                    
  questions at this time -- I'm sorry one more...."                            
  UNIDENTIFIED SPEAKER:  "No."                                                 
  Number 524                                                                   
  CHAIRMAN VEZEY:  "Thank you very much, Mr. Palmer.  At this                  
  time I'd like to ask the committee aide to distribute a                      
  committee substitute we've prepared based on the comments on                 
  the technical aspects of the bill.  If it's the committee's                  
  pleasure, we can review it know or we can take a short break                 
  and come back and review it.  Representative Davidson."                      
  REPRESENTATIVE DAVIDSON:  "Explain it first.  Mr. Chairman                   
  is this essentially the bill that we've been discussing?  Is                 
  this the same one or have there been changes to this?"                       
  CHAIRMAN VEZEY:  "We will go over the changes.  There have                   
  been changes based on the comments that we made primarily                    
  yesterday.  Representative Ulmer."                                           
  REPRESENTATIVE ULMER:  "Mr. Chairman, I think it would make                  
  sense to just go through the changes."                                       
  CHAIRMAN VEZEY:  "Okay, we can do that at this time or                       
  people want to take a break?  We've been at it about an hour                 
  and a half.  Let's take a break and come back at 5:00 p.m."                  
  A break was taken at 4:42 p.m.  The meeting was called back                  
  to order at 5:01 p.m.                                                        
  CHAIRMAN VEZEY:  "Come back to order.  It's 5:01.  We have                   
  before us a proposed committee substitute for Senate Bill                    
  think, are fairly simple to explain.  On page 2, line 31,                    
  the word `prospective' has been inserted before the word                     
  `adjustment.'  On page 3..."                                                 
  REPRESENTATIVE DAVIES:  "Mr. Chair."                                         
  CHAIRMAN VEZEY:  "Yes."                                                      
  REPRESENTATIVE DAVIES:  "Aren't there changes up on line 2?"                 
  CHAIRMAN VEZEY:  "On line 2?"                                                
  UNIDENTIFIED SPEAKER:  "Yes."                                                
  CHAIRMAN VEZEY:  "4 and 5. Okay."                                            
  REPRESENTATIVE DAVIES:  "Line 2, `decreases' was eliminated                  
  CHAIRMAN VEZEY:  "Okay, I'm sorry, that is correct                           
  `decrease' was removed and that was taken down to the last                   
  sentence.  I'll have to look at the other wording                            
  REPRESENTATIVE DAVIES:  "Yeah, there was a new clause                        
  entered on line 5 for the decrease."                                         
  CHAIRMAN VEZEY:  "I... I think the intent hasn't changed,                    
  it's different wording to express concerns that were                         
  expressed here.  And then the word `prospective' inserted on                 
  line 31.  In paragraph (c)  on page 3, line 10, the word                     
  `may' was changed to `shall.'  And in response to                            
  Representative Davies comments, the word `percentage' was                    
  inserted before`weights' to clarify that we're talking about                 
  a percentage weights.  And then on line 11, the word `may'                   
  was changed to `shall.'"                                                     
  REPRESENTATIVE DAVIES:  "And `different' was omitted also,                   
  which was good."                                                             
  CHAIRMAN VEZEY:  "And I'm sorry, I don't have the deletion.                  
  What was deleted?"                                                           
  REPRESENTATIVE DAVIES:  "Different."                                         
  REPRESENTATIVE GAIL PHILLIPS:  "Different weeks."                            
  REPRESENTATIVE DAVIES:  "Which is the main point of my                       
  comment, so I appreciate that change."                                       
  CHAIRMAN VEZEY:  "Okay.  Then on line 14, the word `market'                  
  was inserted before `assessments.'  Page 4, line 9, `$1' was                 
  changed to `$2.'  We added a phrase `adjusted annually for                   
  inflation in accordance with the Consumer Price Index.'                      
  Same change on line 22 through 24.  A comparable change is                   
  found on page 5 on line 19 and 20.  And a comparable change                  
  is found on page 6, line 1, 2, and 3.  Those constitute the                  
  changes.  `Section 10' now becomes `Section 7.'  We deleted                  
  all of the sections of the Senate Bill that was before us                    
  that did not pertain to oil and gas or to the proration of                   
  payments.  All the other matter in the bill has been                         
  deleted.  Section 10 and 11 were adjusted to reflect the                     
  content of the current committee substitute.  Representative                 
  REPRESENTATIVE PHILLIPS:  "Mr. Chairman, we forgot one                       
  amendment and that was on old page 5, Section (d) so it                      
  would be...."                                                                
  CHAIRMAN VEZEY:  "No, that was not forgotten.  Leg Legal                     
  maintains that the paragraph is the correct word."                           
  REPRESENTATIVE PHILLIPS:  "Okay."                                            
  CHAIRMAN VEZEY:  "So I got it corrected and...."                             
  REPRESENTATIVE PHILLIPS:  "Okay - thank you."                                
  Number 582                                                                   
  COMMISSIONER REXWINKEL:  "Can I ask a question."                             
  CHAIRMAN VEZEY:  "Please if you join us at the table so the                  
  microphone picks up your voice."                                             
  COMMISSIONER REXWINKEL:  "I was just going to ask on the                     
  retroactive provision on the one -- the $1 to $2 in the CPI                  
  this is retroactive to 1985 so that means the CPI would be                   
  begin to (indiscernible) in 1985?"                                           
  CHAIRMAN VEZEY:  "Well, that really wasn't our intent but                    
  the testimony we got was that the figure was somewhat                        
  arbitrary.  It was a figure between 56 cents and $5 and so                   
  we didn't really -- $2 was just another fairly arbitrary                     
  number.  It was our intent that the CPI would start on the                   
  effective date of the bill.  I'd have to go back.  We may                    
  not have effected that.  The effective date of Section 4 is                  
  retroactive to January 1, 1985.  So I think that would --                    
  you would be correct in your interpretation.  It wasn't                      
  really our intent when we made that amendment."                              
  Number 594                                                                   
  REPRESENTATIVE ULMER:  "Mr. Chairman."                                       
  CHAIRMAN VEZEY:  "Representative Ulmer."                                     
  REPRESENTATIVE ULMER:  "On that point, does in fact                          
  inflation affect the processing costs or the transportation                  
  costs or do those tend...."                                                  
  CHAIRMAN VEZEY:  "This is not a automatic inflation.  The                    
  statute says it may not exceed a figure and since we're                      
  putting a number in statute, I felt that rather than have to                 
  come back every five years and address the statute, we                       
  should allow the ceiling number to escalate.  It could still                 
  be 56 cents."                                                                
  REPRESENTATIVE ULMER:  "How will that be determined?"                        
  CHAIRMAN VEZEY:  "Well, we weren't told that in our                          
  testimony.  We assumed it would be through the audit process                 
  that we have heard.  Representative Nordlund."                               
  Number 603                                                                   
  REPRESENTATIVE NORDLUND:  "Thank you, Mr. Chairman.  If I                    
  remember the testimony based on the $1 per barrel, it was a                  
  loss to the state of $100 million prospectively as well as a                 
  loss of $100 million retroactively for a total of $200                       
  CHAIRMAN VEZEY:  "I don't believe it was tied to the dollar                  
  per barrel for the cost of processing.  I believe that was                   
  the state's contention of the value of giving up gas liquids                 
  as a oil in assessing it for tax values of the gas.  That                    
  hasn't changed."                                                             
  REPRESENTATIVE NORDLUND:  "But the impact of that would have                 
  been something near those sums, is that co -- I mean..."                     
  CHAIRMAN VEZEY:  "No, I don't believe that's changed in this                 
  committee substitute because we're not talking -- the $1 was                 
  not -- contributed to that figure that you talked about that                 
  could be as high as $250 million.  That was (indiscernible-                  
  coughing) state felt was at risk (indiscernible) agreed it                   
  would not assess gas liquids as oil as opposed to assessing                  
  gas liquids as gas."                                                         
  REPRESENTATIVE NORDLUND:  "I wonder if we could hear from                    
  some of the folks from the Department of Revenue on this                     
  because I'd be concerned that we -- if before we were giving                 
  away $100 million or $200 million if under this change we're                 
  giving away $400 million."                                                   
  CHAIRMAN VEZEY:  "Commissioner Rexwinkel."                                   
  COMMISSIONER REXWINKEL:  "Mr. Brewer will try to give a shot                 
  at that."                                                                    
  Number 618                                                                   
  MR. BREWER:  "Very roughly, Mr. Chairman, the impact of the                  
  increase from $1 to $2 the processing fee.  When we took                     
  into account the numbers that we were talking about 100                      
  retroactively, 100 prospectively, that did take into account                 
  not only the change from oil to gas, but it also took into                   
  account the fact that they got a processing fee of $1."                      
  CHAIRMAN VEZEY:  "The testimony that we got would not exceed                 
  MR. BREWER:  "Right, but our - our fiscal impact computation                 
  took into account the fact that not only does the tax rate                   
  change, it goes from a nominal rate of 15 percent to 10                      
  percent, but it also took into account the fact that they                    
  get $1 processing fee."                                                      
  CHAIRMAN VEZEY:  "But you weren't conceding the dollar, you                  
  were just using that for your calculations."                                 
  MR. BREWER:  "Right."                                                        
  Number 628                                                                   
  MR. BREWER:  "Very roughly what does it mean when you go                     
  from giving a processing fee of $1 to $2.  These are real                    
  rough numbers, but I just assumed that you're going to be                    
  producing sixty thousand barrels a day of NGLs.  I assume                    
  that it's the same time frame we were talking about a couple                 
  of days ago which is an eighteen year time frame.  It goes                   
  through the year 2004.  I multiplied the sixty thousand                      
  barrels, per day, times $1.  So it's worth $60,000 per day.                  
  The nominal tax rate is 10 percent, 10 percent of $60,000 is                 
  $6,000 a day.  Multiply it by the number days in a year,                     
  365.  Multiply those days -- multiply that by the time frame                 
  we're talking about which is eighteen years.  I don't have                   
  the ability to... Representative Green is..."                                
  CHAIRMAN VEZEY:  "It sounds like we're talking somewhere in                  
  the order of $50, $60 million."                                              
  MR. BREWER:  "Yes, sir, we are talking $40 million, not                      
  adjusted for interest and not adjusted for the time value of                 
  CHAIRMAN VEZEY:  "But that's assuming that you'd grant the                   
  $2 processing fee."                                                          
  MR. BREWER:  "The increase from the $1 processing to $2.                     
  That's right."                                                               
  REPRESENTATIVE GREEN:  "That's how much again, I'm sorry."                   
  MR. BREWER:  "I calculated, again, no interest component.                    
  You know, I'm not increasing it for interest in the past,                    
  and by the same token, I'm not discounting it for the                        
  future.  It just so happens that 94 is kind of almost in the                 
  middle of between 87 and the year 2004 so maybe they wasH.                   
  But I get $39,420,000."                                                      
  CHAIRMAN VEZEY:  "Representative Phillips."                                  
  Number 647                                                                   
  REPRESENTATIVE PHILLIPS:  "Thank you, Mr. Chairman.  The                     
  language that's in here `may not exceed' is the same problem                 
  we had with the $1 figure.  It could be 25 cents as long as                  
  it didn't exceed $2.  So I'm not arguing the $2 versus $1.                   
  I'm arguing that phrase `may not exceed,' and I think that                   
  should be rewritten in some way.  I substituted the words                    
  `will be' earlier but I don't know if that's correct or                      
  CHAIRMAN VEZEY:  "I'm sorry if you've made that                              
  recommendation, I didn't write it down."                                     
  REPRESENTATIVE PHILLIPS:  "No, I'm -- in my mentally.  I was                 
  starting to get away from -- and you do read my mind, Mr.                    
  Chairman.  I was trying to get rid of the ambiguity in `may                  
  not exceed.'"                                                                
  CHAIRMAN VEZEY:  "Representative Porter."                                    
  Number 654                                                                   
  REPRESENTATIVE PORTER:  "Mr. Chairman, I don't have any                      
  ambiguity in this unless I'm misunderstanding something.                     
  There is no firm figure on this allowance now.  You are                      
  trying to establish what it really is and you have the                       
  authority to make that determination.  Is that correct?"                     
  MR. BREWER:  "Mr. Chairman, Representative Porter, my idea                   
  of the theory behind capping it at $1 or $2 is that that                     
  facility up there is a very unique facility.  It's the only                  
  one like it, possibly in the world, but for sure in the                      
  entire United States you will not find a facility like that.                 
  It does a number of things.  I mean it does a lot of things.                 
  It dries the gas, it makes residue gas.  And so I mean there                 
  is a lot of components of that facility and you can get --                   
  every taxpayer here in the room to look at that facility and                 
  try to determine what component parts of that facility are                   
  allocable to NGLs so that they can get a deduction, and I                    
  can say some certain that each taxpayer will come up with a                  
  different number.  My thought was that the inclusion of this                 
  bill in here and just at a $1 or whatever it is, is going to                 
  take away our experts, our hiring of experts coming in and                   
  saying, you know, you should allocate part of the scrubber                   
  and 20 percent of the scrubber or 50 percent of the                          
  stabilizers.  I mean, we would get out of that type of a                     
  point, counterpoint type of a conversation and just say                      
  `this is the number,' and then we would -- and I understand                  
  what you're talking about up to and those types of                           
  REPRESENTATIVE PORTER:  "As I understand it, this wording                    
  was provided by the division and the wording is `may not                     
  exceed' not `$1.'  So aren't you kind of getting two bites                   
  out of the apple there.  You set it at a dollar but you                      
  can't go lower.  The testimony was that the dispute was                      
  something between 56 cents and $3 to $5.  Trying to seek a                   
  MR. BREWER:  "Mr. Chairman, Representative Porter, that                      
  dollar was pretty much the number that we were willing to                    
  live with.  That way we wouldn't have a battle of the                        
  experts as to what parts of the facility are allocable to MI                 
  and what parts of the facility are allocable to gas liquids                  
  and those types of things."                                                  
  REPRESENTATIVE PORTER:  "But your wording is `may not                        
  exceed' not `we'll live with a dollar.'"                                     
  MR. BREWER:  "I understand."                                                 
  CHAIRMAN VEZEY:  "Representative Green."                                     
  Number 684                                                                   
  REPRESENTATIVE GREEN:  "Thank you, Mr. Chairman.  You're                     
  assuming, I think, that if it goes from a possibility that                   
  it would not exceed $1 to not exceeding $2 automatically                     
  that that extra dollar will go in.  Isn't that a deduction,                  
  in fact, and so what you're doing that you're -- if it, in                   
  fact, went to $2 that would be a less taxable amount.  Not a                 
  straight dollar loss."                                                       
  MR. BREWER:  "Mr. Chairman, Representative Green, this would                 
  be the amount of money (indiscernible-coughing) right now                    
  that we would be foreclosed from assessing.  I mean we have                  
  a position which says that those liquids are oil."                           
  REPRESENTATIVE GREEN:  "I understand."                                       
  MR. BREWER:  "And that's the number, and the effect of                       
  increasing it from $1 to $2, if in fact, we do give or allow                 
  a $2 processing fee is to reduce the amount of our                           
  assessment that's out there right know by that amount of                     
  REPRESENTATIVE GREEN:  "Taxable on that dollar, not the                      
  straight dollar."                                                            
  MR. BREWER:  "Right, the tax..."                                             
  REPRESENTATIVE GREEN:  "And I think that's a very important                  
  point, that you're not losing a dollar for every barrel that                 
  may be produced..."                                                          
  TAPE 94-67, SIDE B                                                           
  Number 001                                                                   
  REPRESENTATIVE GREEN:  "...the maximum it could cost would                   
  be the taxation on the extra dollar."                                        
  MR. BREWER:  "That's correct."                                               
  REPRESENTATIVE GREEN:  "Okay."                                               
  MR. BREWER:  "Which is $40 million."                                         
  Number 009                                                                   
  MR. BOTELHO:  "Mr. Chairman, could I comment on this section                 
  just very briefly."                                                          
  CHAIRMAN VEZEY:  "Please, just -- please state your name                     
  clearly for the record."                                                     
  MR. BOTELHO:  "Mr. Chairman my name is Bruce Botelho,                        
  Attorney General.  The ambiguity, if there is one in this                    
  section or in this paragraph actually, is whether we have                    
  created another audit dispute with industry or whether we're                 
  trying to set a specific amount that should be the ceiling                   
  and I think that gets to Representative Porter's question                    
  earlier and it comes in two places.  One is `the not to                      
  exceed.'  Should we read this to say `the department must                    
  accept any number up to $2 without question, or is it number                 
  two, `the taxpayer may claim up to $2 but the department may                 
  now go back and determine whether it is a reasonable                         
  allowance.  Or a third alternative which I think, again,                     
  Representative Porter alluded to simply fixing an amount.                    
  It's not less than, but it's also not more than.  The                        
  language creates at least the ambiguity that the department                  
  may still go back in, try to determine whether the amount                    
  claimed, if it's at the maximum $2, was a reasonable                         
  allowance.  Then it becomes a policy call whether that's                     
  where you want your division to be (indiscernible)."                         
  REPRESENTATIVE GREEN:  "If I might, thank you Mr. Chairman.                  
  There was testimony given yesterday that because of the                      
  wording, which is identical to what it was, except for the                   
  $1 and $2, there was testimony yesterday that this, in fact,                 
  did allow it to be 56 cents because of the way it's written                  
  which says that it will not exceed but could be lower than."                 
  MR. BOTELHO:  "Mr. Chairman, if -- again, I only point out                   
  the latents, I think ambiguity.  Certainly, this committee's                 
  perception, as Chairman Green has expressed it, I think                      
  removes some of that.  But, again I know that any bill we                    
  deal with, that deals with oil and gas is going to be                        
  litigated at some point so it's important to make sure that                  
  right now you're not operating on the misapprehension that                   
  the department might not challenge a tax (indiscernible) who                 
  claims $2 or $1.95 about whether it's reasonable or not.  As                 
  I understand it, Representative Green understands that the                   
  department should have that ability, but that a taxpayer may                 
  well claim the full $2.  And to the extent, it can justify                   
  that it will be entitled to that $2 amount."                                 
  CHAIRMAN VEZEY:  "Representative Porter."                                    
  Number 083                                                                   
  REPRESENTATIVE PORTER:  "I think you just answered my                        
  question, but to the extent that he can justify it he should                 
  be entitled to $2 and we're setting a..."                                    
  MR. BOTELHO:  "... statute is drafted, that is correct."                     
  REPRESENTATIVE PORTER:  "...we're setting an absolute that                   
  the extent that he could justify $3, he won't be entitled                    
  MR. BOTELHO:  "That's also correct, Mr. Chairman."                           
  CHAIRMAN VEZEY:  "Representative Davies."                                    
  Number 092                                                                   
  REPRESENTATIVE DAVIES:  "Mr. Chair, just to see if I can get                 
  this right and sort of taking off from Representative                        
  Green's question, it seems to me that what the attorney                      
  general is saying is that there are - there are at least two                 
  ways that we could arrive at a tax that was 56 cents.  One                   
  would be that the industry would come in and would only                      
  claim that amount.  You know, when it says `may not exceed,'                 
  the industry would look at it (indiscernible) and they would                 
  say `I'm only claiming 56 cents.'  The other way is that the                 
  industry could go in and claim some amount in excess of                      
  that, up to $1 or $2 or whatever we had this limit in there.                 
  And then the department would audit that and say, `no, we -                  
  we're not going to allow that and we're going to only allow                  
  56 cents.'  Is that really what you're saying that's the                     
  ambiguities that could be read those two different ways."                    
  MR. BOTELHO:  "Mr. Chairman, I have to admit that I have                     
  lost it at some point.  I believe that it's because of                       
  Representative Davies' explanations."                                        
  REPRESENTATIVE DAVIES:  "I'm getting a little ambiguous                      
  myself, maybe."                                                              
  CHAIRMAN VEZEY:  "Representative Phillips."                                  
  Number 131                                                                   
  REPRESENTATIVE PHILLIPS:  "Mr. Chairman, would it be                         
  possible to put a basement and a ceiling in this paragraph                   
  both?  Would that clarify things or help matters any?"                       
  CHAIRMAN VEZEY:  "I don't know.  I would ask the                             
  MR. BOTELHO:  "Mr. Chairman, if it would be possible perhaps                 
  to take a ten minute recess to look at the question more                     
  fully and outside the pressure of sitting up here, we might                  
  be able to resolve that very question.  Let me identify one                  
  other, I think, inadvertent (indiscernible.)  It existed                     
  also in the earlier versions and that is Section 10, which                   
  deals with the effective date, refers only to Section 4,                     
  (indiscernible) retroactive to January 1, 1985.  My sense is                 
  that it should read Sections 4 and 6 of the (indiscernible)                  
  retroactive to January 1, 1985."                                             
  CHAIRMAN VEZEY:  "Before we take a break, and I -- you had                   
  me fooled, you look very relaxed sitting there at the table                  
  so I wouldn't have accused you of being under pressure                       
  UNIDENTIFIED SPEAKER:  "Go through and finish the rest of                    
  Number 151                                                                   
  REPRESENTATIVE PHILLIPS:  "Mr. Chairman, maybe while they                    
  go, we could do the pro rata part."                                          
  CHAIRMAN VEZEY:  "Let's finish the oil and gas.  I think                     
  we're almost done, if we're not done, then we can certainly,                 
  we can go on to pro rata and you folks can come back and we                  
  can set a time to have you come back.  And we're certainly -                 
  - you know it's not fixed, we certainly can amend that                       
  phrase in those four locations.  I believe we've addressed                   
  all the changes in the oil and gas issues except, obviously                  
  Section 10 and 11 which were adjusted for the new bill.                      
  It's been suggested that we modify Section 10, amend it to                   
  read Section 4 and 6.  And that puts us back to Section 7                    
  which is proration of payments.  And with that, we would                     
  excuse you gentlemen and...  do you want to set a time to                    
  come back and get with us?"                                                  
  MR. BOTELHO:  "We certainly would.  Mr. Chairman, do you                     
  have any staff person you would like to work with us as we                   
  review this issue."                                                          
  CHAIRMAN VEZEY:  "Who's available.  Mr. Ryan, you got time                   
  to a...."                                                                    
  UNIDENTIFIED SPEAKER:  "Representative Green."                               
  CHAIRMAN VEZEY:  "Pardon."                                                   
  UNIDENTIFIED SPEAKER:  "Maybe Joe Green?"                                    
  CHAIRMAN VEZEY:  "He said staff."                                            
  MR. BOTELHO:  "Or any member of your committee."                             
  CHAIRMAN VEZEY:  "We cannot do any legal drafting this                       
  afternoon.  I allowed the Leg Legal to let their people go                   
  home about 2:00 this afternoon when they finished this CS.                   
  So it would be tomorrow before we could take any changes..."                 
  MR. BOTELHO:  "Whatever we come back with will not be                        
  anything that would make the bill anymore complicated than                   
  it is."                                                                      
  CHAIRMAN VEZEY:  "Good.  And so that takes us down to                        
  Section 7 which is proration of payments.  Representative                    
  Ulmer, you had indicated that you'd like to take testimony                   
  from the agencies.  I would submit that it's -- I think we                   
  understand the issue (indiscernible) the technical aspects                   
  of this issue that we really have questions about, it's more                 
  less the effect of what this would do."                                      
  Number 187                                                                   
  REPRESENTATIVE ULMER:  "Mr. Chairman, I think the problem                    
  is, it is not clear on its face, exactly which programs                      
  would be impacted by it.  I believe that there is some                       
  question, for example, as to whether or not it would apply                   
  to AFDC or any other program that has federal dollars                        
  attached to it, and because it is my understanding this                      
  section has not ever had the benefit of a public hearing at                  
  which people from the agencies that know these programs                      
  could explain how it might actually work, that there is a                    
  lot of confusion about how it would work and, I would like                   
  to get something on the record about that."                                  
  CHAIRMAN VEZEY:  "Okay."                                                     
  REPRESENTATIVE ULMER: "...something that has this kind of                    
  impact.  I do not want to delay the hearing.  I'd be just as                 
  happy if we wanted to jettison this section and save it for                  
  another year, but if people don't want to do that, if they                   
  really, you know, want to go forward with it, I think it                     
  deserves some sort of comment on the record."                                
  CHAIRMAN VEZEY:  "I certainly have no problem taking                         
  testimony.  If you're through, Representative Davies would                   
  like to ask a question.  Representative Davies."                             
  REPRESENTATIVE DAVIES:  "Well Mr. Chair, my question is                      
  contingent on what you decide to do, so I'll just wait."                     
  CHAIRMAN VEZEY:  "It would be my desire that we take action                  
  on this section.  I would prefer to see it go to the floor.                  
  I'd like to see the whole body address this issue.  I have                   
  no problem taking testimony.  Please continue."                              
  REPRESENTATIVE DAVIES:  "I guess that -- I'm -- having this                  
  section go to the floor and taking testimony are two                         
  different things because we can't take testimony on the                      
  floor so...."                                                                
  CHAIRMAN VEZEY:  "Take testimony at this meeting, yes."                      
  REPRESENTATIVE DAVIES:  "You mean right now or do you mean                   
  tomorrow or when do you mean?"                                               
  CHAIRMAN VEZEY:  "I'd like to continue this evening."                        
  REPRESENTATIVE DAVIES:  "Mr. Chair, do you think that we can                 
  get the departments here this evening?"                                      
  CHAIRMAN VEZEY:  "Do you think the administration could get                  
  the legislature here today?  All I'm saying is we were not                   
  consulted on the administration's schedule for the special                   
  session, so I'm not really concerned about their schedule.                   
  We'll get them here."                                                        
  REPRESENTATIVE DAVIES:  "Well, I guess -- I, you know -- if                  
  they're here and we can get the testimony, then I would be                   
  satisfied.  If, for some reason because of the hour, we                      
  can't get them here, then, you know, I really would like to                  
  have an opportunity to hear from them before we go to the                    
  floor with this (indiscernible)."                                            
  CHAIRMAN VEZEY:  "Representative Phillips."                                  
  Number 231                                                                   
  REPRESENTATIVE PHILLIPS:  "Mr. Chairman, another - another                   
  possibility, too, would be to have statements from the                       
  different agencies for -- when we bring it to the floor -                    
  CHAIRMAN VEZEY:  "Well, I would like to bring the proration                  
  issue forward to the body.  So why don't we take an at ease                  
  for fifteen minutes.  Come back at a quarter to five, I'm                    
  sorry quarter to six.  I'm sorry.  Representative Bettye                     
  REPRESENTATIVE B. DAVIS:  "Mr. Chairman, before you do that,                 
  would you like to know who would be interested in having                     
  them come.  Actually, I would like to put you in charge of                   
  getting those people, Representative Davis."                                 
  REPRESENTATIVE B. DAVIS:  "Oh, you would?  I was going to                    
  give you a list of....  You have the influence to get em                     
  here.  You said they would be here, so I will give you the                   
  CHAIRMAN VEZEY:  "I don't have your charming personality,                    
  Representative Davis.  Why don't we stand at ease until                      
  quarter to six and Representative Davis and Representative                   
  Ulmer, if you would help, we can find out when we can expect                 
  the administration folks to show up."                                        
  An at ease was taken.                                                        
  Number 255                                                                   
  CHAIRMAN VEZEY:  "Call the meeting back to order at 6:03                     
  p.m., May 14.  I have before me a proposed amendment                         
  proposed by the administration.  I will read it.  I think                    
  it's simple enough that if people like, we can copy it and                   
  have it distributed but -- there are four places in the bill                 
  where the $2 per barrel of plant liquids is discussed.  In                   
  each of those four places we would delete the words "for                     
  inflation in accordance with' and substitute the words `at                   
  one quarter of,' so that it would read `adjusted annually at                 
  one quarter of the Consumer Price Index.'  Is there any                      
  objection or is there any discussion?  First, is there any                   
  discussion on that proposed amendment?"                                      
  Number 273                                                                   
  COMMISSIONER REXWINKEL:  "Mr. Chairman, the reason for the                   
  one quarter is that, a substantial portion of the cost that                  
  the facilities represent (indiscernible) costs that are not                  
  subject to ongoing inflationary adjustments.  And the 25                     
  percent would be a recognition (indiscernible)."                             
  CHAIRMAN VEZEY:  "Representative Sanders."                                   
  REPRESENTATIVE SANDERS:  "Mr. Chair, have we adopted this                    
  CHAIRMAN VEZEY:  "Actually, that's a very good point.  We                    
  have not adopted this CS, so we can't amend it.  Could you                   
  make a motion to that effect for the State Affairs Committee                 
  Number 285                                                                   
  REPRESENTATIVE SANDERS:  "I certain would sir.  So moved."                   
  CHAIRMAN VEZEY:  "Would the committee aide call the roll."                   
  JOSEPH EASAW:  "Representative Al Vezey."                                    
  CHAIRMAN VEZEY:  "Yes."                                                      
  JOSEPH EASAW:  "Representative Harley Olberg."                               
  REPRESENTATIVE OLBERG:  "Yes."                                               
  JOSEPH EASAW:  "Representative Fran Ulmer."                                  
  REPRESENTATIVE ULMER:  "Yes."                                                
  JOSEPH EASAW:  "Representative Bettye Davis."                                
  REPRESENTATIVE B. DAVIS:  "Yes."                                             
  JOSEPH EASAW:  "Representative Gary Davis."                                  
  REPRESENTATIVE GARY DAVIS:  "Yes."                                           
  JOSEPH EASAW:  "Representative Jerry Sanders."                               
  REPRESENTATIVE SANDERS:  "Yes."                                              
  JOSEPH EASAW:  "And Representative Pete Kott."                               
  REPRESENTATIVE KOTT:  "Yes."                                                 
  CHAIRMAN VEZEY:  "So we have adopted `Version I' of House                    
  committee substitute for committee substitute for Senate                     
  Bill #377 (State Affairs).  And I will continue at the                       
  amendment that I just proposed to the body for discussion                    
  before we bring it to the State Affairs Committee for                        
  adoption.  Is there discussion?  Seeing none, is there                       
  objection from the members of the State Affairs Committee to                 
  the adoption of that amendment?  Seeing none, we will - will                 
  adjust the - we will make those amendments and prepare a new                 
  committee substitute."                                                       
  Number 298                                                                   
  MR. BOTELHO:  "Mr. Chairman, can I call to your attention                    
  again Section 10 that needs to include (indiscernible.)"                     
  Number 303                                                                   
  CHAIRMAN VEZEY:  "I will move that Section 10 be amended to                  
  read, `Section 4 and 6 of this Act is retroactive to January                 
  1, 1985.  Is there discussion?  Is there any objection from                  
  the members of the State Affairs Committee to - that                         
  amendment.  Seeing none, it is adopted.                                      
  "Further discussion on the oil and gas issues which would be                 
  everything except, I believe, virtually Section 7 of this                    
  committee substitute."                                                       
  REPRESENTATIVE NORDLUND:  "Mr. Chairman."                                    
  CHAIRMAN VEZEY:  "I'm sorry, Representative Nordlund."                       
  REPRESENTATIVE NORDLUND:  "(Indiscernible) we get the                        
  opinion or the position of both departments on the change                    
  going from the one to two."                                                  
  MR. BOTELHO:  "Mr. Chairman, to the extent that... and I                     
  believe that it has been confirmed by various members of the                 
  body commenting on the bill that there is a recognition.                     
  The department may put individual companies to                               
  (indiscernible) cost.  (Indiscernible) agreement with the                    
  language that this committee has put forth which is now                      
  included in (indiscernible) the latest amendment to the                      
  committee substitute."                                                       
  Number 323                                                                   
  COMMISSIONER REXWINKEL:  "Mr. Chairman, I would agree with                   
  CHAIRMAN VEZEY:  "Thank you, sir.  Further questions?  If                    
  there aren't any more questions or comments about the oil                    
  and gas issues, I don't see any reason why we can't move on                  
  and discuss proration pending the arrival of one of our                      
  witnesses.  I'm sorry, is there a comment there?"                            
  RAGA ELIM, Legislative Liaison, Office of the Governor:                      
  "I'll be speaking to that."                                                  
  CHAIRMAN VEZEY:  "Oh please, come forward and state your                     
  name for the record, if you would."                                          
  Number 329                                                                   
  MR. ELIM:  "Thank you, Mr. Chairman.  My name is Raga Elim,                  
  Legislative Liaison for the Governor.  I am available to                     
  speak to the issue of proration to the best of my ability.                   
  I'm familiar with it, we've had discussions within the                       
  administration over the last couple of days on this, so I                    
  feel adequate to speak to it at some level.  I apologize, I                  
  sought -- attempted to reach commissioners and some other                    
  folks a few minutes ago, but didn't have any luck."                          
  CHAIRMAN VEZEY:  "Would you care to comment on the section                   
  of the bill before us or do you just want to take                            
  MR. ELIM:  "Let me make some introductory remarks and then                   
  try to answer any questions."                                                
  CHAIRMAN VEZEY:  "Mr. Raga, I realize you probably were not                  
  planning on testifying.  Would you like some time to work on                 
  some remarks?"                                                               
  MR. ELIM:  "No, I'm comfortable with that."                                  
  CHAIRMAN VEZEY:  "Mr. Raga, wait a minute, I apologize."                     
  MR. ELIM:  "It's okay.  To begin with one of the first                       
  analysis was to identify what programs we thought would be                   
  affected by this proration language, and it was determined                   
  that the following would be covered:  Longevity bonus, aid                   
  to families with dependent children, adult public                            
  assistance, general relief program, day care assistance, and                 
  burial assistance.  I'll also speak to Medicaid and general                  
  relief medical, in terms of how those may be affected by                     
  this.  Beyond that, there are some formula programs which                    
  exist but are already covered by proration language, most                    
  notably the foundation formula for education.  In general                    
  terms, the feeling within the administration is that on the                  
  one hand, the effect of the proration would be to mitigate                   
  the situation of short funding of a program and having                       
  individuals cut off of some program for a specified period                   
  of time at the end of the fiscal year, absent adequate                       
  funding.  So by prorating downwards it sort of mitigates the                 
  effect to the individual over the course of the year.  On                    
  the other hand, it also, in some respects, shifts the burden                 
  from the legislature to the administration with respect to                   
  those programs and those served by it, and there is some                     
  concern about whether that is appropriate or perhaps fair,                   
  for lack of a better word.                                                   
  "Let me speak to some of the programs that may arguably be                   
  impacted by proration but in which arguments can be made                     
  that they would not be affected by it.  And I am also having                 
  two memos that were prepared by the Department of Health and                 
  Social Services reproduced right now that we'll provide to                   
  you.  But with respect to Medicaid and general relief                        
  medical, the feeling is that the proration language would                    
  not impact those programs because the statute already                        
  provides a list of services that are offered to the extent                   
  that there is adequate funding, and if there is not adequate                 
  funding, services are taken off the list to accommodate the                  
  actual level of funding.  So in some respects there is                       
  already a mechanism in place to deal with the funding - the                  
  different funding levels for Medicaid.  With respect to the                  
  facilities side of the Medicaid program, it is governed by                   
  federal law.  There is a per day rate that is subject to                     
  federal law that assures efficient operation of the                          
  facilities.  So again, the belief is that proration                          
  language, as provided in Senate Bill 377 would not affect                    
  that program as well.  One of the two memos that I am                        
  getting for you speaks to that part of the -- and provided                   
  by Kim Busch who is in charge of that program in HESS.                       
  "The other area within HESS is a little more problematic and                 
  it deals with public assistance, both adult public                           
  assistance and Families with Dependent Children Program.                     
  The belief is that this change would not affect those                        
  programs either, again, because of federal law.  However,                    
  part of the challenge may be the fact that there are federal                 
  floors that govern those programs.  So to the extent that we                 
  are providing money in excess of that federal floor, it                      
  could be argued that we could prorate downward to the                        
  federal floor.  However, the difficulty is that there is a                   
  variance among recipients of how much is being received.                     
  Allow me to use a hypothetical and then allow me to remind                   
  you that I'm speaking to the best of my knowledge, but, for                  
  example, if the floor was $1 and there were recipients                       
  receiving anywhere from $1.05 up to $2, if the proration                     
  were 10 cents, for instance, the person at $1.05 is only                     
  going to drop to $1 because that's the floor, whereas other                  
  who are at $1.10 or higher would lose 10 cents.  So then you                 
  run into some potentially equal protection problems.  So, as                 
  I thought through it, and perhaps the most you could do,                     
  would be the minimum -- the proration that of the minimum                    
  amount available.  So, if in that example, if it was short                   
  funded, the maximum extent to which we could lower payments                  
  would be the 5 cents.  I'm not -- I can't tell you that I've                 
  captured this entirely for you but we also have a memo that                  
  will speak to the public assistance point.  But, again, the                  
  position seems to be that given that federal law is                          
  applicable may not be impacted by this legislation.                          
  "Another point that emerged over the last couple of days is                  
  more of an administrative and implementation problem.  The                   
  way the statute is written, the administration needs to make                 
  an analysis of how much -- how many recipients there are,                    
  what the level of the payments should be and whether we have                 
  adequate funds and to the extent that we determine it would                  
  be short, we would prorate.  Situation could arise that at                   
  the end of the first six months, we find out that we                         
  actually have some money left over, argument -- a the                        
  feeling is that on the one hand you could merely roll that                   
  money forward and in your analysis for the next six month                    
  window, or the argument might be made that you need to                       
  actually refund or provide a bonus to the recipients from                    
  that first six months.  I suspect that we'd probably have to                 
  do the latter because it's not -- those who are receiving                    
  during the first six months wouldn't necessarily also be                     
  receiving in the next six months.  So, if our calculations                   
  were wrong at the outset and there was money left over that                  
  suggests that everyone during that six month period should                   
  have been receiving more, we probably need to provide a                      
  check to those folks.  Again, we're sort of work --                          
  wrestling through this.  I apologize that Shelby Stastny or                  
  some of the -- thank you -- some of the commissioners from                   
  the appropriate departments weren't reachable on this short                  
  of notice, but I hope I have answered the question to your                   
  satisfaction.  I'll be happy to answer any questions that                    
  you have.  These are the two memos that I referred to.  As I                 
  said one relates to public assistance and the other to                       
  medical assistance.  I'll distribute those."                                 
  CHAIRMAN VEZEY:  "Thank you, Mr. Elim."                                      
  REPRESENTATIVE B. DAVIS:  "Mr. Chairman."                                    
  CHAIRMAN VEZEY:  "Representative Davis, I'm sorry."                          
  Number 470                                                                   
  REPRESENTATIVE B. DAVIS:  "That was a concern that you did                   
  not address.  I know you talked about the foundation                         
  formula.  There was concern about transportation, pupil                      
  transportation, food, and some other areas that would be                     
  prorated and how it would be done.  There was some                           
  information to come to us pertaining to the regulations                      
  that's been used.  Do you have any information from DOE on                   
  how they handled that when there was a shortfall of money?"                  
  MR. ELIM:  "Mr. Chair, Representative Davis, I did reach                     
  Commissioner Covey moments ago and he had indicated that it                  
  was his understanding that their programs are already                        
  governed by proration language.  I know specifically there                   
  is a section AS 14.17.225 provides that for some of the                      
  programs administered by Department of Education.  The                       
  question that you have asked I'm not entirely certain of,                    
  because they run a number of different programs within the                   
  department, but the commissioner was of the mind that all                    
  their pro -- that they would not be affected by this                         
  provision.  He was going to be checking with Duane Guiley                    
  who would be more intimately familiar with it and try to get                 
  back to me and I will share that with you as soon as I know                  
  the answer."                                                                 
  REPRESENTATIVE B. DAVIS:  "Alright, thank you."                              
  CHAIRMAN VEZEY:  "Thank you, Mr. Elim.  I would comment that                 
  this meeting has been noticed for more than forty-eight                      
  hours and the fact that the agency people haven't chosen to                  
  be here is their own choice.  Are there questions of Mr.                     
  Elim?  Representative Ulmer."                                                
  Number 494                                                                   
  REPRESENTATIVE ULMER:  "Mr. Chairman, the memo that we just                  
  received dated May 5, 1994, from (indiscernible) complicated                 
  questions which we cannot answer today regarding how this                    
  would actually work, but the very bottom of the first page,                  
  Mr. Chairman, talks about -- let's see the last sentence `in                 
  no case could reductions be imposed in the July 1st                          
  effective date of the bill.'  As I read the version of the                   
  bill that we have in front of us, it has an immediate                        
  effective date which makes the situation actually even worse                 
  for the questions that need to be answered.  So what's                       
  coming to my mind, I guess what I'm thinking about is a                      
  delayed effective date for Section 7 that would give the                     
  agencies time to not only figure out the federal                             
  implications, but also give them time to implement                           
  regulations -- to adopt the regulations which will govern                    
  how they're going to do this.  So what I'm thinking about is                 
  another effective date section that we would add to our CS                   
  that would give an effective date to Section 7 to say, I                     
  don't know, like September 1, 1994, instead of immediate                     
  like the rest of the bill.  I would ask Raga to comment on                   
  that, if he cares to."                                                       
  MR. ELIM:  "Thank you, Mr. Chairman, Representative Ulmer.                   
  In our discussions, the issue which you've highlighted has                   
  emerged as a source of genuine concern by the department                     
  about their ability to implement this in such short notice.                  
  So the administration would welcome such a change."                          
  Number 521                                                                   
  REPRESENTATIVE ULMER:  "Mr. Chairman, I'll move that we add                  
  a specific effective date for this section.  So we'd add a                   
  new Section 12 on page 8, and it would be `Section 7 takes                   
  effect September 1, 1994."                                                   
  CHAIRMAN VEZEY:  "Couldn't hear the date."                                   
  REPRESENTATIVE ULMER:  "September 1, 1994, or I guess                        
  October 1 is the date that Curtis Lomas memo references                      
  so...  My motion is, add a new Section 12 on page 8 on line                  
  10 that would say, `Section 7 takes effect October 1,                        
  CHAIRMAN VEZEY:  "Does everybody understand the proposed                     
  amendment?  I would read it back as saying, `Section 7 of                    
  this Act takes effect October 1, 1994.'  That'll necessitate                 
  modifying Section 11.  Representative Phillips."                             
  Number 533                                                                   
  REPRESENTATIVE PHILLIPS:  "Mr. Chairman probably that should                 
  be Section 11 and Section 12 should be the last..."                          
  CHAIRMAN VEZEY:  "I think we can let Leg Legal take care of                  
  that.  Are there any questions about the amendment?  Any                     
  discussion?  Is there any opposition to the amendment from                   
  the State Affairs Committee?  Hearing no opposition, it's                    
  adopted.  Two amendments now I've got to incorporate.                        
  Further discussion?  Do you have additional comments?"                       
  MR. ELIM:  "No thank you, Mr. Chairman."                                     
  CHAIRMAN VEZEY:  "Questions of Mr. Elim.  Thank you very                     
  much for your time."                                                         
  REPRESENTATIVE DAVIDSON:  "Mr. Chairman."                                    
  CHAIRMAN VEZEY:  "Representative Davidson."                                  
  REPRESENTATIVE DAVIDSON:  "Thank you, Mr. Chairman.  I just                  
  would raise the issue of the legislature giving any --                       
  giving up any power of appropriation by this inclusion in                    
  the bill.  I don't know who I would ask in that regard, but                  
  I think it was a question that the legislature should, in                    
  fact, examine.  But I don't know who you have that could                     
  answer that kind of question."                                               
  CHAIRMAN VEZEY:  "Okay.  Additional questions?                               
  Representative Bettye Davis."                                                
  Number 549                                                                   
  REPRESENTATIVE B. DAVIS:  "I don't have a question but since                 
  you've taken amendments, I am interested in another                          
  amendment to add a new subsection in this bill to say that                   
  this proration would not pertain to the longevity bonus."                    
  CHAIRMAN VEZEY:  "You have suggested wording for that?"                      
  REPRESENTATIVE B. DAVIS:  "Actually, that's what it would                    
  say and I don't have it written down, but it's very simple.                  
  It would just be a subsection F if you wanted to put it                      
  under (indiscernible) then it would not apply.  I would let                  
  legal come up with the wording."                                             
  CHAIRMAN VEZEY:  "(Indiscernible) any objection?  This                       
  section does not apply to the Longevity Bonus Program and                    
  they'll have a statute quote.  Discussion?  Seeing none                      
  would the -- is there more discussion here?  Representative                  
  Number 564                                                                   
  REPRESENTATIVE DAVIES:  "Just a comment that - that, you                     
  know, we have, last year put into effect a sequence of steps                 
  that will lead to the phasing out of the longevity bonus.                    
  And it seems to me that that already looks to eliminating                    
  that program.  So I suggest that maybe that this would be                    
  sort of double jeopardy if it were -- is it were on that                     
  program, so maybe it makes sense to eliminate the proration                  
  effect on the Longevity Bonus Program."                                      
  REPRESENTATIVE KOTT:  "Mr. Chairman."                                        
  CHAIRMAN VEZEY:  "Representative Kott."                                      
  REPRESENTATIVE KOTT:  "Mr. Chairman, I might just add that                   
  we're not really reducing -- we didn't reduce anybody's                      
  longevity bonus checks last year, phase in or phase out                      
  depending on how you look at it.  This would be, in essence,                 
  reducing individual checks which would be a first.                           
  (Indiscernible) continued, who got their $250 last year                      
  would fall under the category there as well anybody that                     
  were new entering into the program.  So last year's phasing                  
  out of the program was really not a reduction.  Those who                    
  currently got $250 still got $250 under the reduced phasing                  
  out of the program, whereby this is a little bit different                   
  (indiscernible) proposed the amendment.  I don't feel that                   
  we can single out one of those programs and place it on a                    
  higher priority than any of the others that are listed here                  
  that could be possibly affected and will be."                                
  CHAIRMAN VEZEY:  "Thank you.  Further discussion?  Seeing                    
  none, would the committee secretary call the roll?"                          
  JOSEPH EASAW:  "Representative Fran Ulmer."                                  
  REPRESENTATIVE ULMER:  "Yes."                                                
  JOSEPH EASAW:  "Representative Bettye Davis."                                
  REPRESENTATIVE B. DAVIS:  "Yes."                                             
  JOSEPH EASAW:  "Representative Harley Olberg."                               
  REPRESENTATIVE OLBERG:  "No."                                                
  JOSEPH EASAW:  "Representative Pete Kott."                                   
  REPRESENTATIVE KOTT:  "No."                                                  
  JOSEPH EASAW:  "Representative Jerry Sanders."                               
  REPRESENTATIVE SANDERS:  "No."                                               
  JOSEPH EASAW:  "Representative Gary Davis."                                  
  REPRESENTATIVE G. DAVIS:  "No."                                              
  JOSEPH EASAW:  "Representative Al Vezey."                                    
  CHAIRMAN VEZEY:  "No, and the amendment fails.  Further                      
  discussion on the pro rata?  Representative John Davies."                    
  REPRESENTATIVE DAVIES:  "Do we know -- we had some - a                       
  little bit of testimony with respect to AFDC and APA being                   
  federal programs.  Could we get some testimony -- is there                   
  anybody in the room that can tell us at what point or how                    
  much the proration would have to reduce those programs                       
  before the, some kind of a federal floor would kick in?"                     
  CHAIRMAN VEZEY:  "I certainly can't answer.  It has been my                  
  experience with the health and social services folks that                    
  they could not answer that without considerable research.                    
  (Indiscernible) discussion?  What is the pleasure of the                     
  committee?  Would we like to stand at ease while we wait on                  
  some administration personnel to arrive?  I'm sorry, Mr.                     
  MR. ELIM:  "I don't believe is going to be any                               
  UNIDENTIFIED SPEAKER:  "Could we perhaps have a motion and                   
  then we could all go beat up on Raga or something."                          
  CHAIRMAN VEZEY:  "Yes, we most certainly could."                             
  Number 607                                                                   
  REPRESENTATIVE G. DAVIS:  "Mr. Chairman."                                    
  CHAIRMAN VEZEY:  "Representative Gary Davis."                                
  REPRESENTATIVE G. DAVIS:  "If we might, I might -- I noticed                 
  on some of this, I think from the note of some Department of                 
  Health and Social Services, or maybe it's not, anyway in one                 
  of these it seems that I read that the attorney general had                  
  an opinion on this section, if we might get a comment from                   
  CHAIRMAN VEZEY:  "He can't stay out of the seat can he.                      
  Attorney General Botelho do you care to comment."                            
  Number 612                                                                   
  MR. BOTELHO:  "I'll probably have opinions on a lot of                       
  things.  (Indiscernible) board (indiscernible) drafted one,                  
  I've not had a chance to review it and so..."                                
  CHAIRMAN VEZEY:  "Representative Ulmer."                                     
  REPRESENTATIVE ULMER:  "Well, Mr. Chairman, I don't want to                  
  delay the committee anymore.  I think we've all spent as                     
  much time in this room as we probably can.  Between now and                  
  when this bill may be debated on the floor I will try to get                 
  some additional answers.  I am concerned about everything                    
  from pupil trans and school debt to a variety of other                       
  things and I don't think we quite have the answer to and, I                  
  guess, it's all of those questions that lead me to feel                      
  pretty strongly that this bill should not contain this                       
  section because of...  However, this section should stand on                 
  its own as a separate piece of legislation.  I think it's                    
  very confusing to people to have it be part of the oil and                   
  gas bill.  I understand that at this point you were a --                     
  feel as though it needs to stay in the committee substitute.                 
  I'm sure there will be a motion to take it off on the floor                  
  and, as I said, I will try to get some additional answers                    
  between now and then."                                                       
  CHAIRMAN VEZEY:  "We'd appreciate that.  Is there a motion                   
  from the State Affairs Committee?  Representative Olberg."                   
  REPRESENTATIVE OLBERG:  "Mr. Chairman, I'd move that we move                 
  Senate Bill 377, House Committee Substitute, Version I, as                   
  amended with individual recommendations."                                    
  CHAIRMAN VEZEY:  "And could we add the caveat with the                       
  attached zero fiscal note."                                                  
  REPRESENTATIVE OLBERG:  "Yes, certainly."                                    
  CHAIRMAN VEZEY:  "Discussion?  Would the committee secretary                 
  please call the roll?"                                                       
  JOSEPH EASAW:  "Representative Al Vezey."                                    
  CHAIRMAN VEZEY:  "Yes."                                                      
  JOSEPH EASAW:  "Representative Gary Davis."                                  
  REPRESENTATIVE G. DAVIS:  "Yes."                                             
  JOSEPH EASAW:  "Representative Jerry Sanders."                               
  REPRESENTATIVE SANDERS:  "Yes."                                              
  JOSEPH EASAW:  "Representative Fran Ulmer."                                  
  REPRESENTATIVE ULMER:  "Yes."                                                
  JOSEPH EASAW:  "Representative Bettye Davis."                                
  REPRESENTATIVE B. DAVIS:  "Yes."                                             
  JOSEPH EASAW:  "Representative Harley Olberg."                               
  REPRESENTATIVE OLBERG:  "Yes."                                               
  JOSEPH EASAW:  "And Representative Pete Kott."                               
  REPRESENTATIVE KOTT:  "I've always wanted to be a `no' by                    
  myself.  No."                                                                
  Number 637                                                                   
  CHAIRMAN VEZEY:  "And House Committee Substitute for                         
  Committee Substitute for Senate Bill #377 (State Affairs) as                 
  amended has passed out of the House State Affairs Committee.                 
  Is there further business to come before this committee this                 
  evening?  Representative Davidson."                                          
  REPRESENTATIVE DAVIDSON:  "Thank you.  I understood you to                   
  say there was a zero fiscal note attached to this.  Is that                  
  CHAIRMAN VEZEY:  "Yes."                                                      
  REPRESENTATIVE DAVIDSON:  "After having the discussion of                    
  giving up perhaps tens of millions of state revenue, how                     
  could we have a zero fiscal note?"                                           
  Number 644                                                                   
  CHAIRMAN VEZEY:  "I can't answer that.  That's what came                     
  over with it.  If there is no further business to come                       
  before the House State Affairs Committee, we'll stand                        

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